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Operator: Good morning, and welcome to Franco-Nevada Corporation's Third Quarter 2025 Results Conference Call. This call is being recorded on November 4, 2025. [Operator Instructions] I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Thank you. Please go ahead. Candida Hayden: Thank you, Ina. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Third Quarter 2025 Results. Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our full executive team is available to answer any questions. We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on Slide 2 of this presentation. I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada. Paul Brink: Thank you, Candida, and good day to all. For the third time this year, we're announcing record quarterly results. The new benchmark set this quarter were driven by high gold prices, strong operations, new acquisitions and the sale of Cobre Panama stockpiles. Over the last 18 months, we've made 6 acquisitions of meaningful new gold interests. Yanacocha, Cascabel, Sibanye's Western Limb, Porcupine, Côté and Arthur, all large ore bodies that will contribute to our growth for many decades. Of the 6 Porcupine, Yanacocha and Western Limb are also producing. That will impact our 5-year growth and have boosted our gold price exposure. 85% of our revenue was from precious metals in the quarter. The last of the acquisitions in July this year was a royalty on the Arthur Gold project in Nevada, operated by AngloGold. We did draw on our corporate revolver to fund the acquisition with our strong cash flow generation and the proceeds from equity sales, the company was once again debt-free by quarter end. During the quarter, we saw progress on the ground at Cobre Panama, completion of the concentrate shipments, pre-commissioning of the power plant for restart with the aim to provide power to the Panamanian grid, and formal notice to SGS to commence the environmental audit work. Perhaps just as important, we're encouraged by the recent constructive comments by the President of Panama towards resolution of the Cobre mine closure. If Cobre does come back online and with the contributions from our recent acquisitions, we're positioned for roughly 50% growth in GEOs over 5 years compared to last year. For the long-term assets we've added, we can then maintain that level of production for many years thereafter. Our deal pipeline remains very active. Although with this run-up in gold prices, we're also expecting good organic growth. With roughly half our revenue coming from principal gold assets, we expect this to be a powerful driver. Operators have strong cash flow for mine expansions, some ongoing by Detour and others now planned at Côté, Magino and Valentine. Developers have been able to raise capital for new builds, in particular, Skeena and Perpetua were both successful tapping the equity markets to ensure that they can advance Eskay Creek and Stibnite Gold. And the drills are turning on our large portfolio of exploration stage royalties. Recognition of the importance of critical minerals has also unlocked a number of permitting processes, giving the green light to construction to Copper World and Stibnite Gold. Castle Mountain is also now included in the U.S. FAST-41 permitting process. On that same note, I've been impressed to see the profile that the Ring of Fire is getting in the Ontario government's Critical Mineral Strategy. In the last few years, we've added new avenue to grow our company. That is finding good teams and good projects and not just providing royalty or stream financing, but being their financial banker. The first was G Mining Ventures with Tocantinzinho and the second, the discovery team with Porcupine. Both are best-in-class and are proving to be highly successful. We are delighted to have played a role in their success. We're looking forward to supporting them going forward and to find other strong teams to bank. With that, I'll hand the call over to Sandip to discuss the quarter. Sandip Rana: Thanks, Paul. Good day, everyone. As Paul mentioned, Franco-Nevada reported record financial results for the third quarter ended September 30, 2025. Our diverse portfolio of royalty and stream assets performed ahead of recent expectations, and we continue to benefit from higher precious metal prices. Precious metal prices with gold in particular, continue to be strong. On Slide 4, you will see the comparison of commodity prices for Q3 2025 and Q3 2024. Gold and silver prices increased significantly year-over-year with the average gold price higher by 40% in the quarter and average silver price higher by 34%. We also saw a rebound in prices for platinum and palladium, while prices for iron ore remained flat year-over-year, lower for oil, but we saw a significant increase in natural gas prices year-over-year. On Slide 5, we highlight some of the key financial metrics used to measure performance, total GEOs sold, net GEOs sold, revenue and adjusted EBITDA. Total GEOs sold increased 26% to 138,772 in the quarter compared to 110,110 in third quarter 2024. Precious metal GEOs sold in the quarter were 119,109, higher by 41% compared to prior year. Also, just under 50% of total GEOs sold were sourced directly from mines where precious metals are the primary commodity. For the quarter, we received strong contributions from a number of our key assets, Cobre Panama, Guadalupe and Candelaria, and we also benefited from our recent acquisitions, Western Limb, Yanacocha, Porcupine and Côté. This quarter, we recorded our first full quarter of revenue for both Porcupine and Côté. Approximately 11,000 GEOs were delivered and sold from Cobre Panama as we received GEOs related to the concentrate that had been stored on site since November 2023. In addition to better performance from Guadalupe and Candelaria and receiving GEOs from recent acquisitions, we also benefited from the continued ramp-up of operations at new mines, Tocantinzinho, Greenstone and Salares Norte. With respect to the Hemlo NPI, the NPI was not as strong this quarter compared to earlier quarters this year due to lower production on Franco's Interlake claims on the property. Barrick is in the process of selling Hemlo, and we look forward to seeing what improvements the new team has planned for the mine. Diversified GEOs sold were 19,663 for the quarter compared to 25,733 for prior year despite diversified revenue being higher year-over-year, $67.1 million versus $61.2 million. The GEO sold reduction is due to the impact of higher gold prices when converting revenue to GEOs. For Q3 2025, net GEOs were 125,115 for Franco compared to 97,232 in Q3 2024. Net GEOs removes the cost of sales component for all GEOs so that GEOs sold are represented after cost. As you know, royalty GEOs are higher margin than stream GEOs. As you can see from the chart, total revenue increased by 77% for the quarter to $487.7 million, which is a record for Franco-Nevada. Precious metals accounted for 85% of revenue. Adjusted EBITDA, also a record, was 81% higher for the quarter at $427.3 million compared to $236.2 million in third quarter of 2024. Slide 6 details the key financial metrics reported by the company. As mentioned, total GEOs sold were 138,772, generating $487.7 million in revenue in the third quarter. With respect to costs, we did have an increase in cost of sales compared to prior year due to higher stream ounces sold, particularly Cobre Panama. Cost of sales was $47.2 million versus $31.9 million last year. Depletion increased to $87 million versus $54.2 million as we received more GEOs from Candelaria, Cobre Panama and began depleting our recent transactions. This impacted depletion as those assets are currently higher per ounce depletion assets. Adjusted net income was $275 million or $1.43 per share for the quarter, both up 79% versus prior year. One other transaction that did occur during the quarter was the sale of some equity investments. We sold a portion of our equity investment in Discovery Silver and received total proceeds of $84.4 million with a gain of $67.4 million recorded on the sale. Under our accounting policies, these gains are reported in other comprehensive income and not reflected in our earnings per share. However, the gain would have generated an additional earnings per share of $0.30. Slide 7 highlights the continued diversification of the portfolio. As mentioned, 85% of our revenue was generated by precious metals, with revenue being sourced 88% from the Americas. No asset contributed more than 10% of our revenue. Slide 8 illustrates the strength of our business model to continue to generate high margins. For third quarter 2025, the cash cost per GEO is $340 per GEO. This compares to $290 per GEO last year. As the gold price has risen, Franco has seen a significant increase in our margin per GEO. Margin was $3,116 per GEO in the quarter, an increase of 42% year-over-year. Slide 9 summarizes our updated guidance. We have benefited from an increase in GEOs from Cobre Panama and Côté during the first 9 months of 2025. That along with record gold prices has resulted in record financial results for the first 9 months. Based on GEOs sold to date and what our expectations are for Q4 2025, we expect to be at the higher end of our initial guidance range, which was 465,000 to 525,000. We've narrowed this range to the higher end and now expect total GEOs sold to be between 495,000 to 525,000. With respect to precious metals GEO sold guidance, our original guidance range was 385,000 to 425,000. With asset performance to date and precious metal GEOs received from Cobre Panama and Côté, we now expect to exceed the top end of the original guidance range. As a result, our updated guidance range for precious metal GEOs is 420,000 to 440,000. Slide 10 summarizes the financial resources available to the company. The company had $236.7 million in cash and cash equivalents on hand at the end of the quarter. When including our credit facility of approximately $1 billion and our equity investments, total available capital at September 30, 2025, is in excess of $1.8 billion. As well, we continue to be debt free. And before I turn it over to the operator, I would just like to summarize the recent CRA Settlement that we achieved. On September 11, 2025, we reached a settlement with the Canada Revenue Agency, which provided for a final resolution of Franco-Nevada's tax dispute in connection with the reassessments under transfer pricing rules for the years 2013 to 2019 for our Mexican and Barbadian subsidiaries. Under the terms of the settlement, no payment of any tax in Canada is required on these foreign earnings for the subsidiaries for this period. We're glad to have this matter behind us and are very pleased with the settlement reached. And with that, I will pass it over to the operator, and we're happy to answer any questions. Operator: [Operator Instructions] And your first question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: On the deal pipeline, can you talk a little bit more about the commodity focus? There were some articles recently talking about maybe expanding the gold business in Australia specifically. But at the same time, I know historically, Franco's strategy has been to try to be as countercyclical as possible. So just curious what the commodity focus is given where gold prices are today? Paul Brink: Fahad, it's Paul. Thanks for the question. It's a good one. As usual, our #1 commodity focus is on precious metals here. The pipeline is good. So I think there's some good prospects of adding more gold deals. That said, gold prices are high. I think we are better positioned than most, 2 reasons. The one that I spoke a bit about in my comments there is in this environment, we expect strong organic growth. The second is we always have a bit of our business open to diversify it. And so we always have the discipline in this environment, if there are better deals to do on the diversified side, we've got some room to do that. But as I say, most of the pipeline is currently gold. On Australia, I was down there visiting recently. We and speaking to the number of Australian investors and the press about our plans there, we have added a new person to our team in Australia, Matt Selby out of Perth, who's driving our business development there. We would like to grow our business in Australia. As you know, we have a ton of royalties that cover a huge amount of land in Australia, but it's not yet a big part of our revenue. I think they are particularly good prospects and very keen to find good teams in Australia that we can back and potentially do something similar to what we've done with G Mining or Discovery in the country. Fahad Tariq: Okay. Great. And maybe just as a follow-up, there were some comments probably now 2 months ago about looking at natural gas, given where natural gas prices were, maybe lithium brine transactions, given where lithium prices are and maybe oil, although the last time, I think Franco-Nevada did the oil royalty was when oil was below $50 a barrel, so we're not quite there yet. Just maybe comments on those 3 commodities specifically. Paul Brink: We're open to all 3. The -- as I said, right now, as we look at what is ahead of us in the pipeline, the most actionable is on the gold side. But we're -- on the other commodities, it's less driven by the commodities. It's more driven by asset quality and being able to get good value. So if there is good value in either of those areas, we'd be open to it. Operator: And your next question comes from the line of Sathish Kasinathan from Bank of America. Sathish Kasinathan: This is Sathish on Lawson Winder's team. Just a follow-up on the pipeline. So you highlighted that you have a strong growth potential on the organic side with all the projects that you have under your portfolio. Does that mean that going forward, the focus is going to be more on the organic side instead of deals? Or how should we look at it? Paul Brink: No. As I just said on my last comment, there's a good pipeline. We're always focused on getting new deals done. I make the comment on organic growth really just in respect of discipline. You don't -- the market is bullish. We don't need to overpay for assets in this environment because we know that we're going to have good organic growth. So we know we've got a baseline there. The acquisitions on top of that are incremental. But the confidence that we'll have good organic growth allows us to keep our discipline. Sathish Kasinathan: Okay. That is clear. Just one follow-up on Palmarejo. So it had a huge quarter this quarter. It seems it is driven by a higher proportion of ore from the region that is covered by the stream. How should we look at Q4? Sandip Rana: It's Sandip here. Yes, I would expect similar levels to what we've averaged for the first 9 months of the year. Our projection for the year is anywhere between 40,000 to 50,000 GEOs from Palmarejo. So that's the guidance at this stage. Operator: And your next question comes from the line of Heiko Ihle from H.C. Wainwright. Case Bongirne: This is Case calling in for Heiko as he's on another call. Just on our end, we're thinking out loud here, 3 months ago, gold was just below $3,400. Today, we're just below $4,000. Obviously, a pretty huge change in price, not really expected by most. You guys have been a huge benefactor of this, probably have more cash flows now than you budgeted for in recent past. So the question is, has the recent gold price environment maybe changed your mind a bit in regard to shareholder returns as it relates to the higher dividend, potential share buyback or continued M&A given the pricing environment? Sandip Rana: Sure. Really, no, it's business as usual. As Paul highlighted, our priority is to continue to add good quality assets to the portfolio, focus on precious metals and then adding diversified if there's very good opportunities available to us. So that is the #1 priority for capital deployment. With respect to the dividend, it's a decision we sit down with our Board at the beginning of every year and go through what's in the pipeline, what our cash flow projections are and make a recommendation on how much we should increase that dividend. Our philosophy on the dividend is sustainable and progressive, raise it every year, never be in a position where you cut it regardless of what's happening with commodity prices. So we will be increasing it next year. The quantum is still yet to be determined, but there will definitely be an increase. As for buybacks, that it comes down to what's the best use of a dollar. And for us, we think the best use of a dollar is still adding good quality assets to the portfolio. So share buybacks is not something that we're considering at this time. Operator: [Operator Instructions] And your next question comes from the line of Cosmos Chiu from CIBC. Cosmos Chiu: This is Cosmos from Cosmos' team at CIBC. Maybe my first question is on the NPIs. Paul and Sandip, as you know, I'd like to ask about these NPIs during periods of more robust precious metal prices. But as you mentioned, Hemlo did not have the best quarter in Q3, in part due to less ore being mined at Interlake. I guess my question is, I'm just wondering how much visibility do you have in terms of what's being mined from the different areas into Q4 and potentially into 2026 as well? And how is the potential change in ownership going to potentially change that thinking? Sandip Rana: Cosmos, so in terms of visibility, it's limited. Obviously, there's a mine plan put in place at the beginning of each year and a budget that the operator does. So in this case, Barrick you can move away from that and sometimes based on timing, and that was what's happened in Q3. In this environment at these gold prices, we do expect the NPI to do quite well, and it did in the first part of this year. I think part of the impact of Q3 was also with the sale going through and just probably some impact to efficiency with the mining on site. With respect to the new ownership group and that transaction has not closed yet, obviously, they're seeing something there to be spending over $1 billion to acquire that asset. So that is encouraging. We -- it's a wait-and-see approach at this time as to what changes or improvements they will make. But we're excited to see what their plan is and what they envision, and I think we'll have more information over the next few months. Cosmos Chiu: And how about the Musselwhite 5% NPI. Again, I'm seeing Q3, it didn't really increase that much from previous quarters in 2025. Like when does that one kick in? How should we look at that one at Musselwhite? Sandip Rana: Yes. So Musselwhite is a -- again, it's a profit calculation. We have limited visibility at this time. We get paid once a year, which is after year-end. So right now, what you're seeing from our numbers is just an estimate. We haven't seen what capital is being spent. We'll get the calculation, as I said, post year-end, and there'll be a true-up there. We're a conservative group. So our numbers are conservative. So I'm hopeful that the actual number that comes out at the end of the year is much higher. But at this stage, it's our best estimate. Paul Brink: It's early days on both of those assets, Cosmos. But I got to say, delighted with the change in ownership in both. Bob Quartermain and their team. Bob, as you probably know, started his career at Hemlo, drilled some of the original discovery holes there. So having that team in place led by Bob, there's no doubt in my mind that they are going to drill and expand that ore body, which I think is going to do terrifically well for us over time. Similarly, on Musselwhite, delighted that it's the older team led by Jason Simpson, very capable group, also very aggressive, having great success in drilling out the strike extension of that deposit. So all these things take a little bit of time before it starts showing up as cash flow. But I think very positive that you've got both those teams focused on expanding those assets. Cosmos Chiu: Great. I do agree as well. Maybe switching gears a little bit. I noticed that and as Sandip you mentioned, you sold some -- or the company sold some Discovery shares in the quarter. How much of that was kind of related to your desire to be debt-free by the end of the quarter, especially since you had drawn $175 million on your credit facilities to pay for the Expanded Silicon acquisition. So how much of that was due to you wanting to be debt-free and number one? And number two, what's kind of like the plan now for the remaining Discovery shares or for that matter, your G Mining shares? Paul Brink: Cosmos, it's Paul. The -- so first of all, with G Mining and Discovery, the -- our plan is to be their financial bankers, not just with stream and royalties, but also to be in the equity. So we will be long-term holders. That said, the equity side of our business, as we all know, it's not the core side. So we do plan to take profits over time. With Discovery, there were a couple of things there. The one is we had very good share price performance. And you're absolutely right. The other part of it was we had some debt outstanding. And so those 2 things together, we sold a small part of our position. We're able to realize a good gain and repay the debt. But we -- but longer term, we will continue to be holders of their stock and supporters of the company. Cosmos Chiu: And then one last question, Western Limb, I saw that it had good results in Q3. And you had mentioned that platinum prices -- PGM prices -- sorry, PGM prices have actually outperformed gold since the acquisition, which is good. But I just want to understand because I know this is a bit of a complicated transaction. And so I know that gold is actually based on PGM production. The delivery is actually pegged to the 4E PGM production. So -- and then you also mentioned in the MD&A that right now, it's 82% and 18% gold versus PGM. And I think the press release that came out earlier this year during the acquisition was 70 and 30. That was a split. So I guess I'm trying to confirm PGM prices have outperformed gold. Does that benefit your stream? And if so, how does it benefit? Eaun Gray: Cosmos, it's Eaun speaking. Thank you for the question. I think it's a very good question. I would say, first of all, delighted with the performance of platinum. It has outpaced gold to a certain degree. And we do benefit from that both directly and indirectly. So you'll note that there is a portion of the stream that is platinum. So we do enjoy the appreciation in those platinum revenues immediately. And then secondarily, you're quite right that what we've done is we've linked the gold deliveries to the 4E PGM production. So as the basket improves, as Sibanye looks at options for the assets, we would benefit indirectly from that as well. And -- as you'll probably know, there are 2 distinct ore bodies in these deposits, the UG2 and the Merensky. And this structure mitigates any risk of volatility for mining from one versus the other for us and provides a more stable stream of gold revenues to Franco. So that's why that was done. Cosmos Chiu: Congrats on a very strong Q3. Operator: And your next question comes from the line of Tanya Jakusconek from Scotia Bank. Tanya Jakusconek: I just wanted to come back to the transaction environment in a little more detail. I guess it's divided into 3 sections. I'm going to start on the precious metals opportunities that you're seeing out there. When we last spoke because lots of things have happened with this rapid rise in the gold price, the opportunities were in the $100 million to $500 million range. I'm trying to understand if that's still what you're seeing out there. And is it still for funding of asset sales or still funding for asset builds? I'm just wondering if that has changed at all? And are you seeing more competition now in the market with Zijin coming in and other players? And are you finding it's taking longer to get deals done? That's my first question on the precious metals. Eaun Gray: Okay. Thank you, Tanya. It's Eaun speaking again. It's a very good question. When we last spoke, I indicated a similar environment to what we had seen in prior quarters. And I would reiterate that, that continues to be the case. In terms of deal size, certainly, and also in terms of the type of transaction. So we do see good opportunities in asset sales as likely over the coming quarters. Likewise, good potential project financings as well. And I think those are 2 kind of legs of the stool, and we look to back teams in both of those types of financings, utilizing similar structures to what we would have done with Discovery or G Mining. So we're quite optimistic about more of those transactions as we move forward. There are also some high-quality third-party royalties that are out there, and we continue to look at those and selectively execute on transactions like that when they come available. Hopefully, that's helpful. Tanya Jakusconek: And are you finding that there is more competition and taking longer to complete deals with this higher gold price? I'm just trying to understand on how tight that market is? Eaun Gray: Sure. I would say not a noticeable change in the competitive landscape really from my perspective. What has defined recent period is volatility, volatility in prices and volatility in terms of a number of other factors at play in the market. And as things kind of settle down and find more of a base, I think we'll see more transactions happen. And when you have significant moves in metal prices, of course, for any type of transaction on the short term, it makes it a bit more difficult to execute. But I think we'll see hopefully some more stability as we move forward. Tanya Jakusconek: Okay. Thank you Eaun for that on the precious metal side. On the nonprecious metal side, I know we talked about lithium and natural gas and oil. So I wanted to ask whether that extends to also iron ore, if that's still something you're looking at? And also what's the size in a nonprecious metals deal are you seeing transactions similarly in that $100 million to $500 million range? And does iron ore or maybe potash also fit within that at this point? Paul Brink: So Tanya, Paul, the -- as my comments were earlier on, what we're looking at that's immediately actionable in the pipeline is precious metal focused. We -- but all those commodities that you mentioned there lithium, oil and gas, iron ore, we're open to those if there are transactions with good value. On the potash side, you do know we did it. We were able to acquire an option on the Autazes potash project down in Brazil. So that is -- if and when that project reaches a project financing, we've got the option to buy a royalty on that one. So all of those are our future prospects. Tanya Jakusconek: And size-wise, Paul, what are we looking at in those types of transactions? Paul Brink: As I say, they were open in concept to transactions. The -- nothing that I can say is immediate in the pipeline. And -- but you know what our guidance is on diversified. It's a limited part of our portfolio. So I don't expect anything large. Tanya Jakusconek: Okay. So under $500 million. Okay. And then maybe just on my third portion of this is, are you -- as you look at the landscape out there, how do you assess corporate transaction vis-a-vis some of these other opportunities? Paul Brink: We always run our pencil over the other companies, Tanya, to see if there is good value. And the -- nothing has changed from what we've said in the past. It comes down to you've got $1 to spend and where are you going to get the best return for your dollar. We typically find that, that is in doing private deals. And I'd say that's where we currently are again. Tanya Jakusconek: Okay. And then just maybe if I could ask on the equity interest, I think $625 million of equity investments. Just with the sale of the Discovery Silver, and I don't know what else may have been sold. Can you just kind of remind me, Sandip, what are the biggest portion of that $625 million, Discovery Silver, G Mining, is there anything else that's public? Sandip Rana: Sorry, Tanya, Labrador Iron Ore Royalty, LIF. Those are the 3 largest positions. Tanya Jakusconek: Okay. So the Labrador is in there as well. Okay. No, that's very good. And congrats on a good quarter. Operator: And your next question comes from the line of John Tumazos from John Tumazos Independent Research. John Tumazos: Could you elaborate on the extra royalty on Gold Quarry buy-in? It's famously discovered over 40 years ago. Is the coverage the underground mining from the feeder zone with the open pit oxide all used up? Or are there more oxides that are economic because gold is $4,000. I'm wondering what the sizzle is there. Eaun Gray: John, it's Eaun speaking. Thanks for the question. I'd say, first of all, we're very happy to add to our position on Gold Quarry. This is incremental to what we already have there. And so in reality, this royalty is structured with a minimum, which is based on a number of factors, one of which is the amount of reserves. So as those change based on a number of assumptions, one of which often would, of course, be gold price, that can trigger a change in the minimums. So in terms of what makes it attractive to us, there's that potential for sure. And I think as well, based on the current level of payments, it provides a very healthy rate of return. So very pleased to add that and the coverage is the same as set out for the existing royalty in the asset handbook, which I would have you referred to. Paul Brink: And John, there's a pushback of the pit wall to the north and the east that's been contemplated over time, not something that's currently on the books, but the hopes and dreams are with high gold prices that, that is something that would go ahead and that we could get a lot more from that royalty. John Tumazos: If I could ask one more. On Discovery, the quick calculation I made was that you sold 27.8 million shares and had 52.2 million left and that you received USD 3.04 per share. Is that about right? Sandip Rana: So John, we sold 26 million shares. John Tumazos: So you got a little more for it. Operator: And your next question comes from the line of Daniel Major from UBS. Daniel Major: Can you hear me okay? Paul Brink: Yes, loud and clear. Daniel Major: Yes, my first one, apologies, I was slightly late joining the call if it's already been asked. But just the first one on Cobre Panama and from a, I guess, significantly involved party, but not directly at the table. I mean when you look at the catalysts that need to occur to trigger a restart the environmental audit, the renegotiation of fiscal terms, remobilizing the workforce, et cetera, what do you think kind of feels most likely to be the bottleneck in the process? And I heard the -- some commentary out of Argentina that there's still a belief that the environmental audit and the fiscal terms can be negotiated by the end of the year. Do you think that's realistic? Paul Brink: That is -- Daniel, that's the time line that President Mulino had put out there as his objective. These things can always take longer, but they've been consistent on saying that is what they're aiming for. The audit is underway. There are no formal negotiations at this stage, although I know the company and the government have engaged in getting set for that. So it is -- I think it's still possible that, that kind of time line gets met. We're encouraged by -- you probably would have seen the recent press comments by President Mulino, also comments by Tristan Pascall on acknowledging that the state would remain the owner of the minerals. And agreement on trying to negotiate on that basis. So I take that as a strong positive. The government comments is that, that has been received well. So I think that news is positive. The other positive news has been coming out of country is just the shift in sentiments where you saw 70%, 80% of folks post protest were anti-mining in any form, and that has shifted to a slight majority now that are open and also a good amount that I think would be supportive under the right terms, the right participation for the government of Panama, the right amount of transparency. So I think things are definitely trending in the right direction. As we mentioned, there is movement on the ground with the government approving the various aspects of preservation and safe maintenance, the shipping of the concentrate, the power plant. The company has been rehiring folks so that they can start some of those activities. They've had a very strong response, a lot of folks looking to acquire those jobs. And I think that has also helped shift sentiment as people realize the value of the mine to the economy. Daniel Major: Okay. The second one on the Arthur Gold project. I mean, how do you see the initial scope of the project? And obviously, we've seen some initial kind of projections, et cetera. But I mean, yes, from your perspective, how do you envisage the time line and the initial scope of the project if you have to kind of hazard a range of expectations? Eaun Gray: Thank you, Daniel. It's Eaun Gray speaking here. First of all, we're thrilled to be involved in this project with AngloGold. We think the geological upside on the royalty grounds over time is phenomenal. In terms of first steps in permitting, I understand that they need to start somewhere, even though the full deposit, in our view, likely hasn't emerged. So they -- I think AngloGold's disclosure is around Merlin-focused plan to start and then exploration, hopefully continuing from there. We have also been very happy to see the U.S. permitting environment has evolved quite positively over the last little while and projects such as Stibnite where we're involved have moved along quite well. So in terms of permitting, we're hopeful on the time frame as to when that when that can happen. I think there's got to be a significant over-under in exactly when that happens with any regulatory process, but we're hopeful that the mine would start in the early portion of the 2030s. Operator: And your next question comes from the line of Derick Ma from TD Cowen. Derick Ma: At current gold prices, is there more leverage in royalties and streams on primary gold mines versus byproduct gold streams? And does that factor into the way you look at your portfolio, or your decision-making when assessing new opportunities? Paul Brink: Good question, Derick. And yes, is the short answer. Obviously, when the gold price is running on a primary gold deposit, the -- it allows operators when they look at their reserves, and that's kind of -- I think a lot of operators are looking at the reserves right now to figure out what price are they going to use at year-end. I think at the end of last year, the average for the industry was about $1,800 an ounce. I'm guessing at this, but I think the industry will be over $2,000 an ounce for the gold reserves. It means lower cutoff grades, and it means a lot of material that's going to move into the mine plan. Put that forward just a couple of years, let's just assume we're at $4,000 gold in 3 years' time. You could easily see the industry at [ '26, '28 ], $3,000 gold for reserves. So even if the gold price stayed flat in that scenario, our stock price would be worth a lot more because you get a huge amount of ounces that get moved into reserves. And so that's -- on our portfolio, about half the assets are gold streams on copper mines. Half the assets are royalties on principal gold assets. So I think that's a big driver. On the other side, copper prices are doing great, too. So the same thing applies for a copper asset, higher copper prices, you'll get a lot more material moved into those mine plans. So on both sides, I think we should see great organic growth. Derick Ma: Okay. Great. And maybe a question on Argentina. Two of your longer-term growth assets that you've listed, Taca Taca and San Jorge are in Argentina, midterm elections are behind us now. What are your current views on Argentina as a mining jurisdiction and as an investment destination for Franco-Nevada going forward? And then maybe a follow-up on top of that is how many GEOs for Taca Taca and San Jorge are in your 2029 outlook? Paul Brink: Yes. Maybe I'll just speak about the assets and then Sandip can comment on the guidance. The San Jorge is a, I'd call it, a midsized but good grade copper gold asset in Mendoza. The company tried to get a permit probably more than a decade ago, didn't quite get there at the time. Things have changed materially. In meetings early this year, I met with the Governor for Natural Resources in Mendoza, and she was very encouraging saying, San Jorge could be the very first of the assets to move ahead under the new RIGI program. So we're very encouraged by that. No, the company is working on raising financing to move that forward. Next up, Taca Taca. We're very hopeful that, that is the next big copper asset that First Quantum will build. I think as we all know, RIGI is a 2-year window to get your applications in, and we're a year into that. So there's another 12 months to get that application in and then companies need to start spending and their minimum spends over the next 2 years. So I think this is highly likely that you'll see spending going ahead on Taca Taca in the short term. For Argentina, we don't need to invest anything on those assets. We already own those interests. So that will happen regardless. For Argentina, it is the big question. Huge amount of assets there that are going to attract a lot of investment dollars. So we will consider Argentina. The -- what has been put forward in RIGI is very positive. It addresses the 2 big issues you have. The one is currency convertibility. That does get guaranteed if you enter into the RIGI program. And then the second thing is to make sure that it has teeth that survives through multiple regimes, you do need rights to international arbitration and RIGI does afford that, too. So both those things go a long way to making Argentina an attractive destination. Sandip Rana: And Derick, just in terms of the 2029 guidance for those 2 assets, obviously, they still have to be built. So we were conservative in our estimates, but on a combined basis, it's about 5,000 GEOs. Operator: [Operator Instructions] There are no further questions on the phone line. I will now turn the conference over to Candida Hayden for any closing remarks. Candida Hayden: This concludes our third quarter 2025 results conference call. We expect to release our year-end 2025 results after market close on March 10. Thank you for your interest in Franco-Nevada. Goodbye. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good day, everyone, and welcome to Pfizer's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Francesca DeMartino, Chief Investor Relations Officer and Senior Vice President. Please go ahead, ma'am. Francesca DeMartino: Good morning, and welcome to Pfizer's earnings call. I'm Francesca DeMartino, Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. Earlier this morning, we released our results for the third quarter of 2025 via a press release that is available on our website at pfizer.com. I'm joined today by Dr. Albert Bourla, our Chairman and CEO; and David Denton, our CFO. Albert and Dave have some prepared remarks, and we will then open the call for questions. Members of our leadership team will be available for the Q&A session. Before we get started, I want to remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings, which are all available on the IR website on pfizer.com. Forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. With that, I will turn the call over to Albert. Albert Bourla: Thank you, Francesca. Good morning, everyone, and thank you for joining our call. The past few months have been pivotal for Pfizer. We are really excited about our future and confident that we are in a strong position to continue delivering value for patients and our shareholders. Our third quarter performance shows how we continue to execute with discipline and focus even while taking on major strategic efforts. I will discuss highlights, including our agreement with the U.S. government, which has provided greater clarity of our strategic investment in future innovation and growth. Additionally, with our proposed acquisition of Metsera and the progress we have made since closing our licensing agreement with 3SBio and key upcoming catalysts, the strength of our R&D pipeline continues to grow. Our landmark agreement with the U.S. government was an important milestone because it removed uncertainty on 2 critical policy fronts. We successfully addressed the administration's call to lower prescription drug costs and align prices with those in other developed countries, and we will have a 3-year grace period from certain U.S. tariffs with our commitment to further invest in manufacturing in the U.S. Now I want to address our proposed acquisition of Metsera. We believe that Novo Nordisk offer is illusory and cannot constitute superior proposal under the terms of our merger agreement with Metsera because it violates antitrust law and there is a high risk it will never be consummated. We are encouraged by the U.S. Federal Trade Commission's decision to grant early termination of the HSR waiting period, which is unprecedented during a government shutdown and clears the path to completing this transaction following the Metsera shareholder vote on November 13. With the pending legal action we have taken to enforce and preserve Pfizer's rights under the merger agreement, you understand that we will be limited in the details we can address further during today's call. What I can say it is that, our belief in the promise of the Pfizer and Metsera combination is strong and unwavering. We are confident it will create substantial value for shareholders and advance innovation to bring important medicines to patients in the high-growth therapeutic area of obesity. Plus, we believe Pfizer will have distinct advantages in developing and delivering new potential treatments because of our proven scientific and commercial strength. Our R&D infrastructure has global reach and extensive experience running clinical trials in large population. Our commercial teams have well-established capabilities in bringing primary care therapies to patients. We have proven we can drive leading clinical commercial and strategic momentum with key cardiovascular brands such as Eliquis, Lipitor, Norvasc and the Vyndaqel family, and we plan to execute in a similar way with Metsera as we reinvigorate Pfizer's cardiometabolic presence. The licensing agreement with 3SBio is another way we have strategically enhanced our pipeline. Encouraging Phase II first-line metastatic colorectal cancer efficacy and safety data for SSGJ-707, the PD-1 VEGF bispecific was shared last month at the European Society for Medical Oncology meeting. Looking ahead, we are excited to present additional clinical data at the upcoming Society for Immunotherapy of Cancer Meeting. We are also encouraged by our discussions with regulators about our plans to unlock the potential of 707 with a robust clinical development program. As we look forward to executing with 707, Pfizer has distinct advantages. We have deep experience in the development of multi-specific antibody therapeutics and the ability to leverage unique combination regimens that make this promising cancer immunotherapy candidate, a strong complement to our oncology portfolio. We've also made progress in advancing other key programs in our late-stage R&D pipeline. This was reinforced by our presence at ESMO last month with over 45 abstracts, 5 late-breaking presentations and recognition in Presidential Symposium. Starting with the Presidential Symposium, new Phase III data demonstrated that Padcev in combination with pembrolizumab reduced the risk of recurrence and death by at least half for patients with cisplatin ineligible muscle invasive cancer when given before and after surgery. This is the first and only regimen to improve survival when used before and after standard of care in this patient population. With this unprecedented data in hand, we see the potential to substantially increase the U.S. addressable population with approximately 18,000 patients under the current label in metastatic urothelial cancer. And if there are further positive data and it is approved up to approximately 22,500 additional patients across both cisplatin-eligible and cisplatin-ineligible muscle invasive bladder cancer. We also presented follow-up results from the PHAROS single-arm Phase II clinical trial supporting Braftovi and Mektovi as a standard of care for patients with metastatic non-small cell lung cancer harboring a BRAF V600A mutation -- V600E mutation. This updated analysis showed a substantial median overall survival benefit of 70 -- 47.6 months in treatment-naive patients with metastatic non-small cell lung cancer with a BRAF V600E 00E mutation. We are pleased with the continued strong year-over-year growth of Braftovi and Mektovi with a 30 percentage point increase in new patient starts since the October '23 launch. We believe the results from the PHAROS trial could establish a new benchmark with targeted combination therapies for its population of patients. These results fortify the strength of our growing lung cancer portfolio that includes small molecules, ADCs and our 707 bispecific. We are confident in our potential to deliver treatments across the lung cancer spectrum, a large and growing market expected to reach approximately $70 billion by year 2030. We also presented final overall survival results from the Phase III EMBARK trial evaluating XTANDI in combination with leuprolide and as a monotherapy in non-metastatic hormone-sensitive prostate cancer with high-risk biochemical recurrence. As the first and only ARI-based regimen to demonstrate overall survival benefit in this population, these results highlight the potential benefit of XTANDI in this earlier line treatment setting. This strengthens our position for a product that is experiencing strong demand growth in hormone-sensitive prostate cancer and rapid uptake in the approximate 16,000 U.S. patient population with non-metastatic hormone-sensitive prostate cancer with high-risk biochemical recurrence. I want to mention another update about our program in sickle cell disease. We are very pleased that last month, the FDA concluded that Pfizer may resume enrollment of osivelotor studies outside of Sub-Saharan Africa and in individuals who have not relocated from Sub-Saharan Africa. We are still engaging with regulatory authorities to determine possible next steps for Oxbryta. We will look forward to sharing more details in the months ahead about our key pipeline catalysts for 2026 in the coming years. With disciplined execution and our continued focus on key products, both in the U.S. and key international markets, we continue to build on our leadership position within our commercial portfolio. Our Vyndaqel family of products achieved 7% year-over-year global operational growth in the quarter. Strong demand reinforced that this is the foundation of treatment for patients with a heart condition of ATTR cardiomyopathy, helping them live longer and avoid hospitalization. We are encouraged by our continued strong market leadership. In international, we achieved 40% growth in the quarter in total patients on treatment. In the U.S., our continued double-digit demand growth reflects strong diagnostic efforts, broad access and favorable affordability dynamics. Nurtec continues to lead with the oral -- to lead the oral CGRP class in primary care penetration in the U.S. In international, we achieved growth with continued strong uptake in key markets. Globally, we achieved 22% year-over-year operational growth in the quarter. We are pleased that our new consumer campaigns continue to perform well, and our team has been effective in sharing new compelling clinical data with health care professionals. Padcev, another market leader in our portfolio, achieved 13% year-over-year global operational growth in the quarter. Padcev in combination with pembro continues to expand utilization and has been established as a standard of care first-line treatment for patients with locally advanced metastatic urothelial cancer. Our vaccines portfolio is a key area of focus in international markets. We are pleased with the strong performance of the Prevnar family, driven by [indiscernible] and launches in several key markets. We achieved 17% year-over-year international additional growth in the quarter. Pfizer is the pediatric pneumococcal vaccination leader with public funding secured in about 140 national immunization programs around the world. After launching in the majority of key international markets, Prevnar Adult is the established leader among adult pneumococcal conjugate vaccines. In the U.S., where we did experience a year-over-year decline in the quarter, we are pleased with the overall performance of Prevnar 20. For adults, Prevnar held a market-leading position and grew with the expanded recommendation for adults over 50. In the pediatric market, accounting for about 60% of Prevnar revenues in the U.S., we experienced a delayed timing of government bulk order, which we have seen from time to time. So it's a question of time. I want to provide an update about the next-generation PCV programs. While we previously guided to a Phase III start of our adult 25-valent program in 2025, we are planning to start the study next year if the FDA aligns with our approach. For our pediatric program, we expect fourth dose data from our ongoing Phase I/II study early next year. And pending positive data and regulatory feedback, we have the potential to start both Phase III programs in 2026, streamlining our development approach and aligning with our strategy to provide a single vaccine across age groups. We are committed to maintaining leadership in the PCV space. And as a reminder, our 25-valent vaccine candidate has the potential for improved immunogenicity for serotype 3, which is one of the largest remaining contributors of pneumococcal disease. Serotype 3 alone is estimated to cause approximately 20% of invasive disease in the 65-plus population in the U.S. and EU. Abrysvo also achieved significant international momentum with 75% year-over-year operational growth in the quarter due to expanded access in key markets. In the U.S., we are experiencing the headwind of a more difficult to activate population as we enter the third season of RSV. Still, we are continuing to strengthen our position with a 59% market share in the U.S. in shipped-dose volume in this quarter. From the significant strategic milestones we have achieved in recent months to our solid financial performance during this quarter, we are demonstrating how we are building for long-term value with near-term execution of our 2025 strategic priorities. By committing to focus simplification and leveraging technology across our business, we are accelerating progress and improving productivity. In the quarter, we achieved another strong gross margin performance. Additionally, we were able to deliver adjusted diluted EPS that was ahead of expectations significantly, even with lower infection rates contributing to a revenue decline in our COVID-19 portfolio. Our business is performing well, and we are raising the range of our adjusted diluted EPS guidance for full year 2025, while also remaining committed to our dividend. And with that, I'll turn it over to Dave. David Denton: Thank you, Albert, and good morning, everyone. To begin this morning, I'd like to highlight that our solid financial performance directly reflects our continued disciplined execution of our key strategic priorities. We continue to prioritize enhanced patient outcomes as well as the achievement of our financial objectives. Furthermore, our recent agreement with the U.S. government demonstrates our ability to navigate in a complex external environment. Our cost improvement measures have driven greater operational efficiency and streamlined decision-making, which is evident in the solid operating margins for this quarter. Year-to-date, margins expanded despite the unfavorable impact of the acquired in-process R&D from the 3SBio transaction. Going forward, we expect to improve our cash flow and increase flexibility across our 3 capital allocation pillars. Our focus remains on creating long-term shareholder value. We will continue to invest in our business for the long term, evidenced by our recent business development activity while prudently returning capital to our shareholders. Now with that, let me start with our third quarter results, then I'll touch on our cost improvement initiatives as well as our capital allocation priorities. I'll finish with a few comments on our 2025 guidance, which continues to improve as we move throughout this year. For the third quarter of 2025, we recorded revenues of $16.7 billion, a decrease of 7% operationally versus the same period of last year. That's largely driven by a decline in our COVID products. The decline was primarily due to Paxlovid, which experienced reduced demand from lower levels of disease incidents as well as last year's onetime Paxlovid government stockpiling recorded in Q3 of '24 and to a lesser extent, Comirnaty. With that said, our non-COVID products performance was solid, growing 4% operationally versus the same period of LY. On the bottom line, third quarter 2025 reported diluted earnings per share was $0.62 and adjusted diluted earnings per share was $0.87, ahead of our expectations due to our overall gross margin and cost management performance. I'll point out that this profit performance includes a headwind of approximately $0.20 of acquired in-process R&D from the 3SBio transaction. Our results demonstrate the effectiveness of our refined commercial strategy. We remain committed to prioritizing key products and markets, optimizing the global allocation of our commercial field resources and concentrating our market efforts on high priority areas. We saw solid contribution across our product portfolios, primarily driven by Eliquis, the Vyndaqel family and Nurtec, but it was more than offset by declines in Paxlovid and Comirnaty. Through the first 9 months of '25, Pfizer's recently launched and acquired products delivered $7.3 billion in revenue while growing approximately 9% operationally versus last year. This lower growth rate in the third quarter as compared to Q2 was primarily driven by the timing of pediatric CDC shipments of Prevnar and a onetime favorable impact in Q2 for Seagen products transitioning to a wholesale distribution model in the U.S. We plan to continue to invest behind these 2 product groups to drive the future performance and help enable the company to largely offset our LOEs over the next several years. Adjusted gross margin for the third quarter was approximately 76%, primarily reflecting the product mix in the quarter and continued strong cost management within our manufacturing footprint. As a reminder, over the past 2 years, our adjusted gross margins have generally remained in the mid- to upper 70s, excluding Comirnaty, which has a 50-50 profit split with our partner, BioNTech. We expect $1.5 billion in savings from Phase 1 of the manufacturing optimization program by the end of '27 to support our long-term operating margin expansion goal. Going forward, cost management across our manufacturing network remains a top priority. Total adjusted operating expense were $7 billion for the third quarter of '25, an increase of 21% operationally versus LY, driven in large part by the acquired in-process R&D expense for 3SBio. Excluding the 3SBio deal, adjusted operating expenses contracted by approximately $150 million versus last year. And looking at the components, adjusted SI&A expenses decreased 3% operationally, primarily driven by focused investments and ongoing productivity improvements that drove a decrease in marketing and promotional spend for various products. Adjusted R&D expense decreased 3% operationally as well, driven by a net decrease in spending due to pipeline focus and optimization, including the expansion of our digital capabilities. And finally, acquired in-process R&D expenses increased $1.4 billion, largely resulting from the 3SBio deal. As our adjusted S&A and R&D expenses demonstrate, we continue to be disciplined with our operational expense management. Q3 reported diluted earnings per share was $0.62, and our adjusted diluted earnings per share was $0.87, which benefited from our efficient operating structure. Additionally, EPS was aided by our effective tax rate, primarily driven by favorable changes in jurisdictional mix of earnings and tax benefits related to global income tax resolutions in multiple jurisdictions spanning multiple years, partially offset by the aforementioned 3SBio acquired in-process R&D charge. We continue to be disciplined with expense management, progressing multiple cost improvement programs as we remained focused on driving operating margin expansion over the coming years. Phase 1 of the manufacturing optimization program contributed savings in the third quarter. In addition, we remain on track to deliver on our goal of at least $4.5 billion in cumulative net cost savings from our ongoing cost realignment program by the end of this year. As a reminder, in total for these programs, we expect approximately $7.7 billion in savings by the end of '27 to drive operational efficiencies, strengthening our business with the potential of contributing significantly to our bottom line over this period. Of these savings, approximately $500 million identified in R&D will be reinvested in the pipeline, which we expect by the end of 2026. With that, now let me quickly touch upon our capital allocation, which is designed to enhance long-term shareholder value. Our strategy consists of maintaining and growing our dividend over time, reinvesting in our business at the appropriate level of financial returns and making value-enhancing share repurchases. In the first 9 months of this year, we returned $7.3 billion to shareholders via our quarterly dividend, invested $7.2 billion in internal R&D and invested approximately $1.6 billion in business development transactions, primarily reflecting the 3SBio licensing deal. As a reminder, our business development capacity after the 3SBio deal is approximately $13 billion. In the third quarter, we announced the planned acquisition of Metsera for approximately $4.9 billion with additional contingent value rights tied to the successful pipeline progression. The transaction is expected to be funded through a mix of available cash as well as debt. We expect the deal to be dilutive through 2030 as we continue to invest to enable further promising late-stage pipeline assets. Specifically, we currently expect the Metsera transaction to be approximately $0.16 dilutive to 2026 adjusted EPS. Additionally, we expect another $0.05 of dilution in '26 from the 3SBio deal, which closed in the third quarter. With that said, we believe the 2 deals set up a strong potential revenue growth trajectory in 2030 and beyond. And lastly, through the first 9 months of '25, operating cash flow was approximately $6.4 billion, which includes the $1.35 billion upfront payment for the 3SBio transaction. Our gross leverage at the end of the third quarter was approximately 2.7x. That said, upon the close of the Metsera transaction, our leverage is expected to be above the 2.7x target. We expect to bring our leverage back down to the target levels over time to continue to support a balanced allocation of capital between reinvestments and direct return to shareholders. Now let me turn to our full year 2025 guidance. As Albert noted in September, we reached a new voluntary agreement with the U.S. government that will help ensure U.S. patients pay lower prices for prescription medications while providing the clarity we need to focus on our business and our investments in future innovation. The agreement has no impact on our 2025 guidance, but we expect a dilutive impact to our 2026 financial outlook. We continue to expect full year 2025 revenues to be in the range of $61 billion to $64 billion. Non-COVID products continue to perform very well operationally and ahead of our plan. However, we note there is softness in our COVID products due to lower vaccination rates and COVID infection rates. In addition, our guidance assumes a favorable impact to revenues from foreign exchange rates. Furthermore, we now expect adjusted R&D to be in the range of $10 billion to $11 billion and our effective tax rate to be approximately 11%. Additionally, adjusted S&A remains unchanged. Now given our strong performance to date and our fourth quarter outlook, including our more efficient cost structure, we are raising and narrowing our full year 2025 adjusted diluted earnings per share guidance by approximately $0.08 at the midpoint to $3 a share to $3.15 a share. I'd like to emphasize our adjusted diluted earnings per share guidance substantially derisked the current lower-than-anticipated COVID trends. In closing, we remain committed to enhancing the value of our product portfolio and advancing innovation to further strengthen our pipeline. With a stronger balance sheet, we plan to continue deploying capital effectively. We aim to boost R&D productivity with digital tools, including AI, prioritize investments in key R&D programs and to deliver new growth through business development. Furthermore, our performance continues to exceed expectations and deliver strong results even as the incidence of COVID remains low. This consistent performance highlights our resilience and commitment to excellence. Regardless of the challenging external environment, our efforts to enhance cost efficiency and generate improvements in operating margins by driving productivity and optimizing processes. Lastly, with the recent agreement with the U.S. government, we can now focus on executing our strategy and our strategic priorities across our business to deliver new medicines for patients and enhance long-term shareholder value. I'd like to just close by noting that it is our expectation that we'll provide guidance for 2026, most likely by the end of this year. So with that, I'll turn it back over to Albert, and we'll begin our question-and-answer session. Albert Bourla: Thank you, Dave. So operator, please assemble the queue. Operator: [Operator Instructions] Our first question comes from Vamil Divan with Guggenheim Securities. Vamil Divan: I'm going to have to defer the Metsera questions to other analysts, but curious to hear what you say there. I'll just ask a couple more on the commercial side. So one, Vyndamax, obviously you're facing more competition there. Surprised to see the performance, there was a little bit of sequential decline. So maybe you can just comment on the pricing and sort of market share dynamics you're seeing in that space, obviously, with the new competitors. And then similar question on Padcev. Obviously, great data that you shared at ESMO. The commercial uptake for the quarter at least was a little bit less than we thought. So maybe just how you expect the muscle invasive indication, assuming you get that here soon to impact uptake of that program and kind of drive upside to where the numbers are right now? Albert Bourla: Thank you, Vamil. Aamir? Aamir Malik: Sure. Vamil, thanks for the question. So let me start with your question on Vynda. And I'll just -- I want to level set a couple of things about Vynda, and then I'll talk about the performance in the quarter. So there's obviously new competition in the category, and it's important to note that Vynda is still the only ATTR-CM product that has statistically significant reductions in both mortality and CV-related hospitalizations together and as a stand-alone. And it's also the only product where there is a once-daily capsule, placebo-like safety and near complete TTR stabilization. And we've got 90% access for Vyndamax across the U.S. Now with regards to the quarter, there are a couple of different dynamics that are happening. First of all, we saw very strong demand growth, and that's reinforced by our continued market share leadership, both on a TRx basis, clearly, but also in terms of first-line share. Now that volume growth was offset by 2 gross to net headwinds. One is the IRA manufacturer rebates, which we've talked about before. And the second is what we alluded to last quarter, which is payer contracting that took place in the third quarter. So Vyndamax is performing exactly where we thought it would and consistent with what we guided and performance continues to reflect strong diagnosis, broad access, improving affordability dynamics, and that's going to continue to grow our volume. We are seeing competition that [indiscernible] is taking some first-line share from treatment-naive patients and [indiscernible] has driven minimal switching to date. And as we kind of look forward on Vynda, we'll see some of these dynamics continue into Q4 as well, where we expect continued volume growth, but the 2 GTN drivers that I described will certainly impact our net sales, but Vynda is performing in the way that we expected. On your question with regards to Padcev, we're, again, very encouraged by how Padcev is doing. For us, we look at this through 2 lenses. First is the a/mUC population, where we currently have about 55% share among cisplatin-ineligible patients and 45% to 50% share among cisplatin-eligible patients. So there is headroom for us to continue to focus on that segment of the market. I think your question with regards to how Padcev performed on consensus is related to the comment that Dave made, which is as part of integrating the Seagen products into the Pfizer portfolio in Q2, we moved from a drop ship model to a wholesaler model. So that resulted in a onetime growth in our Q2 sales. So you have to grow products off of that adjusted for 2 to 3 weeks of inventory. So as we cycle into Q4, we expect the whole Seagen portfolio, including Padcev to return to growth. And then finally, on MIBC, we're excited about the possibility as a result of both the 303 and also 304 trials that are ongoing, and that will open up a patient population of close to 22,000 patients to help with the next rise of Padcev growth. Operator: We'll go next to Dave Risinger with Leerink Partners. David Risinger: Congrats on the performance in the quarter. So my question is on Metsera. Could you just comment on the legal process ahead? I know that Pfizer is arguing that Novo's acquisition of Metsera would be anticompetitive. And even if the FTC doesn't allow it, it could be anticompetitive. So could you just talk us through the clock and the process for courts to hear Pfizer's arguments? Albert Bourla: Thank you, Dave. As I said in my opening comments, it is very difficult for us to start commenting when we have all these legal issues pending, right, as we speak. But I will repeat what I did say, which is kind of an answer to your question, not on the timing, but we don't see how Novo's deal can be superior. It is an illegal attempt by a foreign company to do an end run around antitrust laws, taking advantage of the government shutdown. What they want to achieve, not to get the products, to destroy them. What they want is to catch and kill an emerging competitor, which is a significant antitrust concern given Novo's dominant market position. So all I can say to this that we are continuing to pursue all legal resources. Thank you. Next question, please. Operator: We'll go next to Asad Haider with Goldman Sachs. Asad Haider: I guess just for Albert and Dave, just a quick high-level question on BD. What's the plan if Metsera doesn't work out for some reason? And then second, on 2026, any early framing on guidance pushes and pulls, specifically on how we should think about OpEx with and without Metsera? And then any additional color on how to think about the dilution you mentioned from your recent MFN deal with the administration? Albert Bourla: I will send the question to Dave because there are a lot of financial also elements. And then if Andrew wants to add something on the BD. David Denton: Yes. So maybe we'll start with business development. Obviously, the company has still significant resources to understand and how to deploy successfully transactions to bring science in-house, and we will continue to work aggressively to do so across all of our 4 therapeutic areas, and we continue to work across the globe to identify potential candidates for acquisition to help bring new and innovative medicines to patients. So that's still a very ongoing focused activity for the company. I think it's probably a little early to talk exactly about 2026. You heard me give a little color in the sense that clearly, we're making investments today and those investments carry over into '26 and beyond with either Metsera or 3SBio to bring these innovative medicines to market. Those will have a slightly dilutive effect to our operating performance next year. We will then wrap all that together with the puts and takes of '26 when we give guidance by the end of this year. Albert Bourla: Anything to add on BD, Andrew? Andrew Baum: Yes. I mean I'd echo what Dave said that we are very active in all geographies, especially in China. You saw the 3SBio, which has a foundational asset to become the backbone across multiple indications. And the same is true in China and beyond across all the main therapeutic areas. We've increased the size of our team in China, in particular, and we have very active efforts. And when we have something to inform you, you'll certainly be the first to know. Operator: We'll go next to Geoff Meacham with Citibank. Geoffrey Meacham: I guess one for Albert or Dave. When you look at the manufacturing investments you're making as part of the MFN agreement relative to the operational cost efficiencies, how would you rank those as priorities? I guess, both seem to have 3-year time frames. I'm just trying to get a sense of the incremental dollar and the strategy there. Albert Bourla: Dave? David Denton: Yes. Clearly, there are important elements of our strategy. We're going to clearly invest in the U.S. from a production perspective. We're working now to work through our plans with the new agreement with the U.S. government on how to effectively deploy our capacity here in the U.S. and further build it out. So more to come. We will also provide some color to that when we give guidance for 2026. But we will be able to improve our operating -- manufacturing operating infrastructure and at the same time, invest in manufacturing here in the U.S. And those 2 are not necessarily completely in conflict with one another. We'll be able to do both. Albert Bourla: Next question please. Operator: We'll go next to Courtney Breen with Bernstein. Courtney Breen: Thank you so much for answering our questions today. I really wanted to understand and perhaps another question on net zero, but from a different angle. I wanted to understand, in your mind, what factors supported Pfizer in garnering that unprecedented early termination of the waiting period from the U.S. Federal Trade Commission. That would be really helpful. Albert Bourla: I'm not sure I understood the question. Francesca DeMartino: The FTC clearance. Albert Bourla: Why the FTC clearance? Francesca DeMartino: If there are any factors that drove the early... Albert Bourla: If there are any -- no, I think the FTC made their own decision. Of course, they were aware of this question. So I don't want to speak for them, but they decided that it is appropriate in the middle of a foreign attempt to supervening to just release our deal, which is now clear. So that's all. David Denton: I think it does further demonstrate the strength of our deal and the pathway to clearance and the pathway for us to be able to further develop these products and take them to the marketplace in a very rapid fashion. This is helpful to patients long term, is helpful to prices long term under our management and our direction with these assets. Albert Bourla: Yes, and should not be surprised, right, because we all understand that's the epitome of antitrust conflict. For the entire pipeline of Metsera it is the entire pipeline of Novo plus they have a dominant position with the current products that they have. Of course, FTC would worry about that. I don't want to speak for themselves, but it is something that it is -- everybody understands. All right. Next question, please. Operator: We'll go next to Terence Flynn with Morgan Stanley. Terence Flynn: Maybe 2 for me. You've previously talked about Elrexfio being a key driver for you over the long term. We noticed that MagnetisMM-5 trial was pushed out data into 2026. We know J&J had a similar trial in a similar patient population that just read out. So maybe you could just remind us of any potential differences here in terms of your trial versus their trial and why there might be a difference in timing given they started around the same time? And the second question is just a clarification on Paxlovid dynamics for the quarter. It looks like by our math, price per script went up over last quarter. So just wondering if there's any onetime items that we need to think about here as we think about the trends in the fourth quarter. Albert Bourla: All right. Chris? Chris Boshoff: Yes, thanks for the question. So MagnetisMM-5, as you know, double class exposed. Possibly later this year, beginning next year, it's an event-driven study. So timing could shift due to events not happening, which we cannot speculate. But as you can imagine, that's often positive if events are not happening in the study. So we'll just continue to follow the events and hopefully report early next year. David Denton: Yes. And on the Paxlovid question, I don't think there's any material change in price. We have -- maybe there's different channels mix and things of that nature, but nothing significant from that standpoint. Albert Bourla: Thank you for clarifying, Dave. Let's go to the next question please. Operator: We'll go next to Akash Tewari with Jefferies. Akash Tewari: I had a question on your upcoming Phase III EZH2 readout in CRPC. I'm surprised the study is more prominently flagged given the potential to extend the XTANDI franchise. What drives your confidence that you're getting adequate target exposure after examining some of your food effect studies? And also, what's your expectations around overall survival? Could we see a 20% to 30% benefit here? Albert Bourla: Chris, that's for you. Chris Boshoff: Thank you very much for the question. This is another first-in-class internally discovered program, EZH2 program. We've previously shared randomized data, which showed significant PFS benefit in all comers in late-line metastatic castration-resistant prostate cancer. And we now have three Phase III studies ongoing. The first one will read out, to your point, is post abiraterone metastatic hormone-resistant prostate cancer, and that we expect in the coming months. We recently also presented data at ASCO, randomized data on the food effect to your question, which was 875 milligrams twice a day with food and show that the data are comparable with the dose we now use in Phase III with reduced GI AE. So we are confident in the dose that was selected. Operator: We'll go next to Kerry Holford with Berenberg. Kerry Holford: Just on the guidance for this year, you've clearly reiterated the total revenue range of $61 to $64, but when you first set that guidance, you spoke of total COVID-19 sales of around $9 billion for the year, seeing that you booked only around just over $4 billion year-to-date. Just interested in your comments on whether that $9 billion is still achievable for the full year? And if not, what other assets would you call out as likely to fill that gap and give you confidence to reiterate the total sales guidance? Albert Bourla: Thank you. Dave, please? David Denton: Yes. On the -- you're absolutely right, Kerry, as you pointed out, I would say that to the low end of our guidance range from a revenue perspective would assume that the COVID franchise continues a very modest uptake for the balance of this year, particularly in the U.S. However, as you know, the COVID franchise is subject to peaks and valleys. If there happens to be a wave of COVID in the next several months, you can see utilization spike up. So that's why the range is so large. I'll just point out that what we have done with an earnings per share guidance range is we've derisked the COVID franchise with the guidance that we provided, given that if the trends continue, we'll be closer to the low end of that range, and we will still be able to deliver on our earnings commitment. Albert Bourla: Thank you, very clear, Dave. Let's move to the next question please. Operator: We'll go next to Mohit Bansal with Wells Fargo. Mohit Bansal: Just wanted to understand the thought process around the pricing of the GLP-1 and this class of medicines, given that -- I mean, even today, there's a news article out there suggesting the price could be $150 or so. So it seems like the price is only going in one direction. In that case, I mean, how do you justify the price that you're paying to Metsera and, in general, the obesity landscape over time, how do you think about that with this pricing decline for the class? Albert Bourla: Yes. Thank you. This is also competition that brings prices down. And of course, they try not to restrict competition. But anyway, the -- yes, we -- in our calculations, we have taken into consideration that the prices of GLP-1s probably will start going down. So I don't know what will be announced now. But in our calculations, we took already that into consideration. Thank you, Mohit. Let's go to the next question. Operator: We'll go next to Alex Hammond with Wolfe Research. Alexandria Hammond: Can you elaborate more on the reason for the delay to the initiation of the pivotal trial for the adult 25-valent pneumococcal program? You had mentioned the caveat of if the FDA aligns with your approach. So the tenor of the dialogue change with the FDA? Is there a chance that surrogate endpoints may no longer be approvable? Albert Bourla: Thank you very much. Chris? Chris Boshoff: Yes. Thank you for the question. Across all our vaccine programs, we're obviously working very closely with the FDA and other regulators on the designs of the study and also the endpoint. PCV25, pending positive data and FDA feedback, we -- as mentioned, we intend to start that study as well as the pediatric 25-valent program next year. So it means we will align the pediatric and the adult study. We expect the fourth dose data from the pediatric study early next year. So that helps us to coordinate the 2 studies. So it will just make it easier. The 25 vaccine candidate covers 25 serotypes, particularly I need to point out serotype 3, which we did before because the vaccine is designed with significantly enhanced immunogenicity against serotype 3, which currently constitutes up to 20% of infections in the U.S. and the EU. And to continue our leadership, we also continue to study our fifth generation with 30-plus serotypes, which we'll update you on more in 2026. Albert Bourla: Thank you, Chris. Operator the next question please. Operator: We'll go next to Chris Schott with JPMorgan. Christopher Schott: Just maybe 2 MFN questions. First one is kind of bigger picture. As you think about MFN on new launches over time, what do you think about this suggesting for international revenues? Is this, I guess, I could read this as a net positive that you can get higher price? I can read as net negative because reimbursement hurdle is going to be tougher at these higher prices, it could be neutral. Just how you kind of envisioned what plays out with international as you signed that deal? And then the second one is just trying to get a little bit more color on the MFN impact for 2026. I think you mentioned some dilution there, but just any more quantitative metrics you could provide of just like how much of a headwind is that for next year? Albert Bourla: Yes. I'm sorry if I ask Dave to tell you, which he will tell you. We will provide guidance at the end of the year, and that will incorporate everything, including that and the other things that he was talking. So I don't think you will get more words out of our mouth no matter how much you talk to us. But on the new launches in international, of course, we are waiting to see how things may play. The price differential is not sustainable. We are speaking about the smaller basket of countries in international that are affected by that. And with these countries, we are hoping that they will understand that they need to change the way that they price their products going forward. Of course, a little bit help from the U.S. government and USTR through trade negotiations also can make that happen. And my assessment is that [indiscernible] and the U.S. trade representatives are highly, highly committed to make this go away. So we will see how that plays. But in theoretical, if the prices over there are -- they are -- we are not agreeing a decent way of pricing our products, clearly, we will not get reimbursement there, and we will price them to the price that will not affect the U.S. price. Thank you. And now let's go to the next question, please. Operator: We'll go next to Umer Raffat with Evercore ISI. Umer Raffat: First, on Metsera, I realize this is perhaps in the hands of your M&A lawyers and antitrust lawyers. But from an R&D perspective, can we make sure you'll be evaluating all the new data that's imminent, for example, the monthly transition and how the GI tolerability holds as well as even more importantly, the amylin plus GLP early combo data? And then separately, I was very intrigued by a Phase IIb trial you guys initiated on an oral drug in atopic derm. Could you confirm if it's a STAT6 inhibitor? And were you able to gauge the magnitude of STAT6 inhibition Phase I? Albert Bourla: Look, on the Metsera, it's easy if they provide us data or if they publicize data, of course, we will -- we are eager to see them. And we believe it will be positive. On the second question, I will ask Chris to comment. Chris Boshoff: Thank you, Umer, to ask a question regarding our I&I portfolio. I just want to check, are you referring to PF9820? Albert Bourla: I don't think he can come back in. Chris Boshoff: It is, okay. So you are correct. That is a STAT inhibitor. I want to point out that we currently have a very differentiated I&I portfolio with at least 5 molecules in-house discovered and developed, most of these at a significantly accelerated speed, including obviously p40/TL1a, which we co-developed or which is being co-developed with Roche, which covers IL-12 and IL-23 by p40. Our 2 tri-specifics covering IL-4, IL-13, TSLP or IL-33, both of those now entering Phase II for atopic dermatitis and for other Th2-related diseases. Litfulo with the ongoing and Phase III trial in nonsegmental vitiligo, which is a JAK3/TEC inhibitor, also differentiated in-house. And then the STAT6 early, just entering Phase II could be potentially first-in-class oral. We're currently further optimizing dose and formulation and hope to update you on that program in 2026. Albert Bourla: Thank you very much, next question please. Operator: We'll go next to Steve Scala with TD Cowen. Steve Scala: Two questions. What does the drug pricing deal with Trump allow Pfizer to do that other companies will not be able to do other than, of course, AstraZeneca? And secondly, on Metsera, so the data looks more similar than different than competitors and Metsera disclosures haven't been completely transparent, raising serious questions. Many other big cap pharmas have passed over Metsera when pursuing other products, validating the me-too point. Nothing in all this justifies a bidding war or even a protracted legal battle. Is Pfizer's determination to persist underpinned by substantial confidentiality data -- confidential data or simply the desire to be a player in obesity? Or does Pfizer agree with the points that I just said and could it just walk away? Albert Bourla: Thank you, on the first one on the drug prices and what we have that other companies may not have. I can't answer because I don't know what the other companies are having. As you know, the discussions are between the administration and individual companies, which also ensure that there is no antitrust issues. And also, of course, if they are confidential because that's also what the administration and the agreements portray that we should keep confidentiality of those assets. So I know what we are getting. Some of that has been public and some of that is part of the overall very lengthy deal, but I don't know what others I will take. On the Metsera, look, we have seen the data. We did extensive due diligence, and we priced -- the asset into a price that we thought offers tremendous value to the shareholders of Metsera and to shareholders of Pfizer because those assets that we like in our hands, of course, will provide significant competitive edge. What you see now, it is a repeat an effort to cut and kill this emerging competitor, which is Pfizer, and to do that by evading the antitrust scrutiny and virtually get control, de facto control of the company as they will become the major shareholder and the major creditor without any regulatory scrutiny. So that's all I have to say. And I'm -- we will see how things go. Operator: Our next question comes from Evan Seigerman with BMO. Evan Seigerman: Assuming Metsera closes, what near-term factors must you consider to continue growing the dividend and then delevering, Dave, as you had said, when do you think you may be able to also start to repurchase shares? Or is that less of a priority with all this BD? David Denton: Evan, very good question. Obviously, you've seen us over the last 1.5 years or 2 years really lean into productivity across our platform. That productivity has allowed us to delever from roughly 4x to 2.7x. That's given us increased flexibility to do both business development as well as maintain and grow our dividend over time. That cycle of improvement in productivity is something that we've now embedded in the company. We will continue to do that. We will continue to do that across the enterprise. We will continue to prioritize ourselves from an R&D perspective. Clearly, we have several assets that we think are key to the growth of this company by the end of the decade. We are going to invest behind those assets from a pipeline perspective, and we're going to invest behind the categories of products that we've either acquired and/or recently launched because those will ultimately allow us to offset the LOEs over the next several years. So we'll be able to do all of that. Share repurchases is an important lever for us. In the near term, it's not a tool that we're going to use. We have to get the balance sheet back to where we need to be. And we -- again, we have business priorities that come in the forefront of that at this point. Great question. Thank you. Albert Bourla: Okay. So now I think let's get the last question. Operator: Our last question comes from Rajesh Kumar with HSBC. Rajesh Kumar: Two questions, if I may. I appreciate you cannot say a lot about Metsera at this junction. Just from a modeling perspective, if we are thinking of additional balance sheet capacity for dealmaking, how much capacity would you assume -- assuming that you are keeping some capacity away from Metsera at the moment in 2026 on your own internal budgeting, that would be really helpful. And just on the 3SBio, I appreciate the deal has just closed and some of the trials have just started. When can we expect to see data news flow come out of that deal? Is it more a 2027 event? Or do we have any interim readouts or updates in '26? Albert Bourla: Thank you. I think Dave can answer the Metsera modeling? David Denton: Yes. So as you think about BD capacity, as I said in my prepared remarks, we have approximately $13 billion of capacity as we enter here into the third quarter, so with that... Albert Bourla: Chris, let's understand the [indiscernible]. Chris Boshoff: Yes, the data flow. So just a reminder, at ASCO 2025, we shared Phase II monotherapy or -- shared Phase II monotherapy data in first-line non-small cell lung cancer showing the overall response -- objective response of 65%. At ESMO, Phase II combo data plus chemotherapy [indiscernible] mFOLFOX6 was shown for first-line metastatic castration -- sorry, metastatic colorectal cancer, and that was showing a response rate of close to 60%. At SITC, we'll provide additional data, combination data in lung cancer and you've just seen we posted two Phase III programs starting now this year in first-line non-small cell lung cancer and in first-line colorectal cancer. And in the coming weeks, we'll also provide the full development plan to you at event, and that will be -- show the broad -- the breadth and the depth of our clinical development program for 707. Albert Bourla: Thank you, Chris. So thank you very much all for your attention. We have been successful in achieving a series of significant strategic milestones. We delivered a solid performance during the quarter, and we are confident in our business, and that's why we are raising the rates of our adjusted diluted EPS. And of course, we maintain our revenue despite the lowest COVID right now trends. So thank you for your interest in Pfizer, and I hope you have a wonderful week. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Ana Fuentes: Good evening, and thank you very much all of you for taking the time to attend Gestamp Nine Months 2025 Results Presentation. I'm Ana Fuentes, M&A and IR Director. Before proceeding, let me refer you to the disclaimer of Slide #2 of this presentation that has been posted in our website and will set out the legal framework under which this presentation must be considered. The conference call will be led by our Executive Chairman, Mr. Francisco Riberas; and our CFO, Mr. Ignacio Mosquera. As usual, at the end of the conference call, we will open up for a Q&A session. Now let me turn the call to our Executive Chairman. Francisco Jose Riberas de Mera: Okay. Good evening. Thanks for attending this call in which we will be presenting Gestamp results for the first 9 months of the year. So far, this year remained very challenging with adverse FX impact for us and also negative volumes in our core markets. But even in this negative context, Gestamp is performing quite well year-to-date, with revenues very close to EUR 8.5 billion, which means a minus 0.8% auto business sales at FX cost and compared with the previous year. But even if lower sales, our EBITDA margin has grown to 11%, up 38 basis points versus 2024. In terms of Phoenix Plan, I think we are running quite well, improving already 96 basis points EBITDA margin versus 2024. And moving forward to ensure our balance sheet strength, ending this period with a leverage of 1.6x debt to LTM EBITDA. So solid results year-to-date and providing a good visibility for the full year. In terms of the market, light vehicle manufacturing in the first 9 months of the year is up by 4.3% compared with 2024, reaching already 62.2 million units. However, there are big differences in geographical areas, mainly in Asia is where we have all the growth, growth by 8.1% compared with previous year and especially in China with a growth of 12% increase year-to-date. And in rest of the areas and especially in Western Europe with some additional decrease in volumes in line with previous years. Moving to Slide 6 to talk on Gestamp revenues versus the market. The market has grown as stated by 4.3% up to September, while Gestamp sales, auto sales at FX constant has decreased by 0.8%. So that means an underperformance of 5.1%, underperformance, which is mainly due to China. In fact, without considering China, Gestamp could have had a slight outperformance to the market. If we go to the analysis for different regions, we see in Europe that we have some underperforming in Western Europe, but it is fully offset by our continuous growth in Eastern Europe. We have also some slight underperformance in North America and Mercosur, and we had a huge underperformance in Asia of 12%, mainly due to China because without China, we are outperforming the growth of the market, especially due to the growth that we had in our Indian operations. In China, in fact, we are growing very quickly our business with Chinese OEMs. We have, for instance, a growth of more than 45% in the Q3 compared with Q3 2024, especially in EVs. And also, we are working in different projects with Chinese OEMs all around the world. We had a negative impact of the ForEx. In fact, we had a revaluation of the euro versus most of the currencies, which is impacting Gestamp revenues and also impacted our EBITDA. In fact, out of the decrease of our revenues year-to-date of 4.9% in euros, 3.7% comes from negative ForEx impact, 0.5% from the decline of scrap revenues due to the scrap prices decline and only 0.7% is a negative organic growth year-to-date. But even if we are not able to control in the short term what is going on with the market and the FX, we have been able to improve our EBITDA margin year-to-date with lower sales. And in fact, in terms of our auto sales, we have decreased our sales compared with 9 months of 2024 by EUR 400 million. And at that time, in this period of time, we have decreased our EBITDA only by EUR 9 million. So that means that we have increased our EBITDA margin by 42 basis points. And we have been able to do that with very important measures all around the organization. In terms of cost reduction, we have also implemented very important flexibility measures, especially in our European operations. We have some constructive customer negotiations, especially around volume deviations and also, of course, delivering in the Phoenix Plan. So we are delivering on the upper range of our full year target. And in fact, if we go to Phoenix, we are performing well. We are performing well in a market which is worse than expected with 1% decrease in volumes year-to-date and still with uncertainty around tariffs, and that's why we are adapting the speed of our actions and the impact in the profit and loss account and the CapEx. But altogether, in Q3, we have increased our EBITDA in North America from EUR 31 million to EUR 44 million, reaching a 7.6% EBITDA margin from 5.5% in Q3 2024. And year-to-date, with sales moving down, we have increased our EBITDA margin by 96 basis points, already reaching a 7.2% and clearly committed to reach our target of 8% EBITDA in full year 2024, again, with lower sales. And in scrap, even if in terms of tons, our volumes are okay. Due to the decrease of scrap prices, our revenues year-to-date is down 9% below the one we had in 2024, with scrap prices moving down in Europe, in China and -- but quite steady in U.S. And due to this declining trend in scrap prices, we have reduced our EBIT margin to 5.8%, lower than the one we had in 2024 of 6.9%. But we are expecting clearly to improve back our margin as soon as scrap prices stabilize. So now I hand it over to Ignacio Mosquera. Ignacio Vazquez: Thank you, Paco, and good evening to everyone. If we move on to Slide 12, we can have a closer look to our financial performance in the first 9 months of 2025. As Paco has already explained, Phoenix Plan aimed at restructuring our NAFTA operations has had a EUR 12.2 million impact on P&L and a EUR 10.2 million impact on CapEx for the first 9 months in 2025. And as a reminder, in the same period of 2024, we had an impact of EUR 16.8 million in P&L and a EUR 3.8 million impact on CapEx. We have included comparable figures for both periods excluding Phoenix. For the first 9 months of 2025, we have reached revenues of EUR 8.486 billion, which entails a 4.9% decrease when compared to the EUR 8.927 billion from 9 months 2024, mainly due to the strong negative ForEx impact that we carried over from the first half and which has remained in Q3 2025 in all key geographies. Revenues for the auto business, excluding scrap at FX constant, have been almost flat with a 0.8% decrease year-on-year in 9 months 2025 as FX has negatively impacted results by EUR 334 million. In terms of EBITDA, we have generated EUR 925 million in the first 9 months of 2025, meaning a 10.9% reported EBITDA margin. Excluding Phoenix impact, EBITDA in absolute terms would amount to EUR 937 million, with an EBITDA margin of 11%, improving the first 9 months of 2024 profitability in almost 40 bps and providing visibility to reach the full year 2025 EBITDA margin target. Reported EBIT is almost flat in the period, decreasing by 1.7% year-on-year to EUR 399 million with an EBIT margin of 4.7%, improving profitability in the period in almost 20 bps. Excluding Phoenix impact, it would amount to EUR 411 million, reaching a 4.8% margin. Net income in the first 9 months has been EUR 104 million. That compares to the EUR 127 million reported in the first 9 months of 2024. This lower net income is explained mainly by the negative financial result performance, which has been strongly impacted by ForEx evolution in the first 9 months of 2025 and a comparable 9 months 2024, which was positively impacted by one-off hyperinflation impact. Net debt has closed in EUR 2.107 billion, reducing net debt in EUR 330 million compared to the first 9 months of 2024. The positive net debt evolution in absolute terms is driven by our partnership with Santander announced in the previous quarter and due to the comparable free cash flow figures with last year, where we had some extraordinary working capital negative items in the third quarter of 2024. As for free cash flow in the first 9 months of 2025, we had a negative free cash flow generation in the third quarter mainly due to Q3 normal business seasonality, offsetting first half 2025 positive free cash flow generation. To sum up, a solid set of results despite continuing to be strongly impacted by the negative ForEx evolution and a complex and volatile environment. Despite that, we have been able to improve our profitability levels and strengthen our financial profile that provides good visibility for full year guidance in terms of margin, leverage and free cash flow. If we now turn to Slide 13, we can see the performance by region on a year-on-year basis. Looking at each region in detail, revenues in Western Europe have decreased by 5% year-on-year in the first 9 months of 2025 to EUR 3,001 million. Revenues evolution in the region has been affected mainly by volume pressure in the period, and to a lesser extent, the continuous fall in raw material prices. In terms of EBITDA, it reached almost EUR 298 million and EBITDA margin that stood at 9.9% in the period, down from the 10.8% reported in the first 9 months of 2024. Profitability in the period has been impacted mainly by volume drop with still limited operating leverage despite productivity measures being taken. Results of these measures will still take some time with no tangible results in the very short term. In Eastern Europe, the performance in the first 9 months of 2025 have been very solid, proving once again our strong positioning in the region. On a reported basis, during the 9 months of 2025, revenues have grown year-on-year by 6%, up to levels of EUR 1.418 billion, despite the strong impact of ForEx evolution in the region. EBITDA levels have increased by 25.6% to EUR 216 million with an EBITDA margin of 15.2% in the first 9 months of 2025, beating the 12.8% margin reported last year 9-month period. The profitability improvement is mainly attributed to a better product mix, highlighting the strong project ramp-up, among others in Turkey and the good evolution of the business in the remaining countries. In Europe, overall, considering both regions as a whole, we have managed to improve our profitability, partly due to the shift in the mix to Eastern Europe. In NAFTA, Phoenix Plan continues to show its signs of improvements in the year with good underlying operations despite complex market evolution. Our revenues have decreased by 7.2% year-on-year mainly due to negative volume production performance in the first 9 months and further more the negative ForEx impact in Mexico and the U.S. However, on the other hand, EBITDA has increased by 7% if we exclude Phoenix impact of EUR 16.8 million in the first 9 months of 2024 and EUR 12.2 million in the first 9 months of 2025. We have succeeded in continuing to deliver the plan in the context of limited visibility. The good evolution of our Phoenix Plan leads to an EBITDA margin of 7.2%, improving versus last year profitability in almost 100 bps and setting the pace to achieve the target of around 8% EBITDA margin range for 2025. As you all know, turning around the operations in NAFTA to improve our market positioning and profitability is a key priority for Gestamp. In Mercosur, the first 9 months of 2025 have been marked by the ForEx evolution in Brazil and Argentina, leading to lower revenues in the period, decreasing by 10.4%. At FX constant, we grow in the region 3.4%, slightly below the market. In the other hand, reported EBITDA levels have remained flat in the period, leading to an EBITDA margin of 12.2%. Despite the decline in revenues in the period, we have been able to maintain EBITDA levels in absolute terms and improved profitability in 127 bps, thanks to the flexibility measures were implemented in the region and a favorable comparative with last year due to the floods suffered in the first 9 months of 2024. In Asia, reported revenues have decreased by 8.3% year-on-year in the first 9 months of 2025 to EUR 1.338 billion within a complex and very competitive market. Our negative performance in the period is partially explained by the ForEx evolution in China and extraordinary revenue growth in the first 9 months of 2024, almost 8% in the same period. Despite negative revenue evolution in the period, we have managed to maintain similar levels of profitability with an EBITDA margin of 14.5% for the first 9 months, which places Asia as the second most profitable region in the group. Our approach continues to be focusing on premium products in the region. We keep on working to gain positioning in this region, maintaining the strong levels of profitability. Asian region remains a great opportunity for us, not only in China, where we continue to develop high value-added products, but also India, where we're undertaking new projects with a strong performance. Finally, the scrap has seen revenues decreasing by 9.4% to EUR 395 million and an EBITDA in absolute terms by 16.1% year-on-year, reaching EUR 31 million in the period. This situation is mainly by the sustained decline in scrap prices during the period due to weaker demand, as Paco mentioned before. This negative evolution has led to an EBITDA margin of 7.9%, slightly lower than the first 9 months 2024, although above the reported profitability in 2023, which was circa 7.5% EBITDA margin. Overall, we have seen that our unique business model and geographic and global diversification has driven our profitability improvement in the first 9 months of 2025. Turning to Slide 14. We see that we have ended the first 9 months of 2025 with a net debt of EUR 2.107 billion, which is EUR 10 million above the EUR 2.97 billion reported in December 2024. This net debt increase considers mainly dividend payment of EUR 79 million and EUR 220 million of minorities acquisitions and M&A, due to the partial real estate asset sale agreement of EUR 246 million closed in September. During the 9 months of the year, the company has generated a negative free cash flow of EUR 41 million, excluding EUR 22 million extraordinary Phoenix cost. We have experienced a negative evolution in the 9-month period due to EBITDA decrease in nominal terms in the third quarter and a deterioration of working capital related to business seasonality and temporary one-off impact. We expect significant improvement in cash flow in the next quarter to meet full year guidance, generating positive free cash flow in the 2024 range. As a result of this, I'm moving to Slide #15. We ended up the first 9 months of 2025 with a reported net financial debt of EUR 2.107 billion, which implies the lowest reported net debt in the 9-month period since IPO. This lower net debt in absolute terms leads to a leverage of 1.6x, well below the 9 months 2024 figure, which was impacted by extraordinary negative impacts of last year's third quarter. While this quarter, we have benefited from the cash inflow from the partial real estate asset sale agreement of EUR 246 million. This leverage ratio provides us with a strong visibility to be below full year 2025 guidance as we are already in the 2024 range. Furthermore, as we commented in the previous slide, we expect to generate positive free cash flow in Q4 to keep on improving our leverage ratio for full year. Our priority is to preserve our financial strength, and we remain disciplined over leverage in absolute and relative terms. As we turn to Page 16, we are proud to share our latest actions which we have carried out in recent months and that have been key to provide a strong balance sheet flexibility. Firstly, and as a reminder, in September, we closed our partial real estate sale and leaseback agreement for our assets located in Spain strengthening our balance sheet. And secondly, the new senior bond issuance that we recently closed as of 6th of October that will contribute to extend our debt maturity structure. The new bonds have allowed us to increase pro forma average debt life from 2.6 years to 3.4 years by replacing the bond that was due to maturing the Q2 2026. Furthermore, Gestamp's new 500 million senior secured bond issuance represent the tightest price callable bond by an auto parts issuer since September 2021 with a coupon of 4.375%. We'll continue to actively manage our balance sheet structure to strength and flexibilize our financial profile. Thank you all, and now I hand over the presentation back to Paco for the outlook and final remarks. Francisco Jose Riberas de Mera: Okay. Thank you, Ignacio. And so moving forward, in terms of the market with the latest forecast, now we are assuming that the total global manufacturing of light vehicles is going to reach this year 91.4 million, which means an increase of 2% comparing with the 89.6 million of 2024. So it's a total increase in terms of units of 1.9 million units, and it's basically the increase that we see right now in Asia. So all the growth is basically coming from Asia. It's still positive evolution in Mercosur and still with a decrease in terms of manufacturing volumes in Western Europe of 3.6% and also in NAFTA around 2%, even if we have a good performance in terms of the Q3. So -- in this complex environment in terms of volumes, in Gestamp, we are taking all kind of actions in order to ensure profitability and to preserve our cash flow generation and also the strength of our balance sheet. As already commented, in terms of preserving our profitability, we are not counting with volumes. What we are counting is to implement as soon as possible all kind of strategies around the flexibilization of our footprint, of course, all kind of cost-cutting measures, especially impacting the fixed cost expense -- the fixed expenses, trying to improve our -- the efficiency of our operations and of course, with a clear focus in North America in delivering in the Phoenix Plan. Also with a clear commitment in the positive cash flow generation, basically by being very selective in our CapEx strategy and with a strategy very focused in our return on investment and of course, preserving our focus in the management of the working capital. And in terms of balance sheet, as Ignacio has already commented, we have been able to increase our flexibility. We have been able to crystallize some value through some partial asset disposals. We had a quite strong liquidity level. And of course, now after these bonds issuance, we have a more balanced maturities distribution. So with all this, moving to the Slide 20, in terms of guidance, we guided at the beginning of the year in terms of sales, in terms of revenues to be able to outperform versus the market in a low single-digit range. But as it was already stated in July, now we see that we are going to be below the performance of the market in terms of revenues. But even that, we guided in terms of profitability to be in line or to a slight improvement in terms of profitability of EBITDA margin. Now we are -- we believe we are going to be in the upper range. In terms of scrap, we guided to be basically in line with the previous year, but due to the decline of scrap prices, we see now that we are going to be below the results we get in 2024. And in terms of leverage and free cash flow, we guided to be in the range of 2024. And now we are expecting to end up the year with a better leverage than the one we had in 2024, and we are confirming the free cash flow in the range of the one we had in 2024. So just to wrap up, we consider our results in the year-to-date 2025 to be very positive and proving our resiliency of our business case. And of course, that is helping us to be very comfortable with the visibility we have for full year 2025. Clearly focused in delivering the Phoenix Plan. We are committed to be able to get this year 8% and also to be able to reach a double-digit margin as soon as possible. And in the case of balance sheet, we are, of course, moving to have this kind of a strong balance sheet and flexible financial profile. So now with this, now I hand it over to your questions. Ana Fuentes: Sorry, is the operator there to start the Q&A session? Operator: [Operator Instructions] The first question comes from Enrique Yáguez from Bestinver Securities. Enrique Yáguez Avilés: I have 4 questions, if I may. The first one is regarding the market outperformance. I don't know if you are feeling confident to recover next year the traditional path of growth of the company? Or for the contrary, we should see more normalized market outperformance broadly in line with the market taking into consideration your objective of focus on profitability? The second question is regarding the Phoenix Plan implementation. I know that the turnaround of NAFTA is performing quite well, but it seems there are some delays versus the original schedule. I don't know if we should see some savings from this schedule, potentially coming from a reduction in the measures implemented or just a question of the time frame. Third, regarding the sale and leaseback with Banco Santander. Could you provide a guidance of the annual cash outflow expected from this sale and leaseback? And fourth is regarding the potential measures on the steel sector. I know that you have the pass-through mechanism, but I would like to know your views about how these tariffs in euros and import tariffs might affect the European OEMs? Francisco Jose Riberas de Mera: Okay. Thank you very much for your questions. Concerning the first one, it's true that traditionally in Gestamp, we have been able to outperform the market for years. And it's true that today, right now, we are suffering for the growth in China, where we do have a very important operation where we are growing with the Chinese OEMs, but still our penetration level in that market is not the same one we have in other geographies. For the future, we are expecting to recover what we are doing, but I think we have stated that our focus is now to be clear in profitability and also to strengthen our balance sheet. So we are not running in order to be able to grow. We have invested. We have a very good position with all the customers. So the idea is that we will probably recover, say, our position in terms of performance with the market, but the focus is on profitability. Concerning the Phoenix Plan, we are in line. We are committed. We will get this double digit probably by end of next year. So everything is more as planned. We have some difficulties with some plans. We have some delays in implementing some investments. And of course, we have this kind of changes in the idea with the tariffs. That's why we have decided to postpone some kind of the actions in order to wait and see what could be some implications. But overall, we are satisfied with the plan, and I think we should be able to implement all the measures that we expected in the beginning of the plan. So in any case, positive news. I can -- the third question maybe will be for you, Ignacio. But if we go to the steel, in Europe, we had this announcement of the tariffs, still it's unknown whether it's going to be starting from the 1st of July or maybe it could be starting a little bit before. That could create a barrier in terms of the volumes of tons coming out from Asia, especially. But we are not expecting a big increase on steel prices for the auto market for the year 2026. In any case, these tariffs are relevant and also we have in 2026 expected an impact from the mechanism called [indiscernible], which is related to the CO2 emissions. So that could also have some kind of impact. It's not a tariff, but it's going to be similar to that. So overall, we are -- we expect to have less imports coming out from Asia but we are not expecting a big increase in the prices for the auto this year. Maybe we will have more increase in steel prices for sport but not for the auto qualities. And maybe Ignacio around Santander. Ignacio Vazquez: Sure. So maybe let me recap a little bit of the transaction that we did with Banco Santander, where we sold a minority participation in 4 companies which are the owners of our real estate assets in Spain. And basically, those real estate assets include the land, the building, but they don't include productive assets. With that in mind, those companies are -- have signed agreements with our operative companies where they get a lease agreement, and their revenue income is based on that lease agreement. Upon the results of those companies, there will be a shareholder discussion and each shareholder would be entitled to dividends. Those dividends would go through the minority participation in our P&L. Right now, as since closing, that was based in September -- at the beginning of September, we booked around EUR 0.7 million of minorities right up to Q3. If you extrapolate that number, that's the estimate that we have foreseen has normal impact in our minorities for the full year, a little bit north of that. I hope that answers your question, Enrique. Operator: [Operator Instructions] The next question comes from Francisco Ruiz from BNP Paribas. Francisco Ruiz: I have 3 questions. First one, and these first 2 are related. I hear you Paco saying that, well, you are mainly focused on profitability and leverage and trying to have a more, let's say, healthy balance sheet. But when I look at your leverage ratio, the leverage ratio are already at very low levels, and it's going to be lower in Q4 after a good free cash flow Q4 -- free cash flow in Q4. So what's the aim of Gestamp in terms of leverage for the future? And once you're getting to below 1.5x, what's your target for the future in terms of leverage? What's the use of cash that the company will do with this? The second one is despite you talk about flexibility and the CapEx continues to be above previous levels. I mean we talked about an 8% CapEx versus a 7% last year. So I don't know if this is something which is temporary and we should expect lower CapEx in the future? Or this is something that we should expect for the coming years? And last but not least is mainly a modeling question about the factoring, if you could give us the level of factoring at the end of the quarter. Francisco Jose Riberas de Mera: Okay. Thank you. So thank you, Francisco. So let me go to the first one. It's true that we have decided to focus on profitability because in terms of volumes, there is a lot of uncertainty, so I think it's time and it's the right time to focus in profitability and to preserve our financial health. So it's true that our leverage is not high, and it's true that we are intending to reduce even this leverage because we believe that this is going to be very healthy to be in a position, maybe even lower than 1.5x in terms of leverage for the next months and years to come. I don't know exactly what could happen. But today, as you see, there are many things going on in the auto sectors. There are many companies suffering. So I think for us, we believe that we have already done a very important effort in terms of CapEx in the last year. We have a very good footprint. We have a very good technology. We are focused on improving our position in Asia and India. But coming to your second question, we believe that we can really go and strengthen our position with a CapEx to revenues level much lower than the one we had in the previous year. It's true that in 2025 and the beginning of 2026, we still have some tail from the investment decided already 2 years ago. But in all the decisions that we are doing already for many months, we are clearly moving down in this CapEx ratio. So we are going to see in the near future that our CapEx and our debt, of course, and our free cash flow generation is going to be improved. And in terms of factoring? Ignacio Vazquez: Yes. With regards to factoring, Francisco, we are now at this quarter with close at EUR 849 million, which represents roughly 7.3% of our sales. So within the bank that we've stated as our commitment, which was between 6% and 8% of sales. Ana Fuentes: The next question comes from Christoph Laskawi, but I'm going to make it because he's in a train and he's unable to make it, okay? The first one is on free cash flow, and he's asking if the improvement in Q4 is going to be mainly driven by working capital. And he's also asking about the payment patterns from OEMs, if we are currently at a normal level or not. And his second question is on supply chain. And he's asking if costs doing -- more recently have been adjusted downwards in Europe and North America, to lower cost and if the situation is more stable now. And any comments on the current situation on the demand side is also appreciated. Francisco Jose Riberas de Mera: Okay. Good. I think in terms of the free cash flow improvement, you can talk about it, Ignacio, but regarding the payment conditions by our customers, it's true that, of course, we have like always a fight in order to collect some payments around the tooling like usual. But for us, I think what we are really committed is in order to be able to manage properly our working capital. But we don't see so far a kind of special pressure from customers due to financial restrictions. It's true that there is also a focus in their side in order to be able to preserve the supply chain. There are risks in the supply chain. And I think for them, it's very important to keep moving. So in terms of the supply chain, I don't see there is a kind of big topics already clear in the market. We see the demand stable, quite flat as stated. We have seen some problems in the supply chain. For instance, as you know, some noise around chips, also some noise around some raw materials. So of course, there are going to be things like that, and we need to react to these kind of things. But today, for us, we don't see anything which is really impacting at least we don't have a visibility or clear visibility by customers or any stops of their production plans. But maybe to elaborate a little bit more on working capital... Ignacio Vazquez: Yes, sure. I mean, I think that the behavior of working capital in Q4 for this year, you should take into account the turnaround of working capital that we experienced also in 2024. And I think that we should see a similar pattern, which is pretty much our seasonality to a certain extent. So part of the levers of the free cash flow for the following quarter will be based on that working capital turnaround. And as happened last year, we also are experiencing and as Paco referred to, we're fighting for some tooling collection, which we expect that to also come in into Q4. Operator: The next question comes from Juan Cánovas from Alantra Equities. Juan Cánovas: I wanted to know if you could provide more details about your plans to increase the penetration with the Chinese OEMs that you mentioned before. I think in your recent document, you also pointed that you were expecting to increase penetration in all the new EV OEMs by 2027. So I wonder whether you could provide details and color on that subject. Francisco Jose Riberas de Mera: Okay. Thanks for the question. Usually, I don't like to provide too many specific details on our nominations with the customers. It's true that we are increasing our sales a lot with Chinese OEMs so far, especially in China because the total manufacturing of Chinese OEMs right now outside from China is still quite limited. We are working with them in all the different expansion plans that they have in Europe and America and also in other areas of Asia. But still, these plans are not moving forward very aggressively. In terms of what we do in China, from the beginning, we have some position in China trying to be allocated in the upper segment in terms of prices and quality and margins. So what we basically do in China, not our full range of products and technologies, but we are focusing hot-stamping and high-quality products like in the case of the door rings. We are also specialists in the area of chassis, special chassis, and we do a lot of chassis for EVs. And also we do a lot in the area of hinges and checks and power systems in the range of Edscha. For instance, I can tell you that today, in Edscha, it's more than 30% of our sales are in China, and more than 50% of the sales of Edscha in China are to pure domestic Chinese OEMs. We are growing right now with many, many, many customers, many Chinese customers. And the increases that we have from one day -- from one year to another is sometimes very, very aggressive. Again, I don't want to provide more details, but you can read our sales in Asia as going down slightly in China, going up a lot in India. And in the case of China, our sales to, let's say, European players are going down, and we are able to offset and compensate part of it what we are doing now with pure Chinese OEMs. So we see a good trend. We have a very good position with them in their research and development centers. And as far as they go to more sophisticated EV vehicles, we have much more chances to be quite -- very more suitable with our technology. Chassis for EVs, we are very much advanced and we're one of the leaders in terms of chassis for EV solutions. And in the areas of door rings, we are clearly one of the players over there with our technologies. We have our overlap patch technology. So I think we are doing a very good job, and we are very well positioned for that. So still, it will take some time to recover and to move all the business we have from 2 European players to Chinese, but we are in the right path. And of course, we are expecting very good news for the expansion of the Chinese OEMs outside from China. Operator: The last question comes from Anthony Dick from to ODDO. Anthony Dick: My question was regarding the outperformance or the underperformance rather. I heard your comment about China. And obviously, I think you're not the only one in that situation for sure. But I was actually looking at Western Europe, where the underperformance has accelerated throughout 2025. And I also heard your comments about prioritizing profitability, but I was just keen to understand whether there was something specific in the Western European region that was causing this increased underperformance maybe with some clients or another or something like that? Francisco Jose Riberas de Mera: Okay. Thank you. Yes, it's true what I mentioned, I think the most important part of our underperformance is coming from China and also especially from the Chinese OEMs. In Europe, I think we do have an underperformance in Western Europe, not only in this quarter but also in 2024. But it's true that we have offset the part of this underperformance with a very healthy growth that we have in different countries or around Eastern Europe. We have been increasing our investments and our operations in countries like Poland, Czech Republic, Slovakia, Hungary, Romania, also in Bulgaria and also in Turkey. So this is offsetting part of that. It's true that as far as we are leaders in this market, the decline that we have in Western Europe compared with the market sometimes is linked to some specific programs that we have a very good position out of them. I can tell you that, for instance, there have been countries like Spain that have been impacted to some specific programs. This year, we are impacted by a specific program that happened in U.K. So there are always a lot of questions all around. But concerning what we have doing the analysis, are we losing market share in Europe? The question -- the answer is no. We are doing well with them. We are -- in most of the new programs, we are doing a very good renewal of the programs, a carryover of many programs. So we are doing well in Western Europe and growing a lot in Eastern Europe. Ana Fuentes: Okay. Thank you. Thank you very much for taking the time to join us today. And as usual, the IR team remains at your disposal for any further doubts. Thank you again. Francisco Jose Riberas de Mera: Okay. Thank you very much. Ignacio Vazquez: Thank you.
Jonathan Cohen: Good morning, everyone, and welcome to the Oxford Square Capital Corp. Third Quarter 2025 Earnings Conference Call. This is Jonathan Cohen, and I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Kevin Yonon, our Managing Director and Portfolio Manager. Bruce, could you open the call with the disclosure regarding forward-looking statements? Bruce Rubin: Sure, Jonathan. Today's conference call is being recorded. An audio replay of the conference call will be available for 30 days. Replay information is included in our press release that was issued this morning. Please note that this call is the property of Oxford Square Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website at www.oxfordsquarecapital.com. With that, I'll turn the presentation back to Jonathan. Jonathan Cohen: Thank you, Bruce. For the quarter ended September, Oxford Square's net investment income was approximately $5.6 million or $0.07 per share compared with approximately $5.5 million or $0.08 per share in the prior quarter. Our net asset value per share stood at $1.95 compared to a net asset value per share of $2.06 for the prior quarter. During the quarter, we distributed $0.105 per share to our common stock shareholders. For the third quarter, we recorded total investment income of approximately $10.2 million as compared to approximately $9.5 million in the prior quarter. In the third quarter, we recorded combined net unrealized and realized losses on investments of approximately $7.5 million or $0.09 per share compared to combined net unrealized and realized losses on investments of approximately $1.1 million or $0.01 per share for the prior quarter. During the third quarter, our investment activity consisted of purchases of approximately $58.1 million and repayments of approximately $31.3 million. During the quarter ended September, we issued a total of approximately 5.4 million shares of our common stock, pursuant to an at-the-market offering, resulting in net proceeds of approximately $11.8 million. During the quarter, we issued $74.8 million of 7.75% unsecured notes due July of 2030, and we fully repaid the remaining balance of $34.8 million of our 6.25% unsecured notes due April of 2026. On October 30, our Board of Directors declared monthly distributions of $0.035 per share for each of the months ending January, February and March of 2026. Additional details regarding record and payment date information can be found in our press release that was issued this morning. With that, I'll turn the call over to our Portfolio Manager, Kevin Yonon. Kevin? Kevin P. Yonon: Thank you, Jonathan. During the quarter ended September 30, U.S. loan market performance was stable versus the prior quarter. U.S. loan prices, as defined by the Morningstar LSTA U.S. Leveraged Loan Index, decreased slightly from 97.07% of par as of June 30 to 97.06% of par as of September 30. According to LCD, during the quarter, there was some pricing dispersion with BB-rated loan prices decreasing 11 basis points, B-rated loan prices increasing 37 basis points and CCC-rated loan prices decreasing 227 basis points on average. According to PitchBook LCD, the 12-month trailing default rate for the loan index increased to 1.47% by principal amount at the end of the quarter from 1.11% at the end of June. Additionally, the default rate, including various forms of liability management exercises, which are not captured in the cited default rate; remained at an elevated level of 4.32%. The distress ratio, defined as a percentage of loans with prices below 80% of par, ended the quarter at 2.88% compared to 3.06% at the end of June. During the quarter ended September 30, 2025, U.S. leveraged loan primary market issuance, excluding amendments and repricing transactions, was $133.7 billion, representing a 22% increase versus the quarter ended September 30, 2024. This was driven by higher refinancing activity, partly offset by lower non-refinancing issuance, including lower M&A and LBO activity versus the prior year comparable quarter. At the same time, U.S. loan fund outflows, as measured by Lipper, were approximately $540 million for the quarter ended September 30. We continue to focus on portfolio management strategies designed to maximize our long-term total return. And as a permanent capital vehicle, we historically have been able to take a longer-term view towards our investment strategy. With that, I will turn the call back over to Jonathan. Jonathan Cohen: Thank you, Kevin. Additional information about our third quarter performance has been posted to our website at www.oxfordsquarecapital.com. With that, operator, we're happy to open the call for any questions. Operator: [Operator Instructions] Your first question comes from Erik Zwick from Lucid Capital Markets. Erik Zwick: Jonathan, I wanted to start with maybe a question. You noted the nice net portfolio growth in the quarter and I think one of the stronger quarters of purchase activities you had in a while. So wondering if you could just talk maybe a little bit about what types of investments you found attractive during the quarter, maybe a little bit of kind of color into what you added to the portfolio. Jonathan Cohen: Sure. We'll present the answer to that question, Erik, in essentially two parts. The first with Joe Kupka on the CLO side of the book and the second on the leveraged loan side. Joe? Joseph Kupka: Erik, yes, so we were able to purchase a couple of CLO equity pieces. They were both long-dated, top-tier managers that we felt good about. So steady, predictable cash flow that we expect to hold for quite a while, just similar to what we've done in the past, just good relative value long-dated CLO equity. Jonathan Cohen: And as you know, Erik, from our perspective, the best hedge in this asset class really is duration that the longer the reinvestment period, the greater we think everything else held constant should be the level of protection against economic dislocation or financial markets disruption. Kevin? Kevin P. Yonon: Sure. And on the loan side, we had a fairly active quarter focused sort of in two parts. First is mostly on sort of relatively higher-quality credits with lower spreads in the market, but that generate decent yield to maturities as well as some opportunistic trades, which are somewhat less liquid names, where you're able to capture a bit more spread at prices below par. Erik Zwick: I appreciate the color from all three of you there. Maybe kind of turning that question and looking forward a little bit now as you look at your pipeline for potential new additions here in 4Q, what is that split looking at maybe between CLO and loans and then yield activity? Or kind of what does the yield look like in the portfolio relative to maybe kind of current average portfolio yield? Jonathan Cohen: Sure, Erik. So as of our reporting date, we are -- we have hit the maximum in terms of our ability to add additional CLO equity without rotating the portfolio. So from a portfolio management perspective, I think you could reasonably assume that any additional purchases on the CLO equity or junior debt tranche side of the book are going to be accompanied by appropriate levels of sales. In terms of what we're seeing in the new issue and secondary market on the leveraged loan book, Kevin? Kevin P. Yonon: Sure. So we will continue to focus both on the primary and secondary market for leveraged loans. On the primary side, from our perspective, in terms of what's interesting, it's been a bit of a slower market, more sort of higher-quality, much lower spread credits are out there participating in the primary. So I would anticipate just as kind of has happened over the last many quarters that we focus more on the secondary market and more on situations where it's less sort of liquid credits in the secondary market that -- where we can capture a bit more spread. And just given the way the sort of loan market has been trading, we can capture a lot of these at par or below at this point, which presents a decent opportunity for us going forward. Erik Zwick: And then switching gears a little bit, I noticed the cash and equivalents balance at the end of the quarter moved up to $51 million. It looks like it's a little bit higher than it's been in the past. Anything to take note of there? Is that more just kind of a timing issue? Jonathan Cohen: I think it's principally timing as a result, Erik, of the ATM issuances. Erik Zwick: Got it. That makes sense. And kind of curious, given that the level at which the stock is trading today and there are some preferences for institutional investors to have stock may invest and have higher prices, curious, have you given any thought to a reverse stock split similar to what we did at Oxford Lane? Jonathan Cohen: We like to think, Erik, that we're giving thought to any viable idea on a continuous basis. Erik Zwick: Makes sense. And last one for me, and then I'll step aside. It's been a couple of quarters now since the NII has covered the dividend. Just curious from your seat, what levers do you have at your disposal on either the income or expense side to improve the run rate of NII in the near to midterm? Jonathan Cohen: Well, we're running a relatively lightly levered portfolio at the moment relative to our statutory limitation. That's certainly one element that's probably worthy of consideration, but there are certainly others. Operator: There are no further questions at this time. I will now turn the call over to Jonathan Cohen. Please continue. Jonathan Cohen: We'd like to thank everybody on the call and listening on the replay for their interest and for their participation. We look forward to speaking to you again soon. Thanks very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Amicus Therapeutics Third Quarter 2025 Financial Results Conference Call and webcast. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Andrew Faughnan, Vice President of Investor Relations. You may begin. Andrew Faughnan: Good morning. Thank you for joining our conference call to discuss Amicus Therapeutics' Third Quarter 2025 Financial Results and Corporate Highlights. Leading today's call, we have Bradley Campbell, President and Chief Executive Officer; Sebastien Martel, Chief Business Officer; Dr. Jeff Castelli, Chief Development Officer; and Simon Harford, Chief Financial Officer. Joining for Q&A, we have Ellen Rosenberg, Chief Legal Officer. As referenced on Slide 2 of the presentation, I would like to remind you that we will be making forward-looking statements on today's call. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings, which are all available on the IR portion of our corporate website. Forward-looking statements are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. Additionally, you are cautioned not to place undue reliance on any forward-looking statements. At this time, it's my pleasure to turn the call over to Bradley Campbell, President and Chief Executive Officer. Bradley? Bradley Campbell: Great. Thank you, Andrew, and welcome, everyone, to our third quarter conference call. I'm very pleased to report another great quarter for Amicus, highlighted by strong revenue growth, GAAP profitability and continued confidence in our positive outlook going forward. Let me go through a few highlights before I turn it over to the team to go through in more detail. First, we delivered another quarter of double-digit revenue growth in our Fabry and Pompe core business, a trend we expect to sustain into the years ahead. Second, we remain firmly confident in our growth trajectory as we approach year-end. Galafold delivered 13% year-over-year patient growth this quarter, driven by record demand and robust new patient starts. For Pombiliti and Opfolda, Q3 represented another strong quarter marked by significant momentum in both our established and newly launched markets, underpinned by growing commercial demand and increasing new patient starts. In fact, this was the strongest quarter ever for new commercial demand for both Galafold and Pombiliti and Opfolda. Both products are on track to meet current consensus sales estimates for the full year. Third, we continue to emphasize the growing body of evidence and differentiation of Pombiliti and Opfolda through scientific publications and congress presentations. In fact, recently at ICIEM in September, we shared new 4-year data from the PROPEL ongoing extension study, demonstrating stability or improvement in key endpoints of muscle function and strength in ERT-experienced patients, which Jeff will review in more detail later in the call, along with some exciting new real-world evidence supporting Pombiliti and Opfolda. Fourth, we reaffirm our confidence that our 2 commercial products, each with blockbuster potential, are on track to deliver combined sales of $1 billion in 2028. Galafold's strong growth trajectory supported by improving diagnostic rates and patient access, coupled with meaningful contribution we expect from Pombiliti and Opfolda to our long-term performance reinforces our confidence in this milestone. Fifth, alongside our partners at Dimerix, we continue to advance the development of DMX-200, a first-in-class therapy in late-stage Phase III development for FSGS, a rare life-threatening kidney disease. The ACTION3 pivotal study is over 90% enrolled and remains on track to complete enrollment by the end of the year. And our work with DMX-200 and the potential to address the considerable unmet need in FSGS represents an important and growing part of the Amicus story. And finally, as we continue to maintain our financial discipline, we are pleased to deliver GAAP profitability and a growing cash position in the third quarter and remain very confident in achieving GAAP net income for the second half of the year. Altogether, we are proud of our achievements this quarter and believe Amicus is well positioned to continue to create significant shareholder value while fulfilling our mission for patients in the years ahead. With that, let me now hand the call over to Sebastien to review the commercial business in more detail. Sebastien? Sebastien Martel: Thank you, Bradley, and good morning to everyone. So let's start with Galafold on Slide 5. You see that revenue reached $138.3 million, up 12% at constant exchange rates and up 15% in reported terms. The underlying growth of this product remains very positive and is driven by the number of new patient starts globally. Year-over-year, the underlying growth in patient demand increased by 13%. We ended the quarter with approximately 69% of the global market share of treated Fabry patients with amenable mutations. Galafold is clearly positioned as the treatment of choice for amenable patients among prescribers, and there are still many more patients eligible for our therapy. Turning to Slide 6. Our leading market continue to be the biggest driver of the strong patient demand for Galafold. We saw record high demand in Q3, as Bradley just mentioned. And on a year-to-date basis, new patient starts have reached their highest level since launch. The global mix of patients on Galafold today is about 65% naive and 35% switch. This compares with 60% and 40%, respectively, in 2024. So clearly, we're seeing stronger uptake in naive populations. And while we continue to achieve high market shares in countries where we've been approved the longest, there's still plenty of opportunity to switch patients over to Galafold and to keep growing the market as we penetrate the diagnosed, untreated and newly diagnosed segments. Given the sustained growth in patient demand and our projection of a record level of new patient starts this year, we remain highly confident in our full year 2025 growth guidance for Galafold, trending in line with current full year consensus estimates. Key drivers behind the robust demand for Galafold, which we expect to continue well beyond 2025 are: first, finding new patients and penetrating into the diagnosed and treated population, including shortening the pathway to diagnosis; second, expanding Galafold into new markets and extending the label; third, driving Galafold's share of treated amenable patients. We're actually seeing that in most mature markets, we can reach 85%, 90% share, so we know that there's the potential to reach those levels globally. And fourth, sustaining compliance and adherence rates above 90% so that patients who go on Galafold predominantly stay on Galafold. On Slide 5, you can see the significant unmet need in Fabry disease today. So over 12,000 people receive Fabry treatment worldwide, while about 6,000 diagnosed patients remain untreated. The literature suggests actual prevalence may exceed 100,000 patients, indicating meaningfully larger undiagnosed populations and substantial market opportunity for Galafold. We're highly confident that a small molecule is a compelling treatment option for the untreated and undiagnosed populations as indicated by the increase in naive new patient starts. Late onset Fabry makes up a growing percentage of the newly diagnosed and treated population, which is enriched for amenability to Galafold. On Slide 8, we just provide a great example of our ongoing efforts to enhance Fabry disease awareness and support improved diagnosis. The diagnosis of Fabry disease is unfortunately often delayed for up to a decade or more due to the rarity of the disease, high variability of presentation and symptoms that are quite often nonspecific and resemble those of other diseases. So the new Finding Fabry campaign in the U.S. aims to help health care professionals recognize these diverse symptoms and prevent misdiagnosis. So to wrap up on our Fabry section, with excellent momentum, the sizable untreated population and our strong IP protection, Galafold has a long runway well into the next decade and a clear path to surpassing $1 billion in revenue. Turning on now to Pompe disease on Slide 10. We outline our global launch progress with Pombiliti and Opfolda. Third quarter revenue reached $30.7 million, up 42% at constant exchange rates and up 45% in reporting terms. Year-to-date, Pombiliti and Opfolda has grown 59% at CER and 61% in reported revenue. The majority of sales came from our initial 5 launch countries, the U.S., U.K., Germany, Spain, Austria, although as I'll highlight in a moment, we've actually secured reimbursement in additional 10 countries thus far in 2025 with 4 new markets since the end of Q2, namely Japan, Belgium, Ireland and Luxembourg. For the quarter, the U.S. represented approximately 43% of revenue, while ex-U.S. represented 57% of sales. Q3 showed strong sales growth and a high level of patient demand. We continue to see patients switching proportionately based on market share as well as a broadening and deepening of prescriptions with more sites coming online and multiple new prescriptions from physicians. We're also seeing a growing number of patients exploring alternative treatment options and actually advocating for their own decisions to switch, especially in the U.S. In 2025, we have observed many positive lead indicators that support the growing launch momentum. Globally, the number of avalglucosidase alfa patients that have switched to PomOp have actually doubled in the first 9 months of 2025 as compared to the entirety of 2024. Similarly, naive prescriptions ex-U.S. have also doubled in the first 9 months as compared to the total of 2024. Given these indicators, we're reiterating our full year 2025 revenue growth guidance for Pombiliti and Opfolda of 50% to 65% at constant exchange rates, trending in line with the current full year consensus sales estimates. We expect Pombiliti and Opfolda to be a major contributor to multiyear growth for Amicus based on key growth drivers, namely: first, continuing to increase the number of net new patients; second, increasing the depth and breadth of prescribers; third, launching in up to 10 new countries in 2025; fourth, differentiating our therapy through evidence generation and real-world evidence; and five, maintaining over 90% compliance and adherence rates. Moving to Slide 11, looking at the geographic expansion of Pombiliti and Opfolda. As I mentioned, today, we're now reimbursed in 15 countries and continue to observe strong execution in the newer launch markets. Notably, 5 of the countries launched during the second quarter generated revenue in Q3, Switzerland, Italy, the Czech Republic, Portugal and the Netherlands. As mentioned, we recently reached pricing and reimbursement agreements in Japan, Belgium, Ireland and Luxembourg. We also continue our work to secure broad access to patients through the EU. A little more color on Japan as it's a bit of a unique market. At the end of Q3, we saw the first commercial patients in Japan. Majority of patients in Japan have actually been on Nexviazyme for 2 to 3 years, and that represents a strong market opportunity for us. I hope that commercial overview provides a strong sense of the continued execution and growth in Galafold and the building momentum in the launch of Pombiliti and Opfolda. With that, I'll now hand the call over to Jeff to highlight the work we do to further differentiate Pombiliti and Opfolda. Jeff? Jeffrey Castelli: Thank you, Sebastien, and good morning, everyone. Moving on to Slide 12. We highlight a few examples of our rapidly expanding and diverse body of evidence supporting the differentiation of Pombiliti and Opfolda in Pompe disease across clinical trials, mechanistic studies, real-world data and case studies. In September, we presented new 4-year data from the PROPEL open-label extension. This new analysis presented at the International Congress of Inborn Errors of Metabolism showed patients within the ERT experience group demonstrated durable improvements or stability on measures of muscle function, muscle strength and biomarkers out to 4 years. On Slide 13 and also presented at ICIEM, we'd like to highlight a presentation by an independent group in the U.K. that followed 28 patients switched from Myozyme to PomOp, which was an n of 13 or Myozyme to Nexviazyme, which was an n of 15. And that analysis reported improvements in motor function for the patients that switched from Myozyme to Pombiliti Opfolda. We expect this body of evidence to continue expanding over time, strengthening the case for Pombiliti and Opfolda as a compelling treatment option in Pompe disease. Now moving to Slide 15 and DMX-200. As previously announced, we took a major step forward in our strategy to strengthen our portfolio through a successful U.S. licensing agreement with Dimerix to commercialize DMX-200, a first-in-class treatment in late-stage development for FSGS, a rare and potentially fatal kidney disease. With blockbuster market potential, we remain highly encouraged by the data seen to date and believe this asset brings immediate strategic value to Amicus today and will create value for patients and shareholders moving forward. Moving on to Slide 16. We are impressed by the strong momentum Dimerix has built and the growing body of evidence supporting this transformative potential of DMX-200. The pivotal Phase III ACTION trial -- sorry, ACTION3 trial is progressing well with more than 90% of patients now enrolled and remains on track for full enrollment by year-end. This study is robustly designed and strongly powered with several successful interim analyses already completed. Importantly, there is FDA alignment on proteinuria as the primary endpoint for approval. In October, Dimerix provided an update on PARASOL data analysis that showed a consistent result in line with the prior analyses, supporting, again, proteinuria as an endpoint for standard approval. We anticipate requesting an additional meeting with the FDA in the first quarter to further discuss the next interim analysis from the ACTION3 study and the next steps for DMX-200 development. With that, let me now hand the call over to Simon to review our financial results and outlook. Simon? Simon Nicolas Harford: Thank you, Jeff. Our financial summary begins on Slide 18 with our income statement for the third quarter ending September 30, 2025. For Q3, we achieved total revenue of $169.1 million, which is a 19% increase over the same period in 2024. At constant exchange rates, revenue grew 17%. The global geographic breakdown of total revenue in the quarter consisted of $98.8 million or 58% of revenue generated outside the United States and the remaining $70.3 million or 42% coming from within the U.S. Cost of goods sold as a percentage of net sales was 12% for Q3 compared to 9% in the same period last year. The total GAAP operating expenses increased to $115.3 million for the third quarter of 2025 as compared to $106.6 million in the third quarter of 2024, an increase of 8%. On a non-GAAP basis, total operating expenses increased to $95.4 million for the third quarter of 2025 as compared to $82.6 million in the third quarter of 2024, an increase of 15%. We define non-GAAP operating expense as research and development and SG&A expenses, excluding stock-based compensation expense, loss on impairment of assets, changes in fair value of contingent consideration, restructuring charges and finally, depreciation and amortization. On a GAAP basis, net income in the third quarter 2025 was $17.3 million or $0.06 per share compared to a net loss of $6.7 million or $0.02 per share for the third quarter of 2024. This was the first quarter of 2025 that Amicus delivered positive GAAP net income, consistent with our guidance to have positive GAAP net income during the second half of 2025. While we are pleased with the positive Q3 GAAP net income results, let me remind you that in the early stages of turning profitable, GAAP profitability may not be linear quarter-to-quarter. We do, however, anticipate having positive GAAP net income for the second half of 2025. In Q3 2025, non-GAAP net income was $54.2 million or $0.18 per share compared to non-GAAP net income of $30.8 million or $0.10 per share in the third quarter of last year. Cash, cash equivalents and marketable securities were $263.8 million as of September 30, 2025, compared to $249.9 million as of December 31, 2024. This is a $32.8 million increase during the third quarter versus the prior quarter. So we are importantly generating cash also this quarter. On Slide 19, we are reiterating our full year financial guidance for 2025 as follows: total revenue growth of 15% to 22%. Galafold revenue growth of 10% to 15%. Pombiliti and Opfolda revenue growth of 50% to 65%, all growth rates are at constant exchange rates. Based on our performance for the 9 months and our clearer line of sight for the fourth quarter, including the anticipated FX impact, we are confident that total and product revenues for the full year are trending in line with full year consensus numbers, which you can find via the Investors portion of our website. Gross margin is expected to be in the mid-80s, which we define as 83% to 87% approximately and will likely be at the top end of that range. As a reminder, 2025 is a hybrid year for Pombiliti Opfolda COGS as we have worked through previously expensed inventory during the first 3 quarters of 2025. As a result, Pombiliti Opfolda COGS will be expensed through Q4 '25. Non-GAAP operating expense guidance remains $380 million to $400 million. However, we anticipate being at the high end of the guidance range. And finally, we anticipate positive GAAP net income for the second half of 2025. And with that, let me turn the call back over to Bradley for our closing remarks. Bradley Campbell: Great. Thank you, Simon, Jeff, Sebastien. As we come to the end of our presentation, let me just remind you of our strategic priorities for the year. And in closing, I just want to reiterate how encouraged we are by the growing impact of our therapies plus the very promising Phase III asset that we've added to our pipeline for FSGS. Our expertise in rare diseases and proven track record of commercial execution support our ongoing commitment to our mission and sustaining long-term growth in 2025 and beyond. I'm confident we can continue to develop and deliver transformative treatments and create enduring value for patients and shareholders alike. With that, operator, we can now open the call to questions. Operator: [Operator Instructions] Our first question comes from Joe Schwartz of Leerink Partners. Joseph Schwartz: Congrats on the strong performance. Now that we're into the second full year of the Pom-Op launch, I was wondering if you could talk a little bit about the overall reception to both the label for Pom-Op, especially in the U.S. and the real-world evidence that you seem to be layering in now and how that's driving prescription patterns and whether the conversations vary across treatment centers? Do any certain types of physicians or patients seem to appreciate one set of data more than others? What are you finding is encouraging the most patients to switch to Pom-Op nowadays? Bradley Campbell: Joe, thanks a lot for the question. I like the multipart question there, but we'll do our best to get to all of those pieces. I heard some labeling questions as well as real-world evidence and how that's influencing or impacting the prescriber base. And then finally, is there a particular data set that is more compelling or not. So from a label perspective, I think it's largely been well received, although clearly, in the United States, we hope to continue to look for ways to expand that label, in particular, down to pediatric patients with late-onset Pompe disease and infantile onset patients as well. As Jeff highlighted, we have ongoing studies there. So -- and those should support label expansion globally. So I think we continue to look for ways to expand that population, and we should start seeing the benefit of that sometime next year. In terms of real-world evidence, for sure, that is a growing and important part of the conversation with physicians. I can tell you, I've had the privilege of attending a number of launch meetings around the world. And as that body of evidence grows, Jeff highlighted one, we've talked about some case studies previously, we will continue to support those publications. That will only be more and more supportive, we think, of the use of Pombiliti and Opfolda. So please look out for continued highlights there in the medical congresses throughout this year and into next year. And then maybe, Jeff, from your perspective, just talk a little bit about some of the different types of data that we think are so important for physicians and maybe also about quickly the importance of finding the right endpoints for patients as well as physicians. Jeffrey Castelli: Yes. Thanks, Brad, and thanks, Joe, for the question. From our -- like the 4-year data we just reported at ICIEM, I think the long-term data is of particular interest really across the populations. That's always been one of the challenges with early Pompe treatments is sort of a lack of the durability. And we've been quite pleased and physicians and stakeholders have been quite pleased with the durability we've seen across trials. In terms of the real-world data, the switch experience was something in our trials that was very strong, and we continue to see that in various real-world settings. What is lacking, of course, is indirect comparisons of PomOp and Nexviazyme, and we were very pleased to see one of the most robust indirect comparisons come out at ICIEM, which we highlighted in the slides from a large group in the U.K. that switched from either Myozyme to PomOp or Myozyme to Nex. And lastly, I would just say, individual case studies are always very important. You can always learn a ton even from individual patients who might have a unique background. We've seen some really interesting case studies of people on 4x the dose of Myozyme and not doing well and switching to PomOp and having quite good experiences. And of course, pediatrics is important. We've had some really compelling pediatric case studies. We continue to really invest in our pediatric trials and look forward to actually expanding the labeling here in the U.S., hopefully mid next year for adolescent patients. And in terms of endpoints, of course, it's always critical what do you look in trials versus in following patients in the real world. And usually, you don't do quite the same comparisons, and we're really helping work with key stakeholders about what is the right sort of cadence of monitoring patients, what are the key endpoints to look at, especially as physicians try to make decisions on switching. Operator: Our next question comes from Dennis Ding of Jefferies. Yuchen Ding: We have 2 on Pompe, if we may. Number one, congrats on the progress, but talk about the U.S. new patient starts in Q3 as they continue to go up relative to some of the commentary you made earlier this year for April and May? And then number two, as we think about 2026, consensus seems to expect a big inflection in Pompe revenue. Can you talk about things that you can actively do to accelerate that revenue trajectory relative to 2025? And expanding your sales force is something you're considering, particularly in the U.S.? Bradley Campbell: Thanks, Dennis, for the questions. I think you were talking about kind of further color on progress in the U.S. and our other markets in Q3 and then also kind of looking forward to the future, how can we continue to drive that building momentum. So yes, Q3, as I said on the call, was the largest ever net commercial demand for Pombiliti and Opfolda, which is really exciting. And that -- the U.S. was a huge contributor to that growth. We are seeing significant increases in breadth and depth of prescriptions in the United States. We've actually improved our time to reimbursement and everyday helps. So that -- I think that helps with the margins as well. And we're seeing very strong adherence and compliance rates as well. So really excited about the U.S., but that's not just here in the States, as Sebastien highlighted on the call, all of our launch markets, we think, are progressing really well. As we head into next year, of course, it's a little bit too soon to give guidance, but I think the momentum we're building in Q4 gives us confidence to see continued momentum going into 2026. What do we do to continue to support that momentum growth? Part of it for sure is just experience, and I think Jeff's point around that real-world evidence. I've literally been in meetings where some of those data points are presented for the first time and the excitement as people are seeing new data and new populations I think, is a key part of seeing that translate then into wanting to use the product in a new or different way. So I think that's part of it for sure. As Sebastien mentioned, we have a whole host of new countries contributing to the demand. This quarter, those new markets like Japan, as an example, will be modest in contribution from a revenue perspective. But of course, going into next year, the countries that we're launching in Q4 will have a significant contribution. Another one that we didn't highlight on the call, but is definitely going on in the background is the experience in the Netherlands. We talked before about the expectation there that we'll see 70% of patients switch over to late -- or excuse me, switch over to PomOp. That will continue to be a significant contributor as well. We've made great progress over Q3 and into Q4 in switching those patients. So I hope that gives you some flavor for the places that we're focused. But again, I think as more than anything, as more and more people have experience, as more and more real-world evidence comes out, that fuels the momentum that we're seeing. Operator: Our next question comes from Anupam Rama of JPMorgan. Anupam Rama: Single question, single part from me. For Galafold, in particular, you talked about the strongest patient adds since launch on a year-to-date basis. Can you expand a little bit on if that's coming from core countries? Or is that being more driven by emerging countries? Bradley Campbell: Yes. Thanks, Anupam. Sebastien, do you want to take that one? Sebastien Martel: Yes. So Anupam, as I mentioned, the key countries continue to grow, and this is, for the most part, driven by naive patients being diagnosed and us having over time established Galafold in those markets now as the standard of care for newly diagnosed naive patients with amenable mutations. We continue to see some degree of switches in those markets where we've launched in the more recent past, if you want. But as I highlighted, there is a significant underlying growth potential simply because we continue to see that Fabry is unfortunately really underdiagnosed. And so we've talked in the past about the fact that today, the number of diagnosed patients has far exceeded what we had projected right before we launched. And we continue to see, again, demand that is stronger than what we anticipated right before launch. Operator: Maxwell Skor from Morgan Stanley. Maxwell Skor: Just one on DMX-200. Is there a defined threshold for MCP-1 levels or other inflammatory markers that would make patients particularly good candidates for DMX-200? And any thoughts on FILSPARI, the FDA no longer requiring an advisory committee meeting for FILSPARI. Bradley Campbell: Maybe I'll take the second one, and then, Jeff, you can talk about the MCP-1 levels, which we do believe are correlated with the potential for that product. So it's a great question. As it relates to the AdCom for FILSPARI, what I'll just say is we are eagerly anticipating the progress there. We're hopeful for them, and we think it's a good sign, in fact, that they are no longer requiring an AdCom, and we're wishing them well. As it relates to the relationship of MCP-1 and proteinuria, Jeff, maybe you can respond there. Jeffrey Castelli: Yes. Thanks for the question. So briefly, MCP-1 is the monocyte chemoattractant protein. That is the chemokine that binds the CCL2 receptor and leads to the monocyte-driven inflammation. So DMX-200 is interrupting that signaling. In Phase II, we did see a nice effect on MCP-1 levels from DMX-200. And we actually saw the patients with the highest MCP-1 and the highest proteinuria showed the most robust responses on proteinuria in that Phase II. For the Phase III study, we did not have any sort of entry criteria in MCP-1. We are measuring MCP-1 throughout the study, and we do intend to sort of analyze the results based on different MCP-1 levels. We do anticipate, again, like we saw in the Phase II that people with higher MCP-1 are likely to have more inflammation and therefore, are likely to show even more of an impact of DMX-200. So we certainly will continue to learn more, and that is one of the key biomarker endpoints in the Phase III. Operator: Our next question comes from Ritu Baral of TD Cowen. Joshua Fleishman: This is Joshua Fleishman on the line for Ritu. Congrats on the quarter. So what impact may BIOSECURE 2.0 have on the usability of Ireland plant PomOp product in the U.S.? And how has physician feedback changed over the last quarter on the competitive dynamic in Pompe? Are the goalposts changing from when docs feel comfortable to switch patients to PomOp? Bradley Campbell: Thanks, Joshua, for the questions. We had one on BIOSECURE 2.0 and one on the continued sentiment around experience with Pombiliti Opfolda. So on the first one with BIOSECURE, look, we've continued to believe that we do think highlighting the importance of U.S. biotech manufacturing is critical for our economy going forward. However, the move to Dundalk and you might have seen on the call, the approval now from Europe of that facility, and we're eagerly anticipating the approval of the United States as well, I think, is a great way to ensure that we have supply coming from a friend-shored location in Ireland. We are confident that we will be able to maintain security of supply and at least the way that BIOSECURE has been evolving from last year into this year, I think, gives us even more confidence that we'll have a stable supply coming out of Ireland for the long time to come. And so we're not concerned about the evolution of that legislation. As it relates to the experience, I think everybody, I think, is eagerly anticipating or eagerly asking those questions and is exactly the right question. You may remember that when we launched, we said that part of our goal is to continue to provide experience and evidence to the physician and patient population so they can understand the opportunity with Pombiliti Opfolda. And as that evidence mounts, we are convinced that we will demonstrate that Pombiliti Opfolda is the right therapy for patients. And so I think I would encourage folks to continue to look at the posters and presentations as well as the publications that have come out. I think that evidence will only grow. And as Jeff said, part of it also is with now the availability of multiple therapies, what should physicians use in a real-world setting to understand that better. And I think we're helping the community answer that question as well. Yes, it's going to be mobility and breathing, but I think there'll be a number of other subtle -- more subtle endpoints or more patient-driven endpoints that will drive that as well. And so we'll continue to highlight those as we're able to support the community in developing them. Operator: Our next question comes from Kristen Kluska of Cantor Fitzgerald. Rick Miller: This is Rick Miller on for Kristen. Just one for us on Pompe. How should we be thinking about when you could potentially receive infantile onset Pompe disease label expansion? And will this be solely contingent on the ROSELLA, trial? Bradley Campbell: Great question. Maybe I'll frame, but then, Jeff, you can answer the specifics. So clearly, the biggest unmet need, the most fragile population within Pompe disease is the infantile onset Pompe patients, and it's critical for us to be able to serve those patients. Jeff can talk about the timing there. I would say, though, the largest portion of remaining patients who don't have access to PomOp today are the pediatric late-onset Pompe patients, so 12 to 17 and then 1 to 12. And so those are also a priority for us, and we've made great progress there. And in fact, those would probably become earlier label expansion opportunities than infantile onset. So maybe, Jeff, just remind us the rough timing on the pediatric late onset Pompe and then to the specific question from Rick, the infantile onset timing. Jeffrey Castelli: Yes. Thanks for the questions. So in terms of the first cohort of the 12- to 17-year-old late-onset patients as adolescent patients, we anticipate having a submission shortly and would look to an expansion of the label sort of mid next year. That will be the first pediatric expansion. We're completing enrollment in that younger LOPD group below the age of 12. So with enrollment completing here probably by the end of the year, you're looking at a year or so of follow-up and then time for submission. So a couple of years probably until that group gets added to the label. And then similarly for IOPD, we have 2 cohorts of patients, those that are switch patients and those that are naive patients. We're making great progress on the switch patient enrollment. That's nearly completed, starting to make good progress in the naives and again, that will be a year-plus study and the time for submission. So that would be probably even coming shortly after that younger LOPD group. But as Brad said, with the newborn screening in the U.S. and how much more patients are followed earlier, in particular, LOPD, we're very excited to hopefully have an updated labeling into that adolescent group mid next year. Operator: Our last question comes from Salveen Richter of Goldman Sachs. Salveen Richter: As we look to 2026 here with the switches from Nexviazyme expected in the U.S. and more ex-U.S. countries coming along, how should we think about the commercial trajectory of PomOp versus what we've seen this year? And I guess as you think forward to kind of a steady state, how are you thinking about market share for this asset? Bradley Campbell: Yes. Thanks, Salveen. As I said earlier, we're very confident in the growth as we come to the end of the year here, expect continued momentum into next year. A little early to give specifics on guidance, but we are confident it will be a strong growth year next year as well. In terms of market share, look, -- what we've seen in countries like the U.K. as an example, where we were available through that EAMS program for a number of years prior to launch, we're now getting to market shares in the 40-plus percent after, call it, 3 or 4 years on the market, probably 4 years in the market there. Our strong belief is that we can establish this product as the leading product for treating Pompe patients. And so for me, that means over a 50% market share at peak. And I think if you look at where the market is headed from a growth perspective, that's how we get to $1 billion plus at peak potential. So we're very confident in the end, this will be the leading prescribed product for people living with Pompe disease. We're still on that journey, of course, but we're starting to see signs that we can get to those shares after a period of time. So more to come. Operator: That was our last question. This does conclude today's conference call. We hope you have a great day, and you may now disconnect. Bradley Campbell: Great. Thank you all.
Operator: ” Henry Harrison: ” R. Banyard: ” Andrea Simon: ” Garik Shmois: ” Loop Capital Markets LLC, Research Division Operator: Good afternoon, and welcome to MasterBrand's Third Quarter 2025 Earnings Conference Call. Please note that this conference call is being recorded. I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis. Please go ahead. Henry Harrison: Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer of MasterBrand; and Andrea Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our third quarter 2025 financial results. This document is available on the Investors section of our website at masterbrand.com. I would like to remind you that this call will include forward-looking statements in either our prepared remarks or the associated question-and-answer session. These forward-looking statements are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full-year 2024 Form 10-K and our subsequent 2025 Form 10-Qs, which will be available once filed at sec.gov and at masterbrand.com. The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements, except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables, which are in the press release issued earlier this afternoon and are also available at sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave followed by a discussion of our third quarter 2025 financial results from Andy, along with our 2025 financial outlook. Finally, Dave will make some closing remarks before we host a question-and-answer session. With that, let me turn the call over to Dave. R. Banyard: Thank you, and good afternoon, everyone. We appreciate you joining us for today's call. Our third quarter results reflect disciplined execution in a persistently challenging demand environment and proactive management of evolving trade dynamics. Amid these conditions, our team made significant progress on our integration initiatives and has continued to deliver for our customers while strengthening MasterBrand's foundation for both near-term stability and long-term growth. In the third quarter, we generated net sales of $699 million, a 3% decrease compared to the same period last year, consistent with our expectations. The decline reflected mid- to high single-digit end market contraction, partially offset by the continued flow-through of previously implemented pricing actions and share gains in our distributor and builder channels. Demand across our retail and dealer channels remained soft, particularly in stock cabinetry, while semi-custom offerings performed relatively better as consumers with discretionary income continue to seek value within the midrange of the portfolio. We delivered adjusted EBITDA of $91 million compared to $105 million in the third quarter of last year, representing an adjusted EBITDA margin of 13%, a 160 basis point decline year-over-year due to lower volume and related fixed cost absorption as well as tariffs, partially offset by continuous improvement efforts net of inflation, continued net average selling price improvements and Supreme synergies. While margin was slightly below expectations, we view this as a solid performance in a difficult operating environment. Free cash flow for the quarter was $40 million compared to $65 million in the same period last year, driven by lower net cash provided by operating activities and higher capital expenditures related to the integration of Supreme. We continue to expect free cash flow for the full-year to exceed net income, consistent with our long-term objectives of balancing investment in growth with strong cash conversion. Turning to our end markets. While conditions remain challenged, they were generally consistent with our expectations. In new construction, single-family housing starts were down mid- to high single digits as affordability and buyer confidence remain constrained. Despite this backdrop, our new construction sales outperformed the broader market, reflecting the strength of our broad product portfolio and consistent service execution, underpinned by superior cycle time reliability, effective supply chain coordination and proactive design and specification support, all of which customers consistently cite as key differentiators. Looking at the remainder of the year, we continue to expect overall new construction end market demand to be down mid-single digits on a full-year basis. However, through our strong builder relationships, reliable service performance and focused execution, we are positioned to continue to outperform the broader market. In the repair and remodel market, serviced by our dealer and retail customers, demand remained choppy as elevated total project costs, low existing home turnover and low consumer sentiment continue to weigh on large discretionary projects. Our repair and remodel business was down mid- to high single digits year-over-year, which was aligned with the broader market and our expectations. The impact was most evident in entry price stock cabinetry and digital retail channels where softer project demand weighed on volume. In contrast, mid-tier semi-custom products delivered stronger performance, benefiting from consumers trading down from premium offerings and placing greater emphasis on value amid the broader macro backdrop. This emphasizes the strength of our multi-tier product portfolio. We continue to expect the repair and remodel market to be down mid- to high single digits for the full-year as consumers delay larger home renovation projects amid ongoing affordability pressures. Turning to Canada. Our third quarter performance was down mid-single digits, consistent with the market and in line with our expectations. Housing affordability remains a persistent challenge with elevated prices and limited resale inventory continuing to constrain buyer activity. We continue to expect full-year Canadian end market demand to be down mid-single digits year-over-year. We anticipate the market more broadly to be down mid- to high single digits for the full-year 2025. As we look further ahead, we currently expect demand across both new construction and repair and remodel to remain subdued through next year with gradual improvement anticipated in late fiscal 2026 or early fiscal '27. However, we recognize that trade and market conditions could rapidly change, potentially shifting our outlook. In the meantime, our focus remains on servicing our customers, aligning production with demand and controlling costs, positioning the business for growth when the market does return. Turning to the current trade environment. The tariff landscape has evolved meaningfully since our last call and remains a major area of focus for us. As many of you know, the Section 232 lumber tariffs took effect on October 14, and we are diligently evaluating the implications of the 25% tariff and impending 50% tariff on kitchen cabinets, bathroom vanities and related products. This said, we've been contingency planning for several months in anticipation of these potential changes. Our teams across sourcing, manufacturing and pricing are executing a coordinated mitigation strategy as we refine our assessment and work with the administration to understand certain specifics of the Section 232 lumber tariffs. While these tariffs will introduce incremental costs, we believe MasterBrand is well positioned to navigate them effectively. As discussed last quarter, we've taken steps to enhance our sourcing flexibility and are actively engaging suppliers to minimize exposure. We are working through various manufacturing footprint and operational adjustments to mitigate the impact of tariffs and best serve our customers in growth regions. Finally, we are maintaining consistency in our surcharge methodology to provide pricing transparency for our customers as the landscape continues to evolve. While we remain confident in our mitigation plans, we continue to monitor potential indirect impacts on consumer demand and housing affordability, which are inherently more difficult to quantify. Importantly, the MasterBrand Way, our structured data-driven operating system enables us to adapt quickly through rapid problem solving and execution across our network. That said, with Section 232 tariffs already in effect and set to double in the first quarter of 2026, we do anticipate some phasing challenges in the fourth quarter of 2025 and into full-year 2026 as we work to fully implement our mitigation initiatives. Andy will outline several key considerations to help frame the potential impact of these tariffs on our business later in the call. Operationally, we continue to execute well despite the challenging demand environment. Our teams made significant progress in the third quarter on Supreme integration execution, our potential merger with American Woodmark is progressing as expected, and our continuous improvement and strategic deployment initiatives remain effective. The team is executing the Supreme integration on schedule and within plan, a clear demonstration of the organizational capability and rigor embedded in the MasterBrand way. These efforts are driving the cost efficiencies we expected despite market and volume-related headwinds. Additionally, we expect revenue synergies from the Supreme integration to begin coming through as the market returns, which, as a reminder, were excluded from our disclosed synergy targets. Building on our continued success with Supreme, we're now focusing our resources on supporting the potential combination with American Woodmark, applying the same disciplined playbook that has proven effective. We are pleased with the progress on the pending merger. Integration planning is well underway, and we're prepared to begin executing immediately following close. We continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close, driven by procurement, overhead and manufacturing network efficiencies. Importantly, on October 30, both MasterBrand and American Woodmark shareholders independently voted to provide the necessary shareholder approvals for the proposed transaction. We are also progressing through the regulatory process and continue to expect that the transaction will close in early 2026. Together, MasterBrand and American Woodmark would enhance the industry's most comprehensive portfolio of trusted cabinetry brands, products and services, and the combined company is expected to unlock and deliver meaningful value for our customers, associates and shareholders as well as to the end consumer, reinforcing our confidence in the long-term potential of this merger. Finally, turning to our continuous improvement efforts and capital allocation priorities. Across our facilities, continuous improvement programs again exceeded plan, driving measurable savings that partially offset volume-related headwinds. These programs remain an essential part of our ability to manage through near-term softness while positioning us for long-term margin expansion. Our technology investments are intentional, aligned with MasterBrand's strategic priorities and designed to build scalable, resilient systems that support long-term growth. This quarter, we advanced several cornerstone initiatives, including the deployment of the centralized order management system, which are designed to improve accuracy, efficiency and visibility across the network while simplifying core processes. In parallel, we are executing a phased infrastructure modernization and risk mitigation program across our facilities to enhance network, server and factory system durability, ultimately ensuring greater protection and long-term support for the core operations. Additionally, the Las Vegas facility start-up was completed this quarter and marks a significant realignment of our operational footprint to better serve the Western regional market. Together, these investments are delivering measurable gains in productivity, precision and agility while positioning our organization for accelerated innovation and growth. From a capital allocation perspective, we remain focused on operational execution and flexibility. Capital expenditures were aligned with our expectations. Additionally, our balance sheet remains healthy with sufficient liquidity to support growth initiatives, integration activities and shareholder returns. In closing, we executed with discipline, continue to advance the Supreme integration and are planning for the proposed merger with American Woodmark and further strengthen our operations and balance sheet. While near-term challenges persist, our long-term strategy is intact and our confidence in the business remains strong. As the housing market stabilizes, we are well positioned to capitalize on recovery with greater efficiency, scale and flexibility than ever before. With that, I'll turn the call over to Andy for a detailed review of our financial results and outlook. Andrea Simon: Thanks, Dave, and good afternoon, everyone. I'll begin with a review of our third quarter financial results, and then I'll provide more detail on our updated full-year 2025 outlook. Notably, this quarter marked the anniversary of our Supreme acquisition, which closed on July 10, 2024. Because the transaction occurred at the beginning of the quarter, Supreme's results did not materially impact our year-over-year comparisons. However, integration synergies continue to support our overall performance. As Dave noted, with the Supreme integration progressing as expected, our integration team is focused squarely on applying the same proven framework to American Woodmark integration planning, where we continue to expect approximately $90 million in run rate cost synergies by the end of year 3 post close. Now on to our third quarter results. Net sales were $698.9 million, a 2.7% decrease compared to $718.1 million in the same period last year. The continued softness across end markets, which was down mid- to high single digits was partially offset by the anticipated flow-through of prior pricing actions and continued share gains, particularly in the new construction market. Notably, approximately 40% of the volume decline was mitigated by price and another 20% was offset by share gains. Gross profit was $218.2 million, down 8.3% from $238 million in the same period last year, and gross profit margin was 31.2%, down 190 basis points year-over-year, primarily reflecting lower volumes, related unfavorable fixed cost leverage and tariffs. These headwinds were partially offset by higher net average selling price improvement from prior pricing actions, our continuous improvement efforts net of inflation and Supreme integration synergies. Tariffs had a negative impact of nearly 100 basis points to our gross margin in the quarter, though we were able to offset approximately 90% of this impact through mitigation actions. I'll provide an update on our mitigation strategy and full-year impact in more detail in a moment. SG&A expenses totaled $167.5 million, up 0.7% compared to $166.3 million in the same period last year. SG&A as a percentage of net sales increased 81 basis points year-over-year to 24%, reflecting comparable levels of acquisition-related costs. This was primarily driven by continued investments in our strategic initiatives, particularly around digital technology and marketing, partially offset by lower commission and freight costs following volume decline. Net income was $18.1 million in the third quarter compared to $29.1 million in the same period last year, and net income margin was 2.6% compared to 4.1% in the prior year as a result of lower gross profit, partially offset by lower income tax expense. Interest expense declined to $18.2 million from $20 million in the same period last year, reflecting progress as we continue to delever our balance sheet. Income tax was $5.3 million or a 22.6% effective tax rate in the quarter, slightly better than our expectations and compared to $10.3 million or a 26.1% rate in the third quarter of 2024. The decrease in our effective tax rate was primarily driven by the mix of earnings across jurisdictions. Adjusted EBITDA was $90.6 million, down 13.3% from $104.5 million in the prior year period. Adjusted EBITDA margin was 13%, a decline of 160 basis points year-over-year, driven by market-related volume declines and the associated leverage challenges as well as tariffs. These headwinds were partially offset by continuous improvement savings net of inflation, the flow-through of prior pricing actions and Supreme synergies. Diluted earnings per share were $0.14 in the third quarter of 2025 based on 129.5 million diluted shares outstanding. This compares to $0.22 in the third quarter of 2024, which was based on 130.8 million diluted shares outstanding. Adjusted diluted earnings per share were $0.33 in the current quarter compared to $0.40 in the prior year period. Turning to the balance sheet. We ended the quarter with $114.8 million of cash on hand and $461.9 million of liquidity available under our revolving credit facility. Net debt at the end of the third quarter was $839.3 million, resulting in a net debt to adjusted EBITDA leverage ratio of 2.5x, in line with our expectations given American Woodmark deal-related cash outflow. We remain well positioned to reduce our leverage ratio by year-end. However, the incremental impact of tariffs will keep us above our year-end sub 2x target. In anticipation of the pending merger with American Woodmark, we have amended our existing credit agreement to secure commitments for a new $375 million delayed draw Term A facility, the funding of which is contingent upon the closing of the transaction. The proceeds from this facility will be used to repay and terminate American Woodmark's existing debt following the close of the transaction, further supporting the combined company's capital structure and financial flexibility. Importantly, on a pro forma basis, net debt to adjusted EBITDA leverage at close is expected to be approximately 2x, in line with our expectations and in achievement of our long-term goal. Net cash provided by operating activities was $108.8 million for the 39 weeks ended September 28, 2025, compared to $176.9 million in the comparable period last year. Third quarter cash generation was impacted by lower net income, required bond interest payments, timing of collections and deal-related expenditures. Capital expenditures for the 39 weeks ended September 28, 2025, were $43.8 million compared to $34.6 million in the comparable period last year. This increase reflects planned investments tied to the integration of Supreme and our ongoing footprint realignment initiatives in line with our full-year capital allocation strategy. Free cash flow was $65 million for the 39 weeks ended September 28, 2025, compared to $142.3 million in the comparable period last year. As we look to the fourth quarter, we continue to expect free cash flow to normalize, supported by the absence of certain onetime payments related to the proposed American Woodmark merger, more typical seasonal patterns and growing benefits from our synergies realized from our Supreme integration initiatives. We remain committed to our full-year objective of generating free cash flow in excess of net income. We did not repurchase any shares during the quarter. Our merger agreement with American Woodmark restricts activity under our preestablished Rule 10b5-1 program until the transaction closes. Before turning to our outlook, I wanted to take a moment to address recent tariff developments and the implications for our business. Since our second quarter call in early August, several new trade actions have been announced and implemented that directly affect our industry. In mid-August, the administration reinstated and expanded Section 232 tariffs on steel and aluminum and in late September, announced new Section 232 actions targeting lumber and wood products. These new tariffs up to 25% on kitchen cabinets and vanities took effect on October 14, with additional phase increases planned for the first quarter of 2026, increasing the rate to 50% on kitchen cabinets and vanities. Looking at our cost of goods sold, the cost components are consistent with prior disclosures. Approximately, 45% to 55% of our cost of goods sold is materials, 15% to 25% is labor and 25% to 35% is overhead, varying by product mix and plant utilization. Breaking components down by geographical source, about 70% to 80% are sourced domestically with about 15% to 20% sourced from Asia, primarily Vietnam, and only low single digits from China. The remainder comes from Canada, Mexico, Europe and South America. Breaking down by material type, a little more than half of our components are wood and wood-related materials. About half of our wood and wood-related materials are domestically sourced. In addition, about half of our wood and wood-related product materials are hardwood. Beyond our component exposure to tariffs, we also import certain finished goods from Canada and Mexico, which historically have represented slightly more than 10% of consolidated net sales. Prior to the Section 232 tariffs, these imports were exempt from tariffs given they were USMCA compliant. This exemption does not apply to the new 232 tariffs. Based on our current sourcing profile and product mix, we estimate that unmitigated gross tariff exposure equates to 7% to 8% of 2025 net sales with the degree of impact varying significantly by product category. We are executing a comprehensive strategy to offset these impacts through targeted price increases, supplier renegotiations, alternative sourcing and manufacturing footprint optimization and relocations. As you've seen in our P&L, these mitigation efforts take time to fully materialize, typically between 1 and 12 months. However, we still expect to offset roughly half of the 232 tariff-related cost increase this year, and we remain on track to fully offset previously implemented tariffs on a run rate basis by year-end. With the introduction of the new Section 232 tariffs, our expected net unmitigated exposure is $20 million to $25 million for the fourth quarter based on our current market outlook, net sales and product mix. Over time, we're confident these actions will fully mitigate the impact and preserve our long-term margin profile. We are also closely monitoring additional trade measures under review, including potential countervailing and antidumping duties on plywood, which could further influence the trade landscape. As always, we remain focused on minimizing disruption, protecting customer value and maintaining our competitive positioning. We plan to provide a more detailed assessment of the anticipated 2026 impact when we report fourth quarter and full-year results in February. Now turning to outlook. Our updated full-year 2025 financial outlook includes only those tariffs currently in effect, including the Section 232 lumber tariffs that went into effect on October 14, 2025. It does not reflect potential implications from proposed trade policy changes nor any potential demand impacts from tariffs on cabinets or broader housing activity as those effects remain difficult to estimate in the current environment. Further, our outlook does not reflect any anticipated financial benefits from the proposed merger with American Woodmark nor does it include expected transaction or integration-related costs. As Dave mentioned, we continue to expect our addressable market in 2025 to be down mid- to high single digits year-over-year with continued variability across end markets. Against that backdrop, we expect annual net sales to be approximately flat overall, including a mid-single-digit contribution from Supreme with organic net sales expected to be down mid-single digits. This updated range reflects the continued realization of pricing actions and sustained market share gains. We are updating our full-year adjusted EBITDA guidance to a range of $315 million to $335 million, representing an adjusted EBITDA margin of 11.5% to 12%. Following, we are updating our full-year adjusted diluted earnings per share to a range of $1.01 to $1.13. The lower midpoint and narrow range reflect the timing and impact of recently enacted tariffs. These pressures are partially offset by the early benefits of our mitigation efforts, which continue to progress as planned, but take time to fully materialize. In addition, we are reiterating our previous expectations on interest expense, effective tax rate, capital expenditures and free cash flow. To help offset these near-term bottom line pressures, we are taking targeted actions to reinforce cost discipline across the business. This includes assessing reductions in non-volume-related SG&A, reducing select strategic investments and identifying additional efficiency opportunities for 2026. Together with our mitigation strategy, these actions are designed to protect margins, preserve liquidity and ensure MasterBrand remains resilient through this period of elevated uncertainty. We'll provide a full update on these efforts in our 2026 planning when we report fourth quarter and full-year results in February. We remain very excited about the pending merger between MasterBrand and American Woodmark, which we believe will create a stronger, more resilient company. By leveraging our complementary capabilities and realizing the expected synergies, we are confident the combined enterprise will be well positioned to deliver enhanced value for both customers and shareholders. Now I'd like to turn the call back to Dave. R. Banyard: Thanks, Andy. As we close out the third quarter, it's clear that we continue to operate in a challenging environment. While demand remains uneven and new tariffs are adding near-term pressure, our operating discipline, strong customer partnerships and proven execution give us the ability to manage through volatility while continuing to strengthen our business for the future. Optimization and integration planning for our proposed merger with American Woodmark are well underway. We continue to expect the proposed transaction to close in early 2026, and we remain confident in our ability to unlock and deliver meaningful value with speed, agility and diligence through our combined strengths and resources. Looking ahead, the MasterBrand Wave continues to guide how we operate, keeping us focused, accountable and ready to adapt. We have a talented team, a resilient model and a long-term strategy built to deliver value as the market stabilizes and growth returns. Thank you to our associates for their continued commitment and to our customers, partners and shareholders for their ongoing support. Now with that, I'll open up the call to Q&A. Operator: [Operator Instructions] Our first question comes from Garik Shmois with Loop Capital Markets. Garik Shmois: Just first on the sales guidance for the full-year, the revision, you're at flat now versus down low single digits previously. Just curious if you can go into the reason for the revision on the sales side. R. Banyard: Yes. I think, Garik, the main revision is I think that the pace that we're seeing is we kind of -- as we were evaluating the rest of the year a couple of months ago, we were kind of keeping our eye on what happened last year. I think that as we've come into the fourth quarter here, we don't see that same dynamic. I think it will be still a slightly down quarter, but I think we've performed coming through Q3 and into Q4 from a revenue standpoint a little better. Plus, we do have the pricing actions that we've been taking over the past year to deal with the first round of tariffs are starting to really come through, and so that kind of bolsters us a bit there. Probably, the only question we have in terms of the fourth quarter is the impact of any additional pricing that we're working on for this latest round of tariffs, and what impact that would have on demand. It's too soon in the market to see that. Otherwise, I think in the middle point, I think we're comfortable that flat is the outcome that we're going to have for the year. Garik Shmois: Speaking on pricing, as you've been pushing pricing to offset initial tariffs and you need to push additional pricing to offset current tariffs and future inflation. I was wondering if you can just speak to any unforeseen challenges in your ability to realize pricing and if you've seen any demand destruction as a result of price increases up until this point? R. Banyard: Yes. I think the -- that's a fair question. I think the odd part about this round of tariffs is it's not even neither was the last for the most part. We do a lot of sourcing domestically, and we do a lot of manufacturing domestically. But these rounds of tariffs, particularly Mexico and Canada, have an outsized effect on those product categories. Those are the ones that, a, have the biggest impact on the total bill that we're faced with from a tariff perspective, but it also is the one that's the biggest challenge, I think, from a pricing standpoint. On the flip side, I think that's where we're focusing a lot of our energy on mitigation outside of price, and so remember, our mitigation efforts here are not just price. There are a wide range of things that we're working on doing, some of which are going to take some time, but the idea is to try to mitigate as much as we can operationally and then the remainder is what we put out in price. I'll give you a specific example. We import almost all of our bathroom vanities from Mexico as a finished good. That product category is really not viable at a 50% price increase. We're working on mitigating that, but if we can't get some of the price that we need because we can't mitigate all of it, we're going to have to evaluate whether that product is viable. That's not factored into our guidance. We'll talk more to that when we come with 2026 guidance. We should have better clarity at that point. The rest of it is, though, that there's a lot of other -- this is going to impact the whole market. We have to see, and that's not apparent yet what that's going to do, so we have to see how the overall market responds to all this. I think just for your planning and thinking, it's just remember, it's just a lag effect for us, and that's the hardest part of this tariff regime as it comes in fairly quickly, and it takes us time to mitigate it. We're going to have that dynamic for a couple of quarters as we work through this. Garik Shmois: Just lastly, just to follow-up on that last point. You mentioned, the net unmitigated exposure, I believe, is $20 million to $25 million in the fourth quarter. It's certainly difficult to predict how all this is going to play out in '26 and not to ask you for kind of a guidance for next year, but how should we think about maybe the phasing of your unmitigated exposure as you move into next year beyond the fourth quarter? R. Banyard: Well, I mean, the easy part is the bill started coming due on October 14 and then the next round starts on January 1. That's when the cost starts coming in. I think I would -- if I were you I'd go back and look at our performance through the highly inflationary years of COVID, different in that it wasn't announced inflation. It just started happening to everyone in the industry, but the dynamic and the timing will be similar. Andy highlighted in her remarks, some mitigation takes a month, some takes 12 months, so it's going to spread out through the year. We'll go as fast as we can, but ultimately, we want to make sure we're not disrupting the customer and doing it in a controlled way, and that's going to take some time. Operator: We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: " David Connolly: " David Meeker: " Jennifer Chien: " Yann Mazabraud: " Hunter Smith: " Michael Ulz: " Morgan Stanley, Research Division Philip Nadeau: " TD Cowen, Research Division Derek Archila: " Wells Fargo Securities, LLC, Research Division Angela Qian: " Canaccord Genuity, Research Division Faisal Khurshid: " Leerink Partners LLC, Research Division Erik Wong: " Goldman Sachs, Research Division Julian Pino: " Stifel, Nicolaus & Company, Incorporated, Research Division Evan Wang: " Guggenheim Securities, LLC, Research Division Georgia Ban: " Jefferies LLC, Research Division Raghuram Selvaraju: " H.C. Wainwright & Co, LLC, Research Division Jonathan Wolleben: " Citizens JMP Securities, LLC, Research Division Operator: Good day, and thank you for standing by. Welcome to the Rhythm Pharmaceuticals Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Connolly, Investor Relations at Rhythm. Please go ahead. David Connolly: Thank you, Heidi. I'm Dave Connolly here at Rhythm Pharmaceuticals. For those of you participating on the conference call, our slides can be accessed and controlled by going to the Investors section of our website, ir.rhythmtx.com. This morning, we issued a press release that provides our Q3 financial results and a business update, and that press release is also available on our website. Our agenda is listed on Slide 2. On the call today are David Meeker, our Chairman, Chief Executive Officer and President; Jennifer Lee, Executive Vice President, Head of North America; Hunter Smith, Chief Financial Officer; and Yann Mazabraud, Executive Vice President, Head of International is on the line joining us from Europe. On Slide 3, I'll remind you that this call contains remarks concerning future expectations, plans and prospects, which constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed on our most recent annual quarterly reports on file with the SEC. In addition, any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent dates. We specifically disclaim any obligation to update such statements. With that, I'll turn the call over to David Meeker, who will begin on Slide 5. David Meeker: Thank you, Dave. Good morning, everybody. Thank you for joining us this morning. Rhythm delivered strong growth and continued momentum during the third quarter as we prepare to launch IMCIVREE in acquired hypothalamic obesity pending FDA approval. That is a transformative opportunity for Rhythm. We are finishing strong in 2025, a year in which we delivered robust Phase III data with setmelanotide and HO, presented outstanding Phase II efficacy data with our next-gen oral MC4R inhibitor, bivamelagon, and strengthened our balance sheet with a $189 million equity offering in July. With our PDUFA date next month and additional data readouts coming this quarter and next, we are well positioned to deliver sustained long-term growth. The steady growth in global IMCIVREE revenue driven predominantly by BBS continued this quarter with $51.3 million in sales, representing growth of approximately 10% in the number of patients on reimbursed therapy. We have built a strong global foundation for our business with IMCIVREE, the only therapy that addresses the root cause of hyperphagia and the severe obesity of rare MC4R pathway diseases. The teams continue to engage with physicians and prescribers, identify patients and ensure access to IMCIVREE. Beyond commercial success, we have been executing on the regulatory front as well. For HO, both the FDA and EMEA accepted our regulatory filings this quarter. The EMA validated our type 2 marketing authorization request and the FDA accepted our supplemental NDA filing. The regulatory dialogue has been promising and productive and keeping us on track for a December 20 PDUFA date and potentially European approval in the second half of 2026. Jennifer and Yann will share some details on the quarter as well as the upcoming launch efforts in the U.S. and the timing in the international region. We remain on track to report preliminary results from our exploratory Phase II trial in Prader-Willi syndrome by the end of the year. I have no further updates on today's call, but I will reiterate several of the comments we have made previously. There's a strong biologic rationale as to why MC4R agonism may work in PWS based to a large extent on the involvement of the MAGL-2 gene where patients with isolated MAGL-2 variants have impaired signaling through the MC4R pathway. We also know PWS is an incredibly complex disease due to defects in many genes and a clinical presentation characterized by obesity, hyperphagia, cognitive delay and abnormal behaviors. It is this latter aspect of the disease, which makes clinical studies particularly difficult. Thus, our rather neutral prediction that we have a 50-50 chance of working. Success will be defined by a BMI percent change with the target being results that would give us confidence we could clear a 5% threshold in BMI decrease at 52 weeks in the Phase III trial. We are collecting measures of hyperphagia, specifically the HQCT questionnaire in this trial. But I remind you, it is an open-label trial and absent a control group interpretation will be difficult. We are working with one site with a goal of enrolling 10 to 20 patients followed for 6 months. Obviously, we will not be reporting out on the full cohort in our end of the year release. I know there will be questions on exact timing. There are some practical aspects to that with regard to having as much data entered into the system and quality check as possible, but we can commit that it will be prior to the Christmas break. One comment before we dive into the findings on Slide 6 is that over my career working on a number of rare diseases, one aspect that is invariably true is that when you get a therapy approved, you have only just begun to learn the full impact of your therapy on that disease. In BBS, for example, we had the clinical data from approximately 50 patients at the time of approval. These MC4R pathway diseases are rare and absolutely fit that mold. The paper described here on Slide 6 is a German study that showed 6 months of setmelanotide therapy was associated with clinically meaningful improvements in steatotic liver disease and kidney function. This prospective observational study was conducted at University Hospital Essen in Germany with 26 patients with BBS ages 6 to 52 years, all with metabolic dysfunction-associated steatotic liver disease or MASLD at baseline. These patients were followed for 6 months. And after 6 months of treatment, more than 80% of patients exhibited either resolution of MASLD or stabilization at the lowest grade of disease or S1. We know weight loss can improve liver function in patients with obesity, but these changes did not correlate closely with BMI change, raising the possibility that some other aspect of the melanocortin biology may be mediating these changes. These results were recently published in the Journal of Clinical Endocrinology and Metabolism. On Slide 7, our upcoming launch in HO represents an incredibly important milestone for Rhythm. As you heard from Jennifer at our investor event in September, and we'll hear again from her this morning, we have the pieces in place to execute a successful launch. She and her management team have done a great job expanding our existing commercial teams with the hiring of a group of highly experienced and extremely talented individuals who are excited to get started. With an estimated prevalence of 10,000 patients in the United States, this is, as noted, a transformative opportunity for us. The unmet need is significant and clear and setmelanotide showed strong efficacy in Phase II and III trials. The regulatory dialogue is ongoing, and we appear to be on track for our PDUFA date of December 20. Obesity Week begins this week in Atlanta. Dr. Christian Roth has an oral presentation of the outcome of patients on GLP-1 therapy in our Phase III trials. You have seen this data previously, but it will again be an opportunity to highlight the value of correcting the hormonal deficit in alka-melanocyte stimulating hormone in patients who may not be getting the desired response from other anti-obesity medications. Overall, there is strong buzz in the community and a lot of excitement at Rhythm as we near launch. Lastly, Slide 8 are the upcoming milestones. We covered the first 2, our PDUFA date and potential HO approval and the preliminary data readout in Grader-Willi, both likely coming in December. We aim to complete enrollment of the RM-718 weekly Phase II study in HO patients during the first quarter of 2026. We will also release top line data from the Japanese cohort from our Phase III acquired HO trial in Q1, and we will release top line data from the EMANATE trial in Q1. We aim to complete enrollment of the congenital HO trial in the first half. And finally, we will initiate our Phase III study with bivamelagon in acquired HO next year. We'll further define the timing once we've had feedback from the regulators. It's a busy end of the year. With that, I will turn the call over to Jennifer. Jennifer Chien: Thank you, David. I'm going to be starting on Slide 10 today. So it's an exciting time as we continue our preparations for launch in acquired hypersonic obesity pending FDA approval by leveraging the strong foundation of our commercial efforts for BBS. BBS and HO are both rare diseases caused by an impairment to the MC4R pathway, which commonly results in hyperphagia or abnormal food-seeking behaviors and severe obesity. IMCIVREE is unique in its ability to address the root cause of hyperphagia and obesity in these patients. And over the last 3 years, we have seen that physicians are prescribing IMCIVREE for their patients with BBS, payers are providing access and patients are benefiting with some now entering their fourth year on treatment. The positive growth in BBS continued during the third quarter. Quarter-over-quarter, we have seen a steady volume in new prescriptions and an increase in number of patients on reimbursed therapy. We continue to see gains in both the depth and breadth of prescribers with approximately a 7% increase in the cumulative total number of BBS prescribers quarter-over-quarter. In the third quarter, the proportion of prescriptions for pediatric versus adult patients began to normalize following the uptick in prescriptions for pediatric patients during the first half of this year, which we discussed in our last quarterly call. For the third quarter, the breakdown of new prescriptions was as follows: 50% of new patients were adults, 22% were adolescents and 28% were pediatrics. And these percentages are trending back to the typical mix prior to the IMCIVREE label expansion to include patients as young as 2 years of age. Next slide. Moving on to our preparations for the acquired hypothalamic obesity launch. We have hired highly experienced professionals to supplement our home office and field organization, and our teams have been actively engaging with customers. As we outlined on our acquired hypothalamic obesity commercial readiness event in September, we are focused on engaging with and educating physicians in order to differentiate MC4R pathway diseases, including acquired hypothalamic obesity from general obesity, expedite patient diagnosis and following approval, establish IMCIVREE as the foundational treatment for acquired HO and educate payers to secure access and support patients long term once they have initiated treatment. Next slide. We also shared some insights into the market and our data-driven approach to this specialty-centric opportunity. We analyzed claims data to narrow down our top physician targets and size our field teams. Let me walk you through that once again. We started with claims associated with brain tumors and treatment. Within these, we looked at those with hypothalamic dysfunction and also obesity. And lastly, within these, we look to patient visits with an endocrinologist within the past 18 months. This claims analysis allowed us to identify approximately 5,000 endocrinologists who potentially have 1 patient or more with hypothalamic obesity under their care. From these 5,000 endocrinologists, we narrowed our initial focus to 2,400 top-tier physician targets who we believe manage a higher volume of patients. Next slide. Throughout this year, our teams have focused on profiling our top targets. Their profiling activity to date has resulted in the identification of more than 2,000 potential patients suspected to have HO or formally diagnosed to have HO. We are still early in the process of profiling identified physicians and our expanded sales organization is now on ground, focused on further penetrating these top-tier targets to identify more potential patients with acquired aspislamic obesity. Next slide. Our teams are in place and as we expanded our organization to support the upcoming launch. Our access team is engaging with payers to educate them on acquired HO and setmelanotide data through pre-approval information exchange presentations to support reimbursement once approved. Our territory managers are in the field engaging with the physician community to increase disease awareness. And once IMCIVREE is approved an acquired HO, they will educate on IMCIVREE's efficacy and safety data to support prescriptions. Our patient service team will engage with patients and their families to educate them on the disease to help them navigate insurance coverage once prescribed IMCIVREE and provide support to help guide treatment expectations and keep them on treatment long term. It's certainly an exciting time with a strong foundation in place with many learnings on the needs of patients and their providers, a clear strategy and experienced teams in place, we are ready to go, pending approval on December 20. With that, let me hand it over to Yann. Yann Mazabraud: Thank you, Jennifer. I begin on Slide 16. We saw continued success with our international business during the third quarter as IMCIVREE is now available for BBS and/or POMC/LEPR deficiencies in more than 25 countries outside the United States. And the number of patients with BBS POMC/LEPR deficiencies or hypothalamic obesity on IMCIVREE continues to grow in the international region. During the third quarter, we reached an agreement with the French Economic Committee for Health Products on reimbursement pricing for IMCIVREE for BBS and POMC/LEPR. We are pleased with the result of the negotiations as the negotiated price is in line with rare disease pricing and also reflects the therapeutic benefit patients receive from with IMCIVREE. We remain very encouraged by our reimbursed early access programs for HO in France and Italy both granted based on our Phase II data, which is very uncommon. The growth of these programs illustrates the important unmet need and setmenotide's potential to provide these patients with significant therapeutic benefit. And in parallel, named patient sales continue to provide access to patients in several additional countries outside the EU4 and the U.K. For example, just recently, we achieved our first commercial patient in Argentina through a named patient sales. Our team continues to execute and remains committed to expanding market access for patients in addressing the unmet need to treat these rare MC4R pathway diseases throughout the international region, establishing foundational relationships with expert physicians and local authorities built on patients benefiting from IMCIVREE. This will help us to be successful as we prepare the next freedom chapter for the international region. Next slide. The next chapter is our international launches in hypothalamic obesity. The global unmet need for HO treatment is high as demonstrated by the growth in our early access programs in France and Italy. During the third quarter, we completed the EMA submission to expand the marketing authorization for IMCIVREE to include acquired HO. The EMA has a set calendar to review such submissions. And if that time frame holds and the review is positive, we anticipate a CHMP opinion and the EU marketing authorization in the second half of 2026. Establishing reimbursement for acquired HO in Europe country by country will take time. Germany will be the first country where we would launch. But as we did for POMC/LEPR and BBS, we will seek an exemption from the German Federal Joint Committee an exclusion list that prohibits reimbursement for lifestyle drugs, such as drugs designed to treat hair loss, smoking cessation and general obesity. This process is necessary in order to secure federal reimbursement. We are confident we can have the same success we had with POMC/LEPR and BBS as IMCIVREE was the first-ever precision medicine to be exempted and therefore, reimbursed. We believe the same approach should hold for acquired HO and that is demonstrating acquired HO clearly is a rare disease that is distinct from general obesity. So we are hopeful for a similar outcome. At the same time, we will engage in access and reimbursement negotiations in the United Kingdom, Italy, Spain, the Netherlands and other countries. Taken together in these countries, we estimate the prevalence of acquired HO in Europe to be approximately 10,000 patients, making Europe a meaningful market for us. Moving to Slide 18. Japan will also be a very important market for us with an estimated prevalence between 5,000 and 8,000 patients, which is 2 to 3x greater per capita than Europe and the United States. We have started to build out a strong local team with a focus on regulatory, quality, CMC, medical affairs, market access and marketing. We have now established a strong leadership team in Japan, and we have already 14 Rhythm employees in place. Notably, our General Manager, who is already well known to the team here from our time together at Sanofi Genzyme, previously led the highly successful launch of Dupixent in Japan. As David said, we anticipate top line data from the Phase III cohort of Japanese patients in the first quarter of 2026, which will be followed by submission of the Japanese NDA to the PMDA. Typically, regulatory review in Japan is approximately 9 months. These ex- U.S. time lines point to launches potentially during 2027. With that, I will turn the call over to Hunter. Hunter Smith: Thank you, Yann. Before discussing the specifics of the quarter, let me reemphasize the message of financial strength delivered during our last quarterly call. As we raised approximately $189.2 million in net proceeds from a follow-on equity offering completed early in Q3, we ended the third quarter with $416.1 million in cash on hand. This cash in conjunction with projected revenue from anticipated global sales of IMCIVREE for currently approved indications and including HO pending FDA approval as well as planned R&D and SG&A spending provides us with at least 24 months of runway. Rhythm's balance sheet is as strong as it's ever been. Now looking at Slide 20 and the revenue dynamics during the quarter. Global revenue for the third quarter was $51.3 million, a sequential 6% increase from $48.5 million for the second quarter of 2025. The number of patients on reimbursed therapy increased by 10% globally during the quarter. $38.2 million or 74% of Q3 net revenue was generated in the United States and $13.1 million or 26% of total revenue was generated outside the United States. The U.S. delivered another solid quarter, buoyed by a high single-digit percentage increase in the number of reimbursed patients on therapy. Approximately $3.7 million of the quarter-over-quarter increase in revenue was driven by an increase in IMCIVREE dispensed to patients, a good indication of fundamental growth in demand. As we've seen in prior quarters, there was also an inventory effect Q2 into Q3 with increases in inventory at our specialty pharmacy driving $2.5 million of the sequential variance in quarterly sales. The quarter ended on a Tuesday, the day that our specialty pharmacy takes delivery of product, with the result that their inventory days on hand increased from just under 10 days at the end of Q2 to approximately 16 days at the end of Q3. Outside the U.S., quarter-over-quarter revenue decreased by $3.4 million. Patients on reimbursed therapy increased at a low double-digit percentage during the quarter, indicating continued solid fundamental growth in demand for IMCIVREE. In France, as Jan mentioned, we agreed to a final reimbursement for IMCIVRE for POMC/LEPR and BBS. Since 2022, we have been accruing revenue under the French early access programs and provisioning for this eventual agreement. Based on this agreement, we recorded a onetime $3.2 million charge during the quarter -- third quarter of 2025 to account for the difference between what has been accrued to date and what is owed. Of the $3.2 million, approximately $0.6 million was related to revenue booked in Q3 '25 and $1.5 million was related to year-to-date 2025, with the balance related to periods prior to 2025. Excluding this impact, international revenue was affected by variability in ordering patterns for named patient sales in certain distributor markets. On Slide 21 is the financial snapshot. In the year-over-year comparison to Q3 2024, the net product revenues increased $18 million or 54% and gross to net for U.S. sales was 84%, generally in line with gross to net percentages we've shown in previous quarters. Cost of goods sold this quarter was 10.7% of product revenue, which is mostly attributable to cost of materials and our royalty payment on setmelanotide to Ipsen. We generally expect cost of goods sold to be between 10% and 12% of net product revenue with variation due to how our inventory balances are changing and the corresponding capitalization of labor and overhead costs. R&D expenses were $46 million for Q3 compared to $37.9 million in the same quarter last year. Sequentially, R&D expenses increased $3.7 million or approximately 9% over Q2 2025. This increase was primarily due to chemistry, manufacturing and controls or CMC work related to improving the formulation of bivamelagon and development of an auto-injector for RM-718 as well as increased headcount and stock comp expense. Year-over-year increased spending was partially offset by a reduction in clinical trial costs. SG&A expenses were $52.4 million for Q3 2025 as compared to $35.4 million in Q2 last year. Sequentially, SG&A expenses increased by $6.5 million or approximately 14% compared to Q2 2025. Increased SG&A spend from Q2 to Q3 was due to increased headcount costs and marketing costs associated with the upcoming launch in acquired hypothalamic obesity. For the third quarter of 2025, the weighted average common shares outstanding were 66.3 million. The increase in Q3 was mostly due to the equity offering when we issued nearly 2.4 million shares as well as the exercise of previously issued stock options. Cash used in operations was approximately $27 million during the third quarter. Our GAAP EPS for the third quarter of 2025 was a net loss per basic and diluted share of $0.82, including $0.02 per share from accrued dividends on convertible preferred stock of $1.4 million. We ended the third quarter with approximately $416 million in cash, cash equivalents and short-term investments, which, again, we expect to be sufficient to fund planned operations for at least 24 months. Lastly for me, on Slide 22, there is further detail on our operating expenses for the third quarter and updated full year operating expense guidance. For the third quarter, operating expenses of $98.5 million include a total of $18.8 million in stock-based compensation. For fiscal year 2025, we are tightening our full year guidance and shifting the mix between R&D and SG&A expenses given the resources we have committed to be ready for the anticipated launch of IMCIVREE acquired HO later this quarter. We anticipate approximately $295 million to $315 million in non-GAAP operating expenses comprised of non-GAAP R&D expenses of $150 million to $165 million and non-GAAP SG&A expenses of $145 million to $150 million. With that, I'll turn the call back over to David. David Connolly: Thank you, Hunter. And with that, we'll go to Q&A. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Mike Ulz from Morgan Stanley. Michael Ulz: Congratulations on all the progress. Maybe just one quick one on bVomeEalon. If you can share your latest thinking on the trial design for your Phase III HO study. And just curious if you received any initial feedback yet from the FDA there. David Meeker: Yes. At this point, we've run many trials in this MC4R pathway area. Vivo will be -- the HO trial will be similar, and we'll obviously mimic what we did in the HO trial. So our expectation at this point is it will be a double-blind randomized controlled trial. We will have a discussion with the regulators around the duration of the double-blind period. Our expectation is that in some form, they will want a full year of data. This is a new chemical entity and MC. So again, whether we would provide that 6 months of double-blind plus an additional 6 enroll open label will be better the kinds of questions we'll bring forward to regulators. But in terms of primary endpoints and the like, again, we will be a percent BMI change, and we'll be enrolling children and adults in the trial. And then in terms of regulators, so we anticipate at this point, our expected Phase II, post-Phase II meeting with the FDA when we would get this feedback is likely to be in the first quarter next year. Operator: The next question comes from the line of Phil Nadeau from TD Cowen. Philip Nadeau: On the progress. Our question is to dive into the PWS efficacy endpoints a bit further to understand what you need to see to advance IMCIVREE forward in PWS. So in terms of weight, you suggested something that suggests 5% weight loss at 1 year. Can you give us more of a sense of what that is? Is that 2.5% at 26 weeks? Or is there a different way to think about it? And then in terms of hyperphagia, a similar question. You said it's going to be hard to interpret, but nonetheless, hyperphagia is a major determinant of quality of life in Prader-Willi. So is there any level of hyperphagia change that would be proof of concept and warrant further development? David Meeker: Yes. Yes. No, and I'll just pre saying. I know there's going to be a lot of questions on Prader-Willi. I'll do the best, but needless to say, I won't have a lot more to add to the color we provided previously. But your question on what constitutes success and how will we interpret it. We talked -- our goal is to get 10 to 20 patients on treatment for 6 months. We'll have some part of that cohort available by the end of the year. Obviously, a very small data set. We'll present patient-by-patient data the way we've done in the past, so you can all see exactly what we're looking at. It's not a mean number again, we highlighted that for the BIVA data. It's going to be very much looking patient by patient. And if patients seem to do well, what's our best understanding as to why they did well. And if another patient didn't do well or have the change, is there some other explanation for that. And you take all that into account. So it's going to be a judgment call, Phil, needless to say. And I don't think it will be -- well, let's put it this way. I mean, you can make these judgment calls in these small data sets, but that's how it will be done. It's not a magic number of we got halfway to the 5% at 6 months. I don't expect necessarily that, that's going to be the metric per se. These things don't tend to be linear, but there will be a level of confidence looking at the individual data points that the drug seems to be working and we run a longer -- a larger trial, we'll be able to get to the 5%. And then just one last thing on the HQCT. Just to remind everybody, our primary endpoint here is BMI percent change. We would not go into a Phase III trial without confidence that, as I just indicated, we could move that BMI. We wouldn't pursue a hyperphagia label only. I know a number of companies are out there, and I'm seeking that approval at this time. However, based on the mechanism of our drug, if we do see BMI percent change, almost by definition, given the biology, we will improve hyperphagia. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: So first question, just can you discuss some of the drivers behind the changes to the ongoing variability trial for IMCIVREE? It looks like you extended it out to 52 weeks from 26 and what looks like the potential to explore adding sites to the trial? And then the second question, just briefly, can you discuss if you've had any FDA agreements or discussions around the indication statement for HO and whether it could or could not include hyperphagia? David Meeker: Yes. I'll take the last one first. So on the HO, again, our regulatory interactions have been -- I'd characterize them as routine, which is favorable given a lot of the news certainly in the FDA, but it's been not exactly as we would expect. They come back with specific questions and we answer those. The labeling discussions tend to be late. So with regard to your specific question on indication, we have not entered into that specific dialogue as of this point. In terms of the updates that a number of you picked up on in clinicaltrials.gov for the grader-Willy Phase II study, that's really housekeeping. So there was 2 issues there we updated on. One is in any trial, rare disease trials, we set the 6 months as the endpoint, meaning that's the point at which we would look at the BMI and make this judgment, so to speak, are you seeing success or not. But allowing patients to continue if they feel like they want to beyond 6 months, we needed to update the trial to allow that to happen as opposed to leaving somebody and just saying, okay, we got to stop the drug now. And then the second was in terms of adding an additional site, again, that was just in case we needed, working with a single site, Dr. Miller site in Florida, as you know, she's extremely busy. And so that was just in case we couldn't -- as of this point, we haven't opened a second site. We're continuing to work with Dr. Miller and she's doing well there. So nothing to read through. Operator: Your next question comes from the line of Whitney Ijem from CG. Angela Qian: This is Angela on for Whitney. Maybe switching gears a little bit, a question on the HO launch. Any update you can provide around conversations you're having with payers? Should we assume that most or all patients will be on the free drug program until payers start to finalize their policy updates in 3 to 6 months after approval? Or any color you could provide around the gross to net around launch? David Meeker: Maybe just one comment before I turn it over to Jennifer. So the patients who have been in the trial will stay in the trial. So the clinical trial patients will stay on drug until they get access, but we will not have an early access program specifically. But beyond that, Jennifer, do you want to comment on? Jennifer Chien: Yes. So we feel very positive just based off of the feedback that we've received just through our discussions with payers as well as the market research that we've conducted, just gaining payer insights overall. I think from a process of reimbursement post approval, it's going to be a similar process just in general as we receive prescriptions. Even if there's not a specific policy in place by the time we receive the script, we still work through the process just in terms of going back to the payer to try to gain access, and we've been able to gain access even prior to that formal policy being in place. So I don't expect anything to be different. And I don't expect that we have to wait until the actual time of evaluation of this particular drug with that specific payer to actually be able to gain reimbursement and put that patient on commercial therapy. Operator: The question comes from the line of Faisal Khurshid from Leerink Partners. Faisal Khurshid: I wanted to ask about how investors and the Street should be thinking about the launch curve in hypothalamic obesity. I know you guys have put out this kind of -- these metrics of like 2,400 target physicians and 2,000 patients that you believe are kind of your top targets. How should we think about kind of prosecuting that opportunity and like what the shape of the launch curve could look like relative to like Bardet-Biedl or relative to other launches out there like the Prader-Willi launches? Jennifer Chien: Thanks for the question. I think overall, just in terms of AHO, we have such a solid ground just based off of what we have learned and put in place for the BBS launch, even very specifically, a lot of work just in terms of the payer landscape to have them understand the difference in terms of our patient population and our drug versus general obesity to have that strong foundation in terms of that understanding as we potentially expand to other indications that are rare that also target a similar pathway. We have the right team in place. We feel very confident holistically just in terms of the ACP targeting that we have and are really pleased with the progress. And as outlined -- we outlined that we had about 2,000 potential patients that were suspected or actually diagnosed at this point of time. I think with that said, the things that are similar just in terms of BBS and any rare disease is that without a therapy available, there really isn't that much incentive to get patients to a diagnosis, and there's not a lot of education to also help in terms of getting patients to that diagnosis. And that is very similar to what we have learned in the HO space. Although it's easy potentially to identify potential patients with the background that may have HO, those patients have not necessarily gotten to that specific diagnosis. So that's going to take a bit of time, especially as it takes time for these patients to get back to the endocrinologists to be able to see them, have that discussion, get that diagnosis and then post approval, have that discussion about potentially getting on to IMCIVREE. So we're -- we feel very confident just in terms of our ability to execute, but there are different factors that may impact the ramp in terms of launch. David Meeker: And 2 things I'll just add in complement to what Jennifer just stated. First, the PWS situation is significantly different because many PWS patients are cared for in group homes and dealt with in very specific specialized centers with the result that the opportunity for them to be prescribed in a more bolus-like fashion is greater. So the -- what we -- our research has indicated that the HO patients are more distributed with community and local endocrinologists as opposed to in specialized centers. And secondly, conversely, versus -- as Jennifer stated, versus BBS with a higher diagnosis rate and the care in a single specialty accounting for much greater patient percentage of the patients, there is more opportunity there in the early days. Operator: Your next question comes from the line of Corinne Johnson from Goldman Sachs. Erik Wong: This is Erik on for Corinne Johnson here. And the question we have is just to double-click a little more on the HO launch that we were just discussing here. How should we think about the process for and the cadence of reimbursement and the anticipated gross to net in HO, spec like relative to BBS. Can you just give us a little more color on that? David Meeker: You want me to speak to gross to net to start. I think what we anticipate in terms of differences gross to net is -- it's a little hard to say. We've had around a 50-50 Medicare commercial mix for BBS. We don't know how different the HO population will be, but that is the primary driver of our gross to net because we don't rebate in any meaningful way. So it really is just a question of what's the Medicaid share. That, of course, assumes that we still do not have Medicare access. If we are able to get Medicare access, then that GTN mix will shift favorably. Jennifer, on the process, in terms of the flow here, getting that patient from an initial script to treatment? Jennifer Chien: Yes. So we're already engaging with payers just in terms of giving them that heads up just in terms of time lines and potential approval within HO. So they at least have that preliminary background in terms of expectations. Once we received an Rx, our teams work to be able to work through that reimbursement process and that particular payer may be more prioritized in terms of our payer-facing team in terms of follow-up to educate them that we did get approval and we did get a script to be able to try to get reimbursement for that patient. I think like the timing overall in terms of getting specific policies in place, there are specific timings that different payers have in terms of review of drugs. So that policy timing is a bit different and could be delayed depending on the timing of that particular payer and the review of our drug post approval. But similar to BBS, we didn't necessarily have a policy in place before we got reimbursement for that patient. So we're going to be working both of those through. David Meeker: Yes. Maybe just to close on that, as Jennifer said, it's a huge advantage to this a follow-on indication. So BBS was basically our first time through and people are learning about the drug for the first time. Here, they know the drug and they got to learn an indication. As Jennifer said, that will take some time, particularly with the policies amazing thing that her team has done is policy or no policy, we can get these patients reimbursed. Operator: Your next question comes from the line of Paul Mattis from Stifel. Julian Pino: This is Julian on for Paul. You talked in the past about how some patients in the PWS study may also be on background VCA. Just based on the mechanism, curious on how you see the potential for additive benefit with setmelanotide. David Meeker: Yes. No, it's a good question. I mean we're interested in learning more there. As you highlighted, patients who are on VCA are allowed as long as they're stable and stable in the judgment of the treating position, in this case, Dr. Miller, stable on their VCA dose, they are allowed in the trial. Mechanistically, how does diazoxide work with hyperphagia, obviously, by definition, their approval has decreased, behaviors may be somewhat better. What circuits are they working on? I think the one thing we're confident of is we're not redundant. They're not working through setmelanotide, MC4R agonist and exactly however diazoxide working are not working through this MC4R pathway exactly. So there's certainly a possibility for them to be complementary. I think from a side effect profile, there's not overlapping toxicity. So they certainly can be used together with no concerns. So we'll see. Again, we're, like I said, open to learning here, and hopefully, this trial will give us some insight. Operator: Your next question comes from the line of Seamus Fernandez from Guggenheim Securities. Evan Wang: This is Evan Wang on for Seamus Fernandez. Two questions from me. First, on Prader-Willi, just a follow-up on the trial amendment. Curious in terms of the extension out to 52 weeks and the degree of participation anticipated or observed thus far, have there been any dropouts as patients are entering that original 26-week conclusion? And then on HO, curious about the international launch preparations, particularly in Europe. Just wondering if you could comment on how you're preparing for another launch there given existing approvals in BBS and any kind of major dialogues with major reimbursement authorities? David Meeker: Yes. So I'll go and then Yann let take the international one. So I'm not going to update exactly where we are in the patients in the trial and who's beyond that. That will all be coming shortly. Again, we're targeting -- it will definitely be in December. And as I said, the goal is to put out what data we have prior to the Christmas break. Yann, do you want to talk about the international launch? Yann Mazabraud: Yes, sure. Thank you for the question. So as I said during my presentation, we expect to launch in Europe across various countries during 2027. I think we will follow almost the launch sequence we had for BBS, we have already started to engage with the payers. So the payers have known us for now many years and they know setmelanotide very well. And they also have a lot of experts that they can reach out to better understand the drug and the disease. So we are really confident with our launch preparation. And the last thing is maybe in terms of team. The HO patients population is, of course, larger than BBS. So we will add some staff to make sure that we can adequately cover all the HCPs necessary to make the most of this opportunity, but this will come later, and this will follow the launch sequence. David Meeker: Yes. Thanks, Yann. And I just want to emphasize something Yann just said, which is a really important part of this international equation is these single payer systems, some many of them, they use local experts. And these are all people, as Yann said, we work closely with. Many of them are trial -- have been part of our trials. And so they're not only experts in the disease, they know the drug well, and they've been incredibly helpful in our prior discussions. And as Yann said, we anticipate them being very helpful in the upcoming HO discussions. Operator: Your next question comes from the line of Dennis Ding from Jefferies. Georgia Ban: This is George Ban on for Dennis Ding. We had one on the PWS. When you disclose the initial data in December potentially, should we also be expecting a go versus no-go decision in terms of moving into Phase III? Or is there a scenario where you would wait for a longer follow-up before making that decision? David Meeker: Yes. No, fair question. Yes, definitely, that's a scenario. I mean, I think this is incomplete data, and we might be in a position to make a call depending on how strongly we feel the data signaling or we may indicate that, look, we want to continue to get the full data set, and then we'll come back to you with that final decision. So yes, all options are on the table. Operator: And the final question comes from the line of Raghuram Selvaraju from H.C. Wainwright. Raghuram Selvaraju: I just wanted to ask about the German observational study findings and how you expect that to potentially percolate into other indications beyond Bardet-Biedl syndrome? And what impact you anticipate this might have on prescribing decisions in those areas? David Meeker: Yes. Thanks for picking up on that with the question. I think what we found most interesting about that, a, well, it's just interesting in general, right? I mean these livers improved to a remarkable degree in BBS. And as I highlighted in my comments, it didn't seem to tightly correlate with BMI change. And so it raised the possibility. We know there's MC4 receptors in different places. We know MC4R agonism interacts with the autonomic nervous system, the vagus iterates the liver. There are -- they're not MC4 receptors in the liver. There are MC1 receptors in the liver. So it just -- it's -- as I said, you get a drug approved, KOLs, others start making observations and you begin to learn a lot more. So I think there's a lot -- my point, again, of sharing that was that I think there's a lot more to be learned about this mechanism beyond simply the reduction in hyperphagia and associated increase in energy expenditure and associated BMI weight decrease. So that's it. Like I said, it was -- these are pretty remarkable results, and we thought it was worth highlighting. Operator: We do have a question and the question comes from the line of Jon Wolleben from Citizens. Jonathan Wolleben: Just wondering -- and sorry if I missed this earlier, of the 2,000 potential patients, have you been able to identify any more information on them on who may or may not be good candidates for one reason or the other? Or is it simply that you have kind of an identifier through the claims analysis you've done? Jennifer Chien: So the 2,000 patients are ones that through the discussions of our field organization and just discussions with the physicians, they have outlined that either they have X number of diagnosed HO patients or they have Y number of patients that meet that definition and criteria that they wanted to further evaluate as that patient came through in terms of visiting to get them to an actual diagnosis. So that process is ongoing, and we're very happy just overall in terms of understanding that there is this addressable opportunity in terms of getting patients to a quicker diagnosis. And there's also an interest from the physician perspective with a lot of aha moments to get patients to this particular diagnosis. So that process is ongoing. Operator: This concludes today's question-and-answer session. I will now hand back to David Meeker for closing remarks. David Meeker: Okay. Well, thank you again for tuning in this morning. As you've heard and hopefully understood, we're really excited about where we are. We made great progress and set ourselves up for some interesting and pretty important milestones in the fourth quarter and a lot that's going to continue to enroll in 2026. So we look forward to the next update. Thanks all. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: " Robert Lavan: " Thomas Shannon: " Lev Ekster: " Matthew Boss: " JPMorgan Chase & Co, Research Division Steven Wieczynski: " Stifel, Nicolaus & Company, Incorporated, Research Division Randal Konik: " Jefferies LLC, Research Division Jason Tilchen: " Canaccord Genuity Corp., Research Division Jeremy Hamblin: " Craig-Hallum Capital Group LLC, Research Division Michael Kupinski: " NOBLE Capital Markets, Inc., Research Division Eric Walt: " Operator: Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lucky Strike Entertainment First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bobby Lavan, Chief Financial Officer. Please go ahead. Robert Lavan: Good afternoon to everyone on the call. This is Bobby Lavan, Lucky Strike's Chief Financial Officer. Welcome to our conference call to discuss Lucky Strike's First quarter 2026 earnings. Today, we issued a press release announcing our financial results for the period ended September 28, 2025. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today are Thomas Shannon, our Founder and Chief Executive; and Lev Exter, our President. I'd like to remind you that during today's conference call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the SEC. Lucky Strike Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website. I will now turn the call over to Tom. Thomas Shannon: Thanks, everyone, for joining today's call. I am Thomas Shannon, Lucky Strike's Founder and CEO. Starting with performance. Total revenue in the quarter grew 12% and adjusted EBITDA was up 15%. Same-store sales were close to flat at negative 0.4%, with retail revenue up 1.4% and league revenue up 2.1%, which shows healthy customer engagement across our core bowling and entertainment venues. We continue to see encouraging momentum in our online booking funnel, which grew double digits in the quarter. Our offline events business, which on a dollar-weighted basis is mostly corporate event bookings, was down 11%, creating roughly a 160 basis point drag on total comps. That said, trends have clearly turned the corner. October was our strongest month of the year for both offline and total events, which gives us confidence heading into the holiday season. Our primary focus remains on improving free cash flow through disciplined cost management and capital efficiency. CapEx for the quarter came in at $26 million, down from $42 million a year ago, reflecting tighter capital allocation and benefits from our procurement function. In July, we made a strategic real estate investment, acquiring the land and buildings for 58 of our existing locations for $306 million. This enhances flexibility, lowers exposure to future rent increases, and sets us up for future accretive sale-leaseback or refinancing opportunities should we choose to pursue those. In September, we closed a $1.7 billion refinancing that extends debt maturities to 2032 at an average weighted cost of capital of 7%. We also expanded our roughly 370 location platform through the acquisition of 2 large and very profitable water parks, Raging Waters Los Angeles and Wet 'n Wild Emerald Pointe in Greensboro, North Carolina. along with 3 high-performing family entertainment centers in Southern California, the 24-acre Castle Park in Riverside, California, Boomers Vista Boomers Palm Springs. Together, these destinations welcome more than 1 million annual guests and broaden our leadership across water parks, amusement, and family entertainment. The $90 million transaction is expected to generate returns above our historical average, with most of the financial contribution coming next summer. We also continue to invest in our people. This quarter, we welcomed Brandon Briggs as Chief Revenue Officer, bringing global experience from major cruise lines, and Laura Cobos as Vice President of Field Training following her 3-decade career at Texas Roadhouse. Both are already having a measurable impact on our service and culture. Our teams are energized, engaged, and executing with precision. We're selling with confidence, serving with heart, and continuing to raise the bar for hospitality and out-of-home entertainment, keeping it short and sweet. With that, let's turn it over to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: It's Amanda Douglas on for Matt. So Tom, to start, could you break down the drivers of 1Q's roughly flat comp as you look across your walk-in retail business relative to events? And specifically on events, could you elaborate on the clear signs of recovery that you cited heading into the holiday? Lev Ekster: This is Lev Ekster speaking. So I'll just quickly touch on retail and league, which I think were major drivers, and we actually saw continued strength in both categories in this most recent period, and then I'll turn it over to Bobby to talk more specifically about events. But we saw obviously very healthy retail foot traffic. The numbers indicate that finishing nearly 1.5% up. But I think even more encouraging is what we're seeing in terms of a response from our lead customer, which I would argue is maybe our most price-conscious customer. And yet, we were up in leagues over 2%. I want to point out this most recent period of October, we closed up over 5% in leads, and that was driven by a combination of an increase in headcount of boulders for our fall flooring, but also we were seeing an increase in the average price per game. So we saw an increase in lineage revenue as well. And fortunately, with the increased headcount, we're also seeing that drive our food and beverage attachment from the League Bowler. In fact, we've had 5 consecutive weeks of all-time high food and beverage revenue coming from our league bowlers. So we found that to be super encouraging. And Bobby has been a lot closer with the event business. I'll turn it over to him. Robert Lavan: So the event business, which we talked about sort of the -- the main sort of headwind the business has had in the corporate events business. That business was down in the September quarter, sort of mid-single digits. October, we had sort of the best month we've had in more than 1.5 years. So we've changed the way we're operating that business. Additionally, we're leaning into online more, and online is growing strong double digits to sort of make up for some of the headwinds we're seeing mostly from a macro perspective on the corporate events side. Matthew Boss: And Bobby, just to follow up on the adjusted EBITDA margin expansion in the first quarter. Could you expand on the drivers of the 70 basis points of expansion? And then just any puts and takes to consider on the progression of EBITDA margins over the balance of the year? Robert Lavan: Yes. So I mean, revenue is going to drive the most amount of operating leverage on an EBITDA margin perspective. That's offset by -- we did invest an incremental $2.5 million in marketing, and we have $1 million of higher sort of insurance costs as we bring other businesses into the system. From an EBITDA margin cadence, the first quarter of 2026 is the lowest margin quarter. I would say you should expect 600 to 800 basis points margin improvement as we go into the higher winter quarters and coming back down to around where we are now when we get into the June quarter. Operator: Your next question comes from the line of Steve Wieczynski with Stifel. Steven Wieczynski: So Bobby, wondering maybe how we should think about the cadence for the rest of the year in terms of same-store sales. And then maybe if there's anything we should be thinking about in terms of whether it's headwinds, whether it's tailwinds over the last 3 quarters of the year. So just kind of we can kind of get our models in the right spot moving forward. Robert Lavan: Yes. So the next few quarters are pretty clean on an apples-to-apples basis. You have sort of New Year's is falling in the third quarter that happened last year. We have -- some of the growth -- inorganic growth came in the first quarter of '26 is from the acquisition of a water park in North Carolina, of another water park in L.A., coming in in sort of the June quarter. So you're going to have the strongest inorganic growth period or quarters in the first and the fourth quarter. From a same-store sales perspective, we guided the year to 1% to 5%, and that holds. You can kind of see how that should flow through. But ultimately, we expect for same-store sales to be in that range for the second and third quarter, and then the fourth quarter being a little bit better. Steven Wieczynski: And then second question is probably for Lev. But maybe a little bit of color around attachment rates in terms of retail customers. Wondering what you've seen recently in terms of whether it's F&B or amusement spend, any material changes in their spending patterns once they're inside your properties? Robert Lavan: I think we're more and more encouraged by our food attachment. And I think it was actually your question, maybe a year ago on a similar call where we talked about us leaning into food and seeing just a lot of organic upside within our business, improving the food quality, the food selection, the innovation in our food program. I'm happy to report that in Q1, food is actually up 10%, way outpaced our overall retail, which was up 1.4%, and we're going to continue doing that. And we have now an ecosystem focused around food attachment. And I don't think we've even scratched the surface of what our opportunity here is -- we're now focused on selling value to our customers right at the point of entry from the front desk. We're offering a product called the Pizza and Picture combo. We get a large cheese pizza and either a picture of soda, beer, or margarita right at the front desk. It's a huge win for us. In the first 5 months of selling this product, we sold over $8.5 million worth of pizza and picture combos. First of all, it's a great product. It offers a lot of value to the consumer. I think it's helping drive our NPS score higher, which is up year-over-year. But also, it gets the food out to lean faster when they order from the front desk, which means we get a chance to sell more food and beverage products during their experience with us. We've introduced platters for larger groups. 3 months ago, we launched 2 platters. It's a combination of some of our more popular products, feed a group of 8 to 10 individuals, 3 months' worth of selling platters, $1.3 million. We launched our craft Lemonade program. This goes on and on and on, and we're going to continue to launch innovative products. So we've seen great success with craft Lemones. We're now testing BOA iced teas and dirty sodas, which are really popular industry-wide. We're leaning into training. As you heard, we introduced a new VP of Field Training and Laura Cobos. We're going to empower our associates and our centers to become even better at sales. And fortunately, for them, they have a better product to sell. So super encouraged. The numbers speak for themselves. We're not done. You're going to continue to see innovation and value offered to our customers with better sales tactics. I think that combination is going to really power this business. Operator: Your next question comes from the line of Randal Konik with Jefferies. Randal Konik: Maybe give us some updates on the progress on the Lucky Strike rebrand. You mentioned in the press release, I think you're up to 74. Maybe give us some perspective on how much more you have to go and the timing and framing up of that, how the economics are looking, or the metrics are looking of the Lucky Strike's rebrands versus the balance of the chain? And just that would be super helpful to get some more color there. Lev Ekster: Thanks for the question. This is Lev. So you're right, we're up to 74. We set a goal to be at 100 by the end of this calendar year. We're still on track for that. We anticipate being at 200 by the end of 2026. Again, really important step for us because, as you know, we've significantly increased our marketing spend and having the ability to focus our marketing spend across 2 brands, that being AMF and Lucky Strike versus trying to execute across 3 brands when you consider Bowlero is going to give us a lot of, I think, more value for our dollars in marketing spend. It will allow us to do more national campaigns. Obviously, the economics bode well for that when you talk about pushing marketing across 200 Lucky Strike locations. I think we're also seeing a lot stronger F&B attachment at the Lucky Strikes. And in terms of the value of doing these rebrands, 2 of our strongest properties in the portfolio, that being Times Square and Chelsea Piers, they have both been rebranded to Lucky Strike, and they had very strong results. Times Square was up in retail revenue 36% last period. So it's resonating. And I don't think it's a mystery why, when you visit these properties, they're stunning. Obviously, the menus are better, the level of hospitality, the experience is top-notch. And so the more of these we do, I think the stronger our results are going to become. Randal Konik: Back on the events side of the business, I believe you talked about starting to turn. Was there also a geographic component? I think in the past, California might have been weighing a little bit on the events business as well. Just give us some perspective on just any geographic disparity in that area -- in that part of the business? And where do we see that kind of trending going forward? Robert Lavan: Yes. So if we were not in California or Washington, we would have comped up low single digits for the quarter. California and Washington continue to see significant amount of Silicon Valley layoffs. We are leaning in. We are accelerating sort of marketing spend. We are accelerating sort of a go out and get the business mentality on the events side. So some of it is just that we have to kind of deal with this storm and weather the storm on massive layoffs, corporates are not going to have celebratory parties. We're leaning in. We're ultimately seeing the turn. The events business in New York, strong events business in Texas, Florida, strong, really is ex-California, we would -- the business would have better results and already very outstanding results. Operator: Your next question comes from the line of Jason Ross with Canaccord Genuity. Jason Tilchen: I wanted to start with maybe some clarification on walk-in retail trends that you've seen, obviously, the comp, how it trended through Q1, and then what you've seen so far in October as well? Robert Lavan: Yes, it's been positive. I mean we had -- in the summer, we had season pass. In October, we've seen mid-single digits on retail. So again, very powerful trend on the retail side. It really comes down to we are winning on retail, we are winning on leads, winning on food, we're winning on alcohol, we're winning on amusements. The acquisitions we've done are extremely accretive to the business on an inorganic basis. We just have to get through the comps on the corporate events business, which again, is an important part of the business this quarter, but it becomes much less important of a business when we go into the third and fourth quarter. Jason Tilchen: And you mentioned the inorganic piece. Wondering if you could just go out a little bit more about some of the performance of the water parks and sort of their first full season with you guys? And maybe what are some of the operational learnings after going through that full summer period? Robert Lavan: Yes. So we have 2 water parks that we owned through sort of the full -- 3 water parks that we own through the full season, Raging Waves, Big Destin, and Shipwreck. It's a very interesting business because you make all of your revenue in 100 days. Our procurement F&B synergies are massive. We are learning to have more of the hourly workers. So it's a little bit of a different business model. But the thing that's been paramount is the consumer is responding to premium value, right? And what do we -- what is premium value? Like we're improving the food at Raiging Waves. And so food sales at Raging Waves were up 10% year-over-year. We brought in alcohol to Raging Waves, right? And that's obviously been a massive tailwind. But we're also delivering these guys value by having bring-a-friend days during the week and things like that. So ultimately, these businesses are great. We did market raging waves with our -- the 20-plus property Bowling properties we have in Chicago that work -- and we're looking forward to next year, where we're going to have a pass that you can use at Ragging Waves and at our Bowling centers in Chicago, a capacity you can use at Boomers, Boca Raton and our Bowling alleys in South Florida. And so ultimately, that is the next part of our business. Lev Ekster: When you look at the cadence of improvements at these water parks, I think the best comp for you would be to consider our Boomers locations, which fell into our comp in October, and we finished that month up good single digits. So we've had those, obviously, for a bit longer, which gave us an opportunity to improve the facilities, improve the game selections and redemption, improve the menu, improve the staffing and the training of the staff, and the results are there. So as an example, we just hosted a family fest event. It's sort of our grand reopening for the Boomers locations once we complete renovations. We hosted at our Boomers Irvine location this past Sunday. 4,000 attendees, the community couldn't believe the quality of the product, and we expect similar results with our other assets once we have a little time to improve them and run them the Lucky Strike Entertainment way. Operator: Your next question comes from the line of Jeremy Hamblin with Craig-Hallum. Jeremy Hamblin: This is Will on for Jeremy. Most of my questions were answered, but just one on the debt refi, just how we should think of interest expense for the full year? Robert Lavan: I mean it's $1.7 billion times 7% plus $60 million for the capitalized leases. Operator: Your next question comes from the line of Michael Kupinski with NOBLE Capital Markets. Michael Kupinski: It's [ Juobuchler ] on for Michael Kupinski. My first question piggybacks off of a few other questions that have already been asked. But just curious about the relationship between food and beverage revenue and Bowling revenue, and Lucky Strike locations compared to Bowlero locations. And just curious how those ratios are trending and potential upside in food and beverage when all Bowlero locations have been converted to Lucky Strike locations. Lev Ekster: It's a really interesting question, and this is Lev, by the way. And it's really hard to give you an answer because I don't think that when we went down this journey of enhancing our food program, I couldn't have imagined that we'd be at 10% in Q1 of this fiscal year. And we're not done yet. The innovation continues. We just finished the Board meeting yesterday, where we talked about the next wave of products that we're going to be introducing a bit of tasting. They're incredible. And what's important is they're restaurant quality, they're not quality for a bowling alley. So I don't think we've scratched the surface of our food and beverage program. I think you're going to see a lot less of our guests eating and drinking before they come, and certainly a lot less after they leave. When you pair a quality product, a value offering, enhanced marketing of that product, enhanced training of our staff to sell that product, I think the sky is the limit. And that's just on the Lucky Strike side. I mentioned earlier, our league bowler headcount is up. So going into this fall flooring, we were up nearly 3,000 bowlers for our traditional leagues. We're also introducing a league bowler menu with items exclusive to our league bowlers, and we're marketing that league bowler menu, which we've never done before. And now we're adequately staffing our centers for the nights that the leagues are in. There was this legacy mindset that league bowlers were not big on purchasing food and beverage. So historically, the centers weren't staffed the same way for league nights as they were staffed for retail nights. Well, we've ripped up that notion, and now we're staffing the same way. And we're seeing a response to that. So I mentioned earlier in the call, this is a real stat, 5 consecutive weeks where we've set an all-time high in food and beverage sales for the League Buller menu. I don't think we've scratched the surface there yet as well. So the league bowlers are responding. They're cost-conscious. But when you give them value, they gravitate towards it. So this league bowler menu is performing really well. The staff on the floor are selling. They're making more money. They're happier. It's a win-win, and I think we're going to get it on both sides at our traditional centers with the league bowlers and at our more experiential Lucky Strikes. Robert Lavan: So I'll give you some stats. Last quarter, locations that are branded Lucky Strike had 50% higher F&B to Bowl revenues than the Bowleros and AMS. If we are able to normalize that, that's a $125 million to $150 million pickup. Michael Kupinski: And then my next question, I'm just curious if you could talk a little bit about the promotional activity outlook. Just curious if there are any large promotional offerings planned over the winter months. I know the Summer Pass generated strong results. So just curious if there's anything like that planned over the winter. Robert Lavan: Yes. So we're seeing promotional environment slow down. I think it was a race to the bottom last year with some of our competitors, and they've realized how much that's hurt their business. So we're seeing the benefit of that pulling back. We continue to be very tactical. Online, you generally have to offer some sort of call-to-action promotion to drive purchase. But we're being a little bit more tactical about that. We'll have a Black Friday sale. Maybe we won't have a sale in the first few weeks of December, where our lanes are 100% utilized for events. Operator: Your final question comes from the line of Eric Walt with Axis Capital. Eric Walt: Just kind of want to follow up again on the -- 2 questions. One -- first one kind of follow-up on the F&B side. With the food up 10% in the quarter, you mentioned versus 1.4% for overall retail, how much of that was price versus general improvement in attachments across the various cohorts? And how much room do you think you have to raise F&B prices from this point forward? And remind us does -- I'm sorry, long question, but remind us, does the 1.5% comp guidance for this year, does that include any assumption of taking price on F&B? Robert Lavan: So in the quarter, we took no price on food and beverage. So that performance is purely attachment. Now as we roll out new products, I wouldn't call it taking price, but if the price will match the quality of the product we roll out. So naturally, some items will raise the ticket averages for us. But those assumptions do not take price into consideration at all. So any price that we take will just supplement the assumptions. Eric Walt: And the last question, kind of obviously, with the big start to the year, the major acquisition, and then kind of the real estate purchase as well, how would you frame kind of the focus for the remainder of this year? I mean, obviously, I assume you'd be opportunistic if something does come up, given the environment in, but is this still a year of an M&A focus? Is it shifting a little bit more towards organic, given what you did at the start of the year? And then how much needs to be invested in those acquisitions that you did at the start of the year, as they kind of come on board? Robert Lavan: Yes. Great question. We'll spend $95 million on acquisitions right now. I -- you never say never, we'll always be opportunistic. Right now, we're seeing the highest returns internally, whether it's marketing spend, whether it's F&B, whether it's a lot of these specials and bundles we're selling at the front desk. We are very focused on driving free cash flow right now. So unless the deal is a home run, I don't think we would do it this year. Also, as you can see, we reported $26 million of CapEx. I think we'll come in below our guidance this year for $130 million of CapEx as we really focus on internally. To your question about acquisitions, the acquisitions we've done and the CapEx that's needed, there is a few million that's needed in North Carolina. There's a few million that's needed in L.A. We have a commitment to spend a certain amount in L.A. every year. The rest of the acquisitions, we're digesting right now, and we kind of want to see what is the opportunity there. There is some opportunity in amusements, but that's a few million here and there. So really, right now, the focus is organic. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the CAVA Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Tuesday, November 4, 2025. I would now like to turn the conference over to Matt Milanovich, Head of Investor Relations. Please go ahead. Matt Milanovich: Good afternoon, and welcome to CAVA's Third Quarter 2025 Financial Results Conference Call. Before we begin, if you do not already have a copy, the earnings release and related 8-K furnished to the SEC are available on our website at investor.cava.com. The purpose of this conference call is to give investors further details regarding the company's financial results as well as a general update on the company's progress. You will find reconciliations between non-GAAP financial measures discussed on today's call to the most directly comparable financial measure calculated in accordance with GAAP to the extent available without any reasonable efforts in today's earnings release and supplemental deck, each of which is posted on the company's website. Before we begin, let me remind everyone that this call will contain forward-looking statements. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in CAVA's most recent annual report on Form 10-K as may be updated by its reports on Form 10-Q and other filings with the SEC. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law, CAVA undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. And now I'll turn the call over to the company's Co-Founder and CEO, Brett Schulman. Brett Schulman: Thanks, Matt, and welcome to the call, everyone. During the third quarter of 2025, we continue to strengthen our leadership in Mediterranean, a category we have pioneered and are rapidly growing while staying true to our mission of bringing heart, health and humanity to food. As consumers today face a challenging environment, the relevance of Mediterranean cuisine and the way we deliver at CAVA continues to resonate deeply. This differentiation enables strong average unit volumes, consistent value creation and the structural strength of our model. With growing market share and significant white space ahead, we remain confident and steadfast in our ability to create lasting value, build enduring guest loyalty and reinforce our position as the clear leader of the Mediterranean category. Our third quarter highlights include a 20% increase in CAVA revenue and a 66.8% increase over the last 2 years. CAVA same restaurant sales growth of 1.9% and restaurant-level profit margin of 24.6%, 17 net new restaurants, ending the quarter with 415 restaurants, a 17.9% increase year-over-year. Adjusted EBITDA of $40 million, a 19.6% increase over the third quarter of 2024, net income of $14.7 million and $23.3 million in year-to-date free cash flow. As I've shared in prior quarters, our brand proposition is strong and continues to strengthen as reflected in our expanding market share. Since 2019, while overall restaurant industry sales have grown, industry transactions have declined, yet CAVA has not only maintained but increased our market share significantly by delivering on our promise of high-quality food, brand relevance, curated guest experiences and seamless convenience. During that same time frame, we have worked relentlessly to make our food more accessible to guests, underpricing CPI by almost 10%, while taking less than half the aggregate, 34% price increases of industry peers. At the same time, we recognize that today's environment is creating real pressures for consumers, especially younger guests who are making more deliberate choices about where they spend. It's incumbent upon restaurants to deliver exceptional experiences and differentiated value to guests. That's why the foundation my co-founders and I built 15 years ago is more important than ever. From day 1, our aspiration was simple, to make our Mediterranean cuisine accessible to communities across the country, delivering it with welcoming hospitality while serving as a platform for our team members to build a career, not just have employment. This concept essence continues to guide everything we do to this day. As we capture the white space opportunity ahead of us, our growing market share is driven by the intention rooted in our first strategic pillar, expand our Mediterranean Way in communities across the country. During the third quarter, we opened 17 net new restaurants, bringing our total restaurant count to 415 locations across 28 states and the District of Columbia. Amongst them was our highly anticipated Brickell opening in Miami where the energy and enthusiasm from our guests was palpable, a powerful reminder that with every new CAVA, we're not just growing our footprint, but also deepening connection and fostering community. Recent openings also highlight projects sold, our restaurant redesign initiative that brings the Mediterranean Way to life through warm tones, greenery, natural light and softer seating, design elements that turn our restaurants into welcoming places to dine. The project sold prototype is now finished and the complete design will roll out in new openings next year. And just as our environments invite connection so do our bold Mediterranean flavors. Earlier this quarter, we introduced our latest protein innovation chicken shawarma, juicy roasted chicken breasts marinated in a signature spice blood and hand stacked on a spit. The launch performed to our market test expectations with incidence levels that showed strong guest responsiveness and healthy engagement across our restaurants. Another example of how distinctive, innovative and satisfying flavors rooted in health continue to resonate with our guests. That same spirit of innovation comes through with our recent salmon market test, which has shown encouraging results. Salmon is a natural fit for our menu and represents an exciting milestone as our first ever seafood offering. Our roasted flaky fillet marinade in a subtly sweet [indiscernible] barista, red wine vinegar and bold spices not only complements our Mediterranean flavors beautifully, but also broadens the variety we can offer guests. Early results reaffirm the strong potential we see and if performance continues, we will plan to expand salmon more broadly across our restaurants in late spring of 2026. While proteins like salmon and chicken shawarma remain a critical focus of our culinary innovation pipeline, we also know that smaller touches can carry just as much weight in keeping our guests excited. Our pita chips are a perfect example. Last month, we introduced cinnamon and sugar pita chips, dusted with cinnamon sugar and the hint of cardamom paired with honey for dipping. The sweet twists on a fan favorite that brings both snacking and dessert occasions to life. Shifting to our second pillar, deepen personal relationships with guests even as we scale. This past October marked the 1-year anniversary of our rewards, reimagined, relaunch. And since then, the program has grown by approximately 36% and has become a key platform for connecting with guests in a more personal, meaningful and creative ways. Building on that momentum, we recently introduced tiered status levels as the next phase of the program. Through our new sea, sand and sun structure, members now enjoy differentiated benefits and surprise and delight experiences designed to celebrate their loyalty and strengthen long-term engagements. As an extension of our brand spirit of generosity, we also launched status matching to welcome new members and encourage deeper participation. While status matching is a first of its kind offering in our industry, we see it simply as another way to express our concept essence. The latest evolution of our program also includes an expanded rewards catalog with seasonal offerings and fresh new ways to engage. With every enhancement, our goal is to create a deeper sense of belonging and continuity for our guests, whether it's elevating hospitality, improving order accuracy or better speed of service at our core is our commitment to building a strong operational foundation. And regardless of near-term cyclical pressures on the consumer, we're doubling down and focusing now more than ever on delivering for the long term with exceptional guest experiences and ensuring that our restaurants are staffed with team members that are equipped, empowered and trained to run great restaurants every location, every shift, our third strategic pillar. The role technology plays in our restaurants is important and providing our team members with the tools to deliver consistently great experiences as a key focus area. An initiative in that spirit is our new kitchen display system which we are now on track to roll out to at least 350 locations by year-end with over 200 restaurants live today. We are continuing to see encouraging results as restaurants with the new KDS are experiencing higher guest satisfaction scores, driven by improved digital accuracy and proactive guest order status notification capabilities. In addition to improvements across technology, we're also investing in equipment that makes our restaurants easier to run, such as our TurboChef ovens. All CAVA restaurants are now equipped with a TurboChef oven. These ovens allow for faster, more consistent cook times, enabling simpler execution in our restaurants while elevating food quality. Both the TurboChef and KDS investments helped reinforce execution in our kitchens while allowing our teams to focus on what matters most, delivering a great guest experience. We are at a meaningful moment in our growth journey, and we know it is crucial to invest in training and developing our team members. Today, I'm excited to introduce our new Flavor Your Feature initiative, a holistic team member development program designed to attract, develop and retain CAVA's feature leaders. One of the first actions under this initiative is the launch of our new Assistant General Manager program, an evolution of our current general manager and training role. This role provides more experienced leadership in our restaurants on more shifts throughout the week, ensuring a clear #2 leader is always in place. It will also create a stronger pipeline of roll-ready leaders to take on the GM role as we scale and open more restaurants. Today, about 20% of our leaders are ready for immediate elevation, 50% will be roll ready with additional training over the next quarter and the remaining 30% likely sourced externally. The AGM role is just one component of a broader leadership initiative that we are excited to share more about in the quarters ahead. Our commitment to developing team members into restaurant managers remains a core near-term focus, and we're excited about the opportunity to build the next generation of CAVA leaders. You can see the power of that commitment in stories like that, [ Angelo Miranda ] at our Millennium location. Angelo started as a team member, eager to learn and grow, under the guidance of his then General Manager, Ruben Holguin. He learned the business from the ground up. He developed his leadership skills through consistent coaching, feedback and belief in its potential. Over the years, that investment has paid off. Today, Angelo leads the same restaurant where he began his journey now as a General Manager, inspiring the next generation of team members to do the same. When I visited Millennia earlier this month, I saw firsthand the culture of growth and pride that Angelo and his team have built. Angelo was quick to introduce me to his high potential team members he is developing as future CAVA restaurant leaders. It's a true reflection of what happens when we invest in people and create pathways for them to lead. And Angelo's original GM, Ruben, he is now an area leader overseeing 9 restaurants. Our mission is to bring heart, health and humanity to food, and it continues to drive our strategy, shape our culture and inspire the work of more than 13,000 team members each day to our teams and to all of you who share in this journey. Thank you. And with that, I'll pass the call off to Tricia to walk you through the financials. Tricia Tolivar: Thanks, Brett, and hello, everyone. CAVA revenue in the third quarter of 2025 grew 20% year-over-year to $289.8 million and 66.8% compared to the third quarter of 2023. During the quarter, we opened 17 net new restaurants, bringing our total CAVA restaurant count to 415 restaurants. CAVA's same-restaurant sales increased 1.9%, primarily from menu price and product mix with guest traffic approximately flat. On a 2-year basis, same-restaurant sales accelerated 350 basis points to 20%. On a 3-year basis, same-restaurant sales remained relatively stable at 34.1%. Despite lapping strong prior year results and navigating macroeconomic pressures, we continue to grow our market share and are confident in the underlying structural strength of the business. Our new restaurant productivity remains above 100%, underscoring the resonance of our brand. CAVA restaurant level profit in the third quarter was $71.2 million or 24.6% of revenue versus $61.8 million or 25.6% of revenue in the third quarter of 2024, representing a 15.1% increase. CAVA's food, beverage and packaging costs were 30.1% of revenue, higher than the third quarter of 2024 by 20 basis points. This slight increase reflects the impact of tariffs and our limited time-only chicken shawarma offering. CAVA labor and related costs were 25.5% of revenue, an increase of approximately 10 basis points from the third quarter of 2024. This increase in labor and related costs reflects investments in our team member wages of approximately 2%, partially offset by leverage from higher sales. CAVA occupancy and related expenses were 6.7% of revenue, an improvement of 10 basis points from the third quarter of 2024, driven primarily by increased sales leverage. Cava other operating expenses were 13.1% of revenue, reflecting an increase of 80 basis points from the third quarter of 2024. This increase was due to a higher mix of third-party delivery, insurance costs and other individually insignificant items. Shifting to overall performance. Our general and administrative expenses for the quarter, excluding stock-based compensation and executive transition costs were 9.4% of revenue compared with 10.8% of revenue in the third quarter of 2024. This 140 basis point improvement was primarily due to lower performance-based incentive compensation, leverage from higher sales, lower legal costs, partially offset by investments to support our future growth. Preopening expenses were $4.9 million in the current quarter compared with $2.8 million in the prior year quarter. The $2.1 million increase includes a higher number of units under construction and increased costs on a per unit basis. Adjusted EBITDA for the third quarter was $40 million, a 19.6% increase versus the third quarter of 2024. The increase in adjusted EBITDA was primarily driven by the number of and continued strength in new restaurant openings and leverage in general and administrative expenses. Equity-based compensation was $3.3 million in the third quarter compared with $3.5 million in the prior year quarter. We anticipate full year equity-based compensation to be between $18 million and $20 million, which includes the 2025 grants as well as the impact of forfeitures. In the third quarter, our effective tax rate was 28.6%. For the full year fiscal 2025, we expect our effective tax rate to be between 10% and 12%. As a reminder, our cash taxes will continue to be immaterial until we fully utilize our net operating losses. During the third quarter, we reported $14.7 million of GAAP net income compared to $15 million of adjusted net income in Q3 of 2024. Diluted EPS was $0.12 in the third quarter compared with adjusted diluted EPS of $0.13 in the third quarter of 2024. The slight decrease was due to the allocation of income taxes in the prior year, excluding the release of the valuation allowance, partially offset by higher earnings before taxes. Turning to liquidity. At the end of the quarter, we had 0 debt outstanding, $387.7 million in cash and investments and access to a $75 million undrawn revolver with an option to increase our liquidity as needed. Year-to-date Q3 cash flow from operations was $144.5 million compared to $131.2 million during the year-to-date period in 2024. Year-to-date, Q3 free cash flow was $23.3 million. Now to our outlook for full year 2025, we expect the following: 68 to 70 net new CAVA restaurant openings. CAVA same restaurant sales growth of 3% to 4%. CAVA restaurant level profit margin between 24.4% and 24.8%. Preopening costs between $18 million and $19 million and adjusted EBITDA, including the burden of preopening costs between $148 million and $152 million. I'd like to provide some additional context around our updated guidance. As we exited the second quarter, we saw same restaurant sales reaccelerate and we're encouraged by the sequential improvement. However, as the third quarter progressed, we experienced a moderation in trends reflecting broader macroeconomic pressures. Entering the fourth quarter, we're seeing further moderation as we continue to lap stronger same restaurant sales from the prior year. As such, we have incorporated these trends into our outlook for the remainder of 2025. Our same-restaurant sales guidance reflects both the benefit of our recent chicken shawarma launch, which performed in line with market test expectations and the ongoing macro headwinds impacting the industry. Despite these macro pressures, our 2-year same-restaurant sales stack accelerated by 350 basis points to 20% underscoring the resilience of our brand and the strength of our guest engagement. Looking ahead, we remain confident in the long-term structural health of the business reaffirmed by our strong AUVs and new restaurant performance. Our most recent 2025 cohort is trending above $3 million in AUV, with new unit productivity continuing to exceed 100%. Turning to restaurant level margins. Our guidance reflects dynamics we experienced in the third quarter and the anticipated impact of seasonality on margins. As we look ahead to next year, we remain confident in the structural foundation of the business while being mindful of ongoing macroeconomic pressures. Our long-term algorithm targets low to mid-single-digit same-restaurant sales growth and we will approach our 2026 outlook with appropriate discipline, taking into consideration our strong pipeline of traffic-driving initiatives. In addition, given the health of our 2026 real estate pipeline, we anticipate at least 16% unit count growth. As we navigate today's dynamic environment, our mission to bring heart, health and humanity to food continues to resonate with guests across the country and is more important than ever. We remain the clear leader of our category, supported by a powerful concept and competitive positioning that are both differentiated and durable. None of this would be possible without our exceptional teams across our restaurants and support centers. This dedication brings our mission to life every day to drive meaningful experiences for our guests. With that, I will turn the call back over to the operator to open it up for Q&A. Operator: [Operator Instructions] We will now take our first question from Andy Barish with Jefferies. Andrew Barish: Last quarter, you kind of stack rank some of the choppiness in same-store sales from the steak lap to a little bit of consumer balances to the honeymoon. Can you kind of just let us know on the honeymoon side of things, if that's changed materially? And I'm assuming most of the choppiness you're seeing now is macro-related, but anything geographically you want to point out would be helpful. Tricia Tolivar: Andy, thanks for the question. So certainly, the honeymoon impact is very similar to what we experienced last quarter, no change there. We're not seeing anything geographically to call out. So it's more around the macro environment and the pressure on the consumer and certainly lapping the strong same-restaurant sales results that we had in the third quarter of the prior year. So we've noted it on the call, but on 2-year stack basis, we, in fact, accelerated our same-restaurant sales by 350 basis points to 20%. Operator: Our next question comes from Brian Mullan with Piper Sandler. Brian Mullan: Just a question on the salmon test. Brett, in the prepared remarks, it sounds like it's going well. Just wondering if you could elaborate a bit on what you're seeing in test. Anything interesting from a daypart perspective between lunch and dinner or maybe just a guest perspective, age, gender, income just -- and also how it's going with the operations? Brett Schulman: Thanks, Brian, for the question. We did know we have TurboChef ovens in every restaurant now, which is the equipment we use to roast the salmon. So it's a very easy cook procedure and prep and whole procedure. And we've been very encouraged by the results. We have seen it drive incremental occasions and its appeal has been broad-based from a consumer standpoint as well as a daypart standpoint. So it is a unique new menu items to add to the variety of our proteins. It's our first seafood item and excited at its potential. And if things continue to progress on the current track, as we noted, and -- as I noted in the prepared remarks, we expect to launch it in late spring in 2026. Operator: Our next question comes from David Tarantino with Baird. David Tarantino: Brett, I had a question about the operations. So I know you made a change in leadership there during the third quarter. And I was wondering if you could just address that change and why that happened? And then I guess you mentioned also tonight doubling down on guest experience and operations. So wondering if you could elaborate on whether you're addressing specific issues or whether that's more of an opportunistic statement as you think about where the business is today? Brett Schulman: Yes, David, over the course of our 15-year journey, one of the things that's been instrumental in leading to our success is always being proactive and staying in front of the business and making sure we're bringing on the capabilities that we need for the next chapter of our journey and where we're going, not just where we've been and where we are. And so that true transition was in that spirit. And as it relates to the operational opportunities, this is the most intense discount environment since the Great Recession. And our value proposition, we believe, is much more holistic than a price point. And one of the best things that we can do is deliver exceptional guest experiences. That's foundational to driving traffic over the long term and driving a competitive advantage in concert with our unique differentiated Mediterranean cuisine. And so we're just doubling down on that. It's been core to who we are throughout our journey, and we want to make sure that we're putting our best foot forward in a time when consumers are becoming increasingly discerning about where they're spending their dollars and that we also have the breadth and depth of pipeline to continue to support the new restaurant openings that are opening at record levels and opening them with operational integrity. Operator: Our next question comes from Eric Gonzalez with KeyBanc. Eric Gonzalez: You talked about having a strong pipeline of traffic-driving initiatives for the next year. Maybe you could expand on that a bit. It sounds like you've got at least one protein on deck with salmon in the spring, but I'm curious if you have anything else exciting to call out so maybe pita chips size, beverages or desserts that might be interesting and worth noting. Brett Schulman: Yes. Thanks for the question. I think the pita chip piece would certainly be relevant next year sooner than beverages and desserts. Those are definitely category opportunities for us over the long term, but our pita chip platform for innovation has been very successful, and we continue to see opportunities to excite guests through that platform as well as the salmon launch, and then we will be expanding our catering test later in '26 to a second market. We're currently testing catering in Houston. I wouldn't expect the chain-wide launch, but later in '26, we plan to expand it to a second market in concert with Houston to continue to test and learn and position ourselves for a broader launch. And then lastly, I'd say, on the marketing front, we have been very efficient and lean in our marketing spend over time, and we continue to test and learn and understand how we can show up in those channels effectively, especially as we communicate our value proposition and our message in a heavily discounting environment. And so next year, whether through collaborations or some of the other marketing partnerships that we have opportunities to forge, that's another area that we have not -- or another lever that we haven't pulled in a meaningful way to date. Operator: Our next question comes from Andrew Charles with TD Cowen. Andrew Charles: Brett, I appreciate all the context for the upcoming drivers. Two in particular, just in the current backdrop, the opportunities to accelerate investments in the near term and marketing, are there opportunities with the growing scale of the brand to really just create more brand awareness, now you've seen some nice gains last year as well as improving speed of service. And I would be very curious to know what the clearest action items are going to be for the incoming COO? Brett Schulman: Yes. Certainly, speed of service, we've noted in the past, we know it's an opportunity. We're mindful of striking the right balance where we're not rushing people through the line too fast when it's their first time experiencing Mediterranean food or their first time interacting with CAVA let alone eating Mediterranean food. But we see clear opportunities to continue to improve on that front. There will always be operational opportunities. We hold ourselves to a high standard. And we want to make sure that we're delivering CAVA hospitality to the level and degree that we aspire to across every restaurant and having that speed of service consistently across the country. So we think there's opportunities there. And then on the marketing front, as we gain scale in these markets, we'll continue to test more upper funnel activity that we have the ability to amortize and leverage it across a wider restaurant base. But from a new COO perspective, it's continuing to deepen and broaden out the people development pipeline. I noted we talked about the AGM role. That's in that spirit of not only helping give a stronger management complement across all shifts during the week across all 7 days, but also having more role-ready leaders in place. Again, being proactive, staying in front and thinking about what do we need to put in place for just -- not for today but for tomorrow to make sure that as we scale to 1,000 restaurants by 2032, that all those things are already in place at that time, and we will be working on other things as we go beyond that milestone goal. So the focus will be on the people development side as well as continuing to elevate our speed of service without having people feel to rush through that line. Operator: Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: Brett, you mentioned younger guests kind of in the prepared comments, and I don't know if that was a broader statement of the industry or if you're seeing something in particular with younger cohorts. And I'm also interested in kind of what you're learning about how you can lean into loyalty just given kind of this more volatile consumer climate. Brett Schulman: Yes, Sharon, really, for us, we're a bit idiosyncratic in that our costs accelerated in the back half of last year when many industry comps were decelerating. So we're lapping tougher hurdles when most are having easier compares. So we don't want to overstate the challenges of the consumer, but you can look at the data. They're clearly out there, whether it's student loan repayment, consumer sentiment, just the inflationary pressures all around them, whether it's health care cost, housing costs, right? Gen Z unemployment twice the national average. When we look at the data, it's more that the younger cohort that 25 to 35 that Tricia noted in comments is that they don't have the steam that they had last year in the way that they were visiting or their frequency of visiting. It's not necessarily they're so challenged with us. It's just that they don't have the vigor or the frequency of occasions that they did last year. And that's why it's incumbent upon us to continue to double down on our experience and our value proposition and make sure we're communicating that effectively. We're not oblivious to the commentary about the $20 launch. Well, the reality is you can get a chicken fillet at CAVA with all the toppings included, three different spreads, greens and grains for $10.65 to our highest price of $12.95 in New York City. So that's a sub-$13 bowl in the most expensive market, not a $20 lunch. And that's an opportunity for us to continue to communicate that, but it's fresh food. It's not freeze on a fryer food or ultra processed food. And when you step back and you look at the 2-year comp of 20%, and you look at the almost 67% revenue growth on a 2-year basis, we continue to gain significant market share. And again, I know the Technomic data. It's very interesting. The industry has lost 7% in transactions since 2019. We've grown transactions in the mid-20s since 2019. We've taken half the price of industry peers food away from 34%, we've taken in aggregate, less than 17% in price. So we are focused on the long term. We say it's a marathon, not a sprint. And we want to continue and enhance our value proposition each and every year make our food more accessible to guests. Now on the loyalty front, we are very excited about what we've seen in our loyalty program. We noted we've seen an increase of 36% in members in our loyalty program. We added this new tier status. And we've seen the ability to really create greater value for our guests and influence behavior in a positive way for their visits and for the business and expose them to new items. So for example, on chicken shawarma, on our loyalty pool, people who have tried chicken shawarma are coming more frequently than users who have not tried it. So the ability to have that one-to-one line of communication drive that innovation, drive that newness, drive excitement, drive trial is a powerful first-party data tool that we look to continue to leverage in the coming quarters. Operator: Our next question comes from Jacob Aiken-Phillips with Melius Research. Jacob Aiken-Phillips: I just wanted to ask again on the honeymoon dynamic. So the last quarter, you described -- at least some of it as coming from maybe people driving further distance or just initial trial and new trade areas. But is that dynamic like something that lasted longer than the 3 months, 6 months or the initial stores that were affecting you last period doing better on a year-over-year basis? Just trying to understand the dynamic a bit better. Tricia Tolivar: Yes. So we are seeing the initial stores impacted are doing better on a year-over-year basis. And in fact, in looking at the restaurants in 2024 that have been opened for a period of time beyond 18 periods or 18 months, we're seeing a return to positive same-restaurant sales. So we don't believe this is reflective of a structural challenge. We don't find it concentrate in a certain geography or in a certain format or type of restaurant. We're continuing to monitor and we'll give you updates as we move forward. But likely given the performance of our 2025 vintage, we'll likely see a similar pattern in 2026. Operator: Our next question comes from John Ivankoe with JPMorgan. John Ivankoe: Thank you for opening the unit in Brickell. It's absolutely beautiful Brett and team, so thank you for that. So the question -- I'm going to make a question out of this. So this is a market where we know there's going to be a lot of demand growth, but the buildings haven't been built yet a lot of them. There's absolutely a lot of supply growth in the market and there's a lot of markets that are kind of like that around the country. New York City certainly is one, and I think there's a number of others as well where the supply growth is pretty obvious, just see walking down the street or the see on the app or to see on various promotions, what have you. So the question, Brett, we spent a lot of time talking on the demand side, but can you talk about kind of the effect of supply growth that you've kind of seen in various markets. Now I'm not asking you to is like, hey, are they going to last? It's just whether they've opened and maybe competed with you on the margin, and it's just something that we just kind of have to wait out as the market will inevitably settle? Brett Schulman: Yes, John, thanks for the Brickell comment. It's a beautiful restaurant, super phenomenal. Excited to have more open. We just opened Aventura in South Florida. It's interesting. I feel like it's less supply intense than in our younger earlier days. If you remember, kind of 2013 to 2016, there were a lot of fast casual concepts emerging and fighting for real estate. So it's more challenging. I mean, I think real estate is easier for us to get. And then from a competition standpoint, look, the restaurant industry, as I noted, has transactions down 7% since 2019, which means it's a share shift gain, which means you've got to be a better competitive alternative to the 3 or 4 or however many restaurants around you and be differentiated. And to us, that's our Mediterranean cuisine. This on-trend cuisine that is unique and that it meets the moment of a moderate consumers increasingly diverse pallet seeking bolder, more adventurous flavors while not wanting to sacrifice on health and wellness. And then delivering that, as I noted earlier, are doubling down on operational integrity with exceptional hospitality, not just average operations, exceptional hospitality, we have seen over our 15-year journey is a recipe for success. When we do that, and we do it consistently. These comps go up. It doesn't matter who opens next door to us. We continue to grow market share and that's what we're focused on. Operator: Our next question comes from Chris O'Cull with Stifel. Christopher O'Cull: Brett, I was wondering if the company has done any work to assess the value perception among non-CAVA users in more mature markets. I'm just wondering what the perception of the brand might be and what's keeping them from visiting the restaurants? Brett Schulman: Yes, our value perception is strong. We do biannual brand health surveys. Many of the analysts on this call have put out value surveys where, I don't want to play favorites or names, but there is a lot of good research that you all put out that is ranked us very strong in our value proposition, if not towards the top of the publicly traded industry set. So we see that corroborated, whether it's anecdotally, whether it's qualitative or quantitative. We see our value proposition continue to be recognized by consumers, whether they come to CAVA or whether they're not as aware of CAVA, whether it's our internal studies or some of these third-party org analyst studies. So I think it's also a reflection of the way we think about value. The relevance of our cuisine and measuring diet, the quality of the ingredients we're serving, the fresh food, fresh grilled proteins, fresh produce, not freeze to fryer or ultra process food, the convenience in which you can access it. And most importantly, at the end, I talk about the experience we deliver when you engage with the brand, and then you match that with the fact that over the long term, our long-term perspective and how we work every year to mitigate price less than 17% compared to 34% in industry aggregate average. We have underpriced inflation. We have underpriced peers that have enhanced that relative value proposition each and every year. Operator: Our next question comes from Sara Senatore with Bank of America. Sara Senatore: I wanted to ask about -- you mentioned technology and KDS, and you'll be rolling out more broadly. What are you seeing in terms of, again, perception -- consumer perception? Are you seeing increased frequency or speed of service that's translating into higher frequency. I know experience matters a lot, but sometimes it can be hard to detect throughput when demand slows. So just as I think about technology as a potential driver, any kind of reads on what that means for throughput and guest frequency? Brett Schulman: Yes, certainly, Sara, on the off-premise channels, whether it's delivery, third-party delivery or native delivery or digital order pickup, technology plays a key role. The integrations, the time our times on the third-party marketplace, how quickly we can get our food to consumers, making sure those integrations are aligned and then the team has the labor deployment and set up, so we can open our throttles. We manage, we build our own digital order platform. So we can control those throttles and we can open up those throttles as the team enhances and improves their productivity to deliver greater throughput and then the new kitchen display screen system really help improve order accuracy. We know it's our single biggest opportunity area for customer experience is making sure every digital order is accurate and that it has ample amount of food in the bowl. And that is something that the kitchen display screen system has really been a tool to help improve that and help ease of production for our operators and help deliver greater accuracy for guests. And we see that voice of the guest score improve, and we see comps follow that. Like that has been true in -- since our very earliest days, whether it's the digital order line or the in-restaurant line, when the customer experience scores improve, the comps follow. And so we want to continue to make sure we're putting our best foot forward in that light and then using technology to enhance the human experience, not replace it. You take some of that complexity out of our team members' mind share or equip them with the tools and capabilities to deliver that exceptional guest experience. Even another thing, just having that order status update notification and making sure the algorithm is updating our guests if we're running a little late or if we're running a few minutes early, so that they're walking in ideally when their goal is being put on the shelf or at the window and one of our pickup by card locations. Operator: Our next question comes from Danilo Gargiulo with Bernstein. Danilo Gargiulo: Brett, when you talk about hospitalities, you seem to suggest a broader opportunity than speed of service alone. So what do you think operations are falling short of your expectations relative to where you are going, not necessarily where you have been and where you are today? And what are some of the specific levers that you expect in the new CEO to deploy? And if I may, Tricia, you're expecting some of these investment in people to maybe translating into similar restaurant level margins compared to today? Or with sales leverage, should we still expect a growing restaurant level margin under the new operations? Brett Schulman: Yes. Thanks, Danilo. We have strong restaurant operations today. We have always been in a forward-looking posture, and we have aspirations to be thought of in an elite group of restaurant operators delivering exceptional service, not just average service, not just good service, exceptional service because it is like all my co-founders, sons of Greek immigrants, when you go to that part of the world, the hospitality, you feel the welcoming nature you feel. We want you to feel that every time you walk into every restaurant, no matter how big we get. And so that is our aspiration, and that is the work we are committed to every day to elevate to that level. And we have it in restaurants. We have opportunities in other restaurants. And I think in moments where there's cyclical pressures on the consumer, it matters more than ever to make sure that it's consistent across all restaurants and take good to great. And that is something that we think is just another opportunity to drive additional traffic and drive additional market share growth from the significant gains we've had in recent years. Tricia Tolivar: What that means from the restaurant level margin standpoint and how we're thinking about it. It's certainly a same-restaurant sales increase, restaurant-level margins will expand. But we're also very mindful of where we are in our journey and the investments that we think are necessary to put back in the business to make sure we're continuing to build a long-term durable brand that's going to consistently deliver on that guest experience and hospitality that Brett talked about. Brett Schulman: Yes, if we see opportunities to invest further in labor, we will. It's just a belief that -- a philosophical belief we have that has gotten us to where we are today that we are going to continue to look at opportunities to make sure that any restaurant level margin expansion is sustainable and durable over the long term. And in the short term, that might mean targeted investments, if that's what we think is the right thing to do for the business. Operator: Our next question comes from Dennis Geiger with UBS. Dennis Geiger: Just another one on the newer stores and the performance in year 2, if I could. Tricia, specifically, you gave some good color a couple of minutes ago, I think, and I want to make sure I heard it right. Just as far as you're still seeing those new stores enter the base, I assume as a negative, just like last quarter, but that 24 class, those stores open 18 months, they're flipping to positive. I assume not as strong as what you've seen in prior classes, but positive after 18 months. So just wanted to confirm that. And the question really is if -- as you look ahead, any better sense on what '26 may look like with this new store dynamic as you've now seen a couple of quarters of the Honeymoon dynamic and other levers maybe you can pull to sort of maintain that growth even after big year one opens? Tricia Tolivar: Yes, I appreciate it, Dan. So you heard it right, we're seeing the trends as you articulated them. And certainly, there are restaurants that perform above those expectations. So we're not -- but in general, yes, that is correct. And then in '26, we believe the '25 cohort of restaurants will perform similarly to what we saw with the '24 cohort in 2025. And things to do to try to make sure that we can open these restaurants as successfully as possible and capture as much of the honeymoon halo as we can is really taking our general managers and exposing them to high volumes as well and bringing them into other markets like New York to experience what these peaks are like, which is atypical and something that we hadn't experienced prior to this year, so that they're better able to manage the demand and then maintain more of those consumers as we go forward. Operator: Our next question comes from Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Just looking at the most recent third quarter results. I'm just curious how much of the comp shortfall maybe versus your internal expectation heading into 3Q, do you attribute to the escalating macro headwinds versus perhaps some internal missteps or challenges and kind of thinking about as you look back, anything you would do differently if the challenging environment persists as we look into 2026? Tricia Tolivar: Yes, the macro environment is certainly what put pressure on the results in Q3. I wouldn't -- there isn't anything that's structural about the business or any missteps that are significant that we would have adjusted for which we have done differently. It's really about how we look at how we performed in light of the 2-year stack that we were facing. So when you're coming up on a comp in the quarter last year of 18%, coming out just under 2% is not an unreasonable expectation, given that tough compare and the macro environment that we're in. We talked about 2-year stack and how they accelerated. And the 3-year stack at the beginning of the year, we thought would be in the mid-30s and we're just under that at 34%. And in this type of environment, that was not unexpected. Brett Schulman: And again, Jeffrey, when we're in this heavy discounting environment, we're not going to get into that heavy discounting to combat any cyclical headwinds. That's why we talked about doubling down on exceptional operations and great guest experiences. That's where restaurant traffic starts. And that's always an opportunity for us and always will be, but it's incumbent upon us in these more challenging macro environments to double down on it because we're not fast food. We're not QSR. That's not our value proposition to our guests. Our value proposition as I spoke to before, the quality of our food, the relevance of the cuisine, the experience you get when you engage with us and you come into our dining rooms and you order on our digital channels and the accuracy we deliver. So we want to make sure we're doing everything we had in that spirit to deliver for our guests in this time when they're feeling pressures all around you. Operator: Your next question comes from Jon Tower with Citigroup. Jon Tower: Two, if I may. First, Brett, you've mentioned multiple times on the call, the brand's pricing versus CPI over time since 2019. So I guess my impression is that as we're looking at 2026, you guys are probably not going to do much by way of taking price for next year. And I'm just curious if that's the right assumption to make for the brand? And then my next question is just on the last year discussion and specifically the builds for 2026. To avoid maybe the same issue hitting the store base with respect to honeymoon. Are you guys doing anything specifically where you're opening the stores in 2026, such that 2027, you're not going to running into the same issues with Honeymoons or is that not even part of the discussion? Tricia Tolivar: So I'll start with price. So you're right, Jon, as we think about it, we've always been very thoughtful. Brett talked about this earlier on not passing a significant price on to our guests, so we don't plan to do that in 2026. So our expectation is our price increase will be very modest and less than what we did in 2025. And then as you're thinking about opening new restaurants in 2026, there's not a significant change contemplated and how we're opening them, just being thoughtful around what that means to the business and keep in mind our comp trends in Q1 of 2025 with a strong comp at 10.8%. That will factor in the cadence of comps next year. But when we look at our real estate strategy, just wanting to make sure that we're being balanced and thoughtful in how we're bringing new restaurants in, particularly in new markets and how we're pacing those openings to perhaps try to balance out that honeymoon phenomenon that we've been experiencing. But I'll tell you, we're seeing it all over. So it's not just in new markets. We're just -- the brand is resonating very well and driving strong demand that's bringing many more guests than we originally expected, which drives a stronger cash on cash return sooner, which is great for the business overall. Operator: Our next question comes from Brian Harbour with Morgan Stanley. Brian Harbour: The change to store margin guidance is that really just reflective of the sales environment? Or is there anything that's different about inflation, anything that we should factor in as we go to '26. And then I guess just also what's pressuring preopening expense? Tricia Tolivar: When we look at restaurant level margin, it really reflects the experience we had in Q3. And frankly, in the quarter itself, we have continued to have higher repair and maintenance expense than what we were anticipating. We have been talking to everyone and seeing that over the past year and had thought that it would come down a little bit. And so what the guidance reflects is the actual results in Q3 and a continuation of that from another operating expense perspective into Q4 as we identify opportunities to look at those repair and maintenance expenses and optimize them. So being more thoughtful around equipment and how do we make adjustments, but wanting to maintain the integrity in the physical spaces and making sure we're providing a great guest experience at the same time. There isn't anything significant around input costs or labor costs. It's more of that under operating expense line. And then when you talked about preopening costs, what we're planning with preopening is they were in the quarter itself. There were many more restaurants under construction than what was in the prior year. But overall, we are seeing an increase in preopening costs per restaurant driven by a number of factors, and it's largely due to us investing in a better opening experience. So when I mentioned earlier, taking general managers out of the market where the restaurant is going to open and bring them into higher volume markets, that has extra costs associated with it, which we think is important to make investment in, so the general managers are better prepared and there's a better guest experience overall. Operator: Our next question comes from Logan Reich with RBC Capital Markets. Logan Reich: Just on the Q4 comp, I recognize you guys gave the full year guide. It implies a relatively wide range on Q4. So just any sort of directional commentary you could provide on Q4 same-store sales outlook. Tricia Tolivar: Yes. So certainly, given the higher laps going up against the 21.2% same-restaurant sales in the prior year, coupled with the consumer headwinds, we wanted to take a very judicious approach in setting guidance, and it's been a bit choppy. And so what we're seeing today is a bit better than the midpoint of the range, but we wanted to be thoughtful and create a wide range because of the uncertainty that being faced with consumers today. And so how long will the shutdown continue? And what will that mean? And it's certainly a factor of one that's difficult to predict. Operator: Our next question comes from Nick Setyan with Mizuho. Nick Setyan: Historically, you've talked about the diversity of your COGS basket has been a little bit of a moat that allows you to under price inflation. What beef now in the equation, would you mind just updating us in terms of the composition of the COGS basket? And then two, just on the AGM investment, should we think about that as an incremental cost in labor in 2026? Any comment there would be helpful. Tricia Tolivar: Yes. So on the diversity of the cost basket, there isn't a material change in that mix overall. So 25% typically in proteins, 25% produce, 25% grocery and 25% everything else. So adding beef has not changed it materially in the overall cost from an input cost standpoint. And then when we're looking at AGMs, I appreciate you bringing that up. We've reimagined as the General Manager and training role and elevated it for those who are ready to an assistant general manager role. So it's not an incremental head count per se, but it is at a higher overall compensation rates. And so there'll be some modest impact to overall labor as we go into 2026. Operator: Our next question comes from Brian Vaccaro with Raymond James. Brian Vaccaro: Most of mine have been asked, but I thought I'd follow up on recent trends. And just given your footprint in the DMV market, I'm curious if you're seeing any outsized softness in that region during the government shutdown or more broadly to what degree you think that could be having an impact on your business? Brett Schulman: Yes, Brian, we did not initially see any impact. And in the most recent weeks as paycheck at going out to government workers, we have seen some softness creep in, but I wouldn't say it's acute or anything severe at this point. Operator: That appears to be our last question. I will now turn the conference back to Brett Schulman, Co-Founder and CEO, for any additional remarks. Brett Schulman: Thanks for joining us today. Before we wrap, I want to take a moment to share my gratitude for our entire team. Last month, I spent time in the field visiting our restaurants in the Midwest and Southeast. Seeing the energy of our teams, the pride they take in delivering great food and hospitality and the excitement of our guests is a powerful reminder of what fuels our success. This fall has been a period of continued growth, welcoming new guests, strengthening our operations and investing in the people who bring our mission to life every day. As we head to another holiday season, we're grateful for the dedication of our team members and the loyalty of our guests. We remain energized by the opportunities ahead. Thank you for your time and support. We look forward to connecting again in the new year. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: " Ido Schoenberg: " Mark Hirschhorn: " Stanislav Berenshteyn: " Wells Fargo Securities, LLC, Research Division Charles Rhyee: " TD Cowen, Research Division Jenny Cao: " Truist Securities, Inc., Research Division Jack Senft: " UBS Investment Bank, Research Division John Park: " Morgan Stanley, Research Division Operator: Hello, everyone, and welcome to Amwell's conference call to discuss their third fiscal quarter of 2025. Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through normal news sources. This conference call is being webcast live on the IR page of the website, where a replay will be archived. Before they begin prepared remarks, I'd like to take this opportunity to remind you that during the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in the filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido. Ido Schoenberg: Thank you, Operator, and good afternoon, everyone. For the third quarter, our results compared favorably to the guidance we provided. We showed steady progress in executing our plan, which is designed to achieve cash flow breakeven by the end of 2026 and to ultimately resume profitable growth. Our plan is based on 2 main work streams. First, focusing on our enterprise-grade, mature, and well-differentiated new platform to generate considerable value in our select market segments. Second, ensuring that all our operations are extremely efficient and effective. Both efforts rely heavily on the integration and adoption of rapidly evolving technologies, primarily enterprise-grade AI infrastructure. In recent years, we have invested significantly in recruiting exceptional talent and establishing strong governance, compliance, and operational frameworks. We have also committed substantial resources and continue to do so towards building ecosystem interoperability that enables seamless data exchange and deep integration with existing EHRs and clinical systems. These investments help position Amwell as a highly dependable, secure, and scalable technology-enabled care platform for our customers. We enable our customers to align our technology with measurable economic value while helping them address critical challenges such as clinician burnout, staffing shortages, and operational inefficiencies. Additionally, we position them to capitalize on emerging opportunities, including the integration of algorithm-based health care services, comprehensive care coordination, and new digital therapeutic solutions. These integrations may help our customers leverage predictive AI to reduce costly interventions and hospitalizations. Our efforts are beginning to pay off as reflected in our results, and we believe the impact will only accelerate going forward. For our first work stream in Q3, we began socializing our product focus areas through 2026 with our clients and prospects. We are committed to making the new Amwell platform the most effective and valuable hybrid care backbone we have ever offered them. Our mission is to help our customers reduce care costs, improve clinical outcomes, and offer the highest member engagement and satisfaction through exceptional user experience. We strive to achieve this through the following focus areas: First, we are moving AI into the core workflow layer. We're responsibly implementing enterprise-grade AI and other technologies to transform patient intake, personalized dialogue, and navigation, as well as clinical program matching and onboarding. Our efforts benefit from almost 2 decades of telehealth experience and access to an incredible data and knowledge repository driven by many millions of digital-first care encounters. Second, we are enhancing and simplifying the way we work with our own and third-party partner clinical programs. This enhanced program integration is expected to help offer our customers even more options across the care continuum while adding more value to our clinical program partners. Also, clients will be able to seamlessly integrate clinical programs they've already committed to into their Amwell platform with unprecedented ease. As noted on our earlier calls, these third-party partners represent an important high-margin flywheel growth opportunity for Amwell. Our own clinical programs are likely to be the first to benefit from these changes and further improve our offering across urgent care, virtual primary care, comprehensive behavioral health, nutrition, lactation, and more. Third, we are investing in and will remain heavily committed to our data and analytics infrastructure. We plan to offer our customers even better ways to measure and improve financial and clinical outcomes across all programs while offering patients an even more personalized, simple, and relevant journey. As payers, employers, and health systems look to consolidate their technology-enabled care strategy, we offer a unique and reliable solution. It allows them to realize their financial, clinical, and member engagement goals while maintaining full flexibility to dynamically choose and replace the clinical programs that work best for them in the simplest, most scalable, and reproducible way. Our second work stream is centered around relentless focus and commitment to efficiency and quality. We are further improving our platform to make it even easier to deploy, maintain, and support. Self-management and automation tools for our customers are a good example of this commitment. These tools empower clients to do more faster while simultaneously reducing our own cost of deployment. As we carefully define what we focus on, we are decisively divesting noncore assets. Earlier this year, we announced the sale of Amwell Psychiatric Care, or APC, and are currently pursuing other actions to divert access resources away from non-core assets. It is important to note that we plan to continue to fully support and maintain legacy assets that still provide value to our customers. These customers have expressed comfort from the stability and reliability of our trusted legacy solutions. We hope to see them gradually migrate to our core offering over time when they are ready. In parallel, we systematically analyzed our own efficiency across all our operations. We were able to find opportunities to improve efficiency, including with widespread AI adoption, while rightsizing headcount across the board. These reductions in force were made possible through various interventions, including careful reallocation of talent across the company. Now I'll take a step back to look broadly at the macro environment. In 2025, we continue to see clear signs that the market is shifting in our favor. Consumer demand for digital health is accelerating. Mental health telehealth utilization reached 27.8% in July, according to the Epic Research data tracker. And 79% of Gen Z now use health technology monthly, according to PwC 2025 Healthcare Consumer Insight survey. At the same time, digital clinical programs are demonstrating real results. Research shows digital disease management can reduce 30-day readmission rates by 50%. This effectiveness is driving significant investment. AI start-ups, many of which could be considered clinical program themselves, capture 60% of all digital health funding in Q1, according to the AHA Center for Health Innovation. However, payers, employers, and health systems are struggling with fragmentation. Employers now manage an average of 4 to 9 point solutions, yet only 22% trust these vendors to act in their best interest, according to Evernorth Insights. This fragmentation carries real cost. For example, inefficient data exchange costs healthcare organizations up to $20 million annually. As a result, integration has become a strategic imperative. 62% of health plan leaders identify integrated solutions as a top 2025 priority according to HealthEdge's annual survey. Organizations need help managing technology, engagement, reporting, and the commercial burden of multiple vendors, and that's exactly the gap we are positioned to fill. In that setting, the Amwell platform promises much-needed relief by maintaining future-ready flexibility with the efficiency, effectiveness, and peace of mind of offering one relationship, one user experience, and one data and reporting infrastructure across a dynamic and open-ended array of clinical programs and vendors. Our unique business model never forces our clients to only use Amwell clinical programs. This aligns our interests and positions us well as their long-term partner. While many of our competitors feature their brands to members, we enable our customers to use their own white-labeled experience. Their Amwell platform inside allows them to offer a unified customer-branded gateway to all their covered programs. Finally, and importantly, our ability to supplement automated programs with trusted in-network certified providers at scale enables and accelerates the safe and effective adoption of these new AI-driven solutions. Our special architecture is helpful in making customer acquisition costs more effective and in improving the customers' overall brand value and stickiness by associating it with a wide array of helpful services and exceptional platform experience. Our ability to help customers obtain a clear view of whole-person and cohort outcomes and offer them tools to continuously improve results by switching programs and matching them with the right cohorts is highly desirable and appreciated. In our conversations in the market, our strategy resonates. As we look forward, we fully expect our competitive advantages to become increasingly visible and compelling as we continue to roll out our new Amwell platform. We believe that our long journey is in many ways only beginning, and we are excited about what the future brings to our loyal and sophisticated supporters, our customers, and our company. With that, I would like to turn the call over to Mark for a review of our financials and our guidance. Mark? Mark Hirschhorn: Thanks, Ido, and good afternoon to everyone on the call. On today's call, I will walk through a few key operating metrics and financial results from the third quarter and then provide an update to our guidance for the remainder of this year. In the third quarter, we delivered results ahead of expectations for both revenue and adjusted EBITDA, reflecting stronger subscription retention, increased visit volume in specialty care and virtual primary care, and meaningful cost efficiencies driven by the successful execution of our restructuring. Our progress this quarter reinforces that the actions we began earlier this year are translating into durable financial improvement and accelerating operating leverage. Today, I will walk you through our quarterly performance, highlight the financial impact of these strategic actions and provide an updated view on our guidance for the balance of 2025. Total revenue was $56.3 million, which represents an 8% decrease year-over-year and includes the step-down in contribution from Leidos and the divestiture of APC. Normalizing for the sale of APC, Q3 revenue would have increased 1.3%. Subscription revenue of $30.9 million increased 18% year-over-year and represented 55% of total revenue compared to 43% of total revenue a year ago. Total visit volume of approximately 1.1 million visits in the third quarter was down 21% from a year ago, although in line with our expectations. Amwell Medical Group, or AMG visit revenue was 23% lower than last year at $21.2 million. Normalizing for the sale of APC, however, visits were down 3.5% from a year ago. Average revenue per visit was $71, which is 14% lower this quarter compared to last year's Q3. But when normalizing for the sale of APC, average revenue per visit was 3.5% higher, driven by a continued mix shift to higher-priced virtual primary care and specialty care visits. GAAP gross margin expanded to 52% compared to 37% a year ago as a result of greater software and services revenue generating stronger margin contribution than last year's comparable quarter revenue mix and divestiture of APC. Our operating expenses totaled $58.9 million in the quarter, a decrease of 16% compared to last year, comprised of a 6% reduction in R&D, a 46% decrease in sales and marketing and a 14% decrease in G&A expenses. We remain focused on optimizing our resources, and we are clearly moving in the right direction and getting closer to our foundational cost basis. Adjusted EBITDA was a loss of $12.7 million for the quarter, which compared favorably to a loss of $31 million a year ago, evidence of our acute focus and execution of our cost containment initiatives. In terms of cash and liquidity, we reported a cash burn of approximately $18 million in Q3 and ended the quarter with approximately $201 million in cash and marketable securities with 0 debt. Finally, to wrap up my comments today, I'll share our revised guidance outlook. With just 2 months remaining in the year, we now expect our full year revenue to be between $245 million and $248 million versus the prior range of $245 million to $250 million. Adjusted EBITDA in the range of a negative $45 million to negative $42 million versus the prior range of negative $50 million to negative $45 million. Our range for AMG visits remained steady between 1.3 million and 1.35 million visits. Our full year guidance assumes the reduction of R&D expenses by more than 10% this year versus 2024 as we streamlined and completed the bulk of our software configuration to our existing build and integration commitments. At the same time, we continue to expect sales and marketing costs to decline more than 25% year-over-year and G&A expense to decline at least 20% for the year as we continue to organize the company around a new lower cost structure. We now project Q4 revenue in the range of $51 million to $54 million and adjusted EBITDA between negative $15 million to negative $12 million. We have made meaningful progress rightsizing the cost structure while diligently working to position Amwell for longer-term success. We have quite a bit of work left to do, but we remain committed to our goal of generating positive cash flow from operations during 2026. I want to thank our entire team for their commitment and passion to our overarching mission of increasing access to affordable, high-quality health care. Thank you all for your time and attention. I'd now like to turn the call back to Ido for his closing remarks. Ido? Ido Schoenberg: Thank you, Mark. We're seeing a remarkable transformation in our market. As AI health care solutions proliferate both within and beyond Amwell, they're delivering significantly better patient outcomes with greater accessibility and affordability. In this evolving landscape, Amwell's role as an integrated backbone has never been more vital. Our unique ability to seamlessly blend intelligent automation with certified trusted clinicians provide a safe, effective pathway to superior care outcomes today and tomorrow. Our clients value our proven track record of delivering measurable economic value while ensuring compliance and providing essential support to overburdened health care providers. Through enterprise-grade workflow automation, we're enhancing both access and operational efficiency. We are proud of our mission and firmly believe it's more relevant now than ever before. With that, I'll open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Stan Berenshteyn of Wells Fargo Securities. Stanislav Berenshteyn: A couple for me. First, I actually wanted to go back to the prior quarter where you had announced a Florida Blues plan win. I was curious if you can give us some color regarding how you won that? Was that a competitive takeaway? And are you seeing any similar opportunities for you going forward? Ido Schoenberg: Stan, yes, we are very pleased with this important win. It was a competitive situation, and we are deinstalling a major competitor in this setting. The drivers for this really demonstrate everything I spoke about in the prepared remarks. I believe that Florida Blue, like many other payers understood that there is enormous fragmentation, enormous opportunity in AI programs, but they need to create one infrastructure under their brand that will allow for one efficient consumer engagement solution that will be able to drive care with their own choices of clinical program, including maybe different choices for different ASOs or different cohorts and one report and one infrastructure. They, like many other people, existing customers and people that we talk with during our dialogue with the pipeline, really talk about vendor fatigue and complexity. There is a tami of amazing programs, some are better than the others. Many of them have enormous opportunity, but many of them are risky, and there is real need for one technology-enabled care infrastructure, which is an integrator and a distributor, if you will, for members. So all those important value points based on our dialogue with this very important customer, in my opinion, we're leading to this win and are indicative of a future demand that is likely to grow as more AI-driven program proliferate. Stanislav Berenshteyn: And then a follow-up for me here. Regarding the comments you made in the prepared remarks around potential further divestiture of noncore assets. Can you give us any insight as to what those assets might be? And are you in any active discussions here? Or is this more of a theoretical process? Ido Schoenberg: So this is very practical. Let's start there. The key conclusion is that the opportunity we spoke about with Florida Blue and many others is very, very exciting. And because of that, we decided to focus all our efforts around it because we believe that's the best ROI for Amwell and the best way we can create value for our customers. We do have a long list of legacy products that do the job but do the job well. Examples are automated programs for hospitals or inpatient solutions and so on and so forth. These are good products that are secure and reliable and dependable, and we plan to continue and use them, but we are going to spend less, significantly less in growing these market segments in comparison to this very clear enormous opportunity that I shared earlier. And that's really part of our strategy that we are implementing as we speak. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: You talked about AI and implementing that across the enterprise and other technology to sort of inform patient intake, navigation, et cetera. Can you talk a little bit about how that can be monetized? Is that something that you are charging extra for? What is sort of the model as we think about that? And maybe, Mark, I know it's still probably a little early. How should we think about maybe any kind of guardrails to think about when looking out to '26 at all, at least from a top line perspective? Ido Schoenberg: Absolutely, Charles. So suffice to say that AI is influencing everything we do and everything that happens in our ecosystem. It's very, very dramatic. Let's start with the product, and let's start with third-party partners. When you think about someone like Sword, for example, their ability to predict with AI likelihood of someone getting surgery very soon is incredibly important. Our ability to route this patient to Sword and then document these savings and report it back to the likes of Elevance and others is incredibly, incredibly valuable. The same is true for other partners like HelloHeart that is able to use predictive modeling to manage medication adherence better, and there are many other such examples. So first and foremost, AI is influencing both Amwell and non-Amwell clinical programs themselves. In addition to that, AI is allowing us to create a dramatically different experience for consumers. It can be highly personalized. You can get immediate attention as a person and have a very simple, easy, attentive, personalized navigation to programs that are likely to be helpful for you. So that's another area where AI has enormous value. The monetization of such value, both things actually really increase ROI for our customers and increase traction. So when a great experience is leading to a virtual primary care experience at over 30 days saving $500 for our customers, that's very good for Amwell. That's very good for our customers as well. In addition to that, using of AI for data analytics so you can push information about outcomes in a very coherent way across different programs for a whole person and whole cohort is allowing our customers to choose the right programs and refine them over time. It also allows us to further personalize the experience for consumers and getting more use -- even more use and more higher NPS over the next. So all those examples in program essentially increase the value and the traction of our platform. We don't necessarily charge more for our platform directly in order to do that, although we may be able to do that in the future. But much more importantly, as we share the value of this traction in this traffic, each time we refer someone to Sword, for example, we get some rev share from this company, which is good for us and much better than the alternative customer acquisition cost. So overall, all those investments are really creating more value for our own platform. In addition to that, like any other company, we brought some wonderful talent from big tech, people like Amazon and others. And we are looking at every part of our operation, whether it's core generation, QA, product management, sales, deployment, support and so on and so forth. And like many others, we are investing much in order to implement those solutions in order to be better, more effective, more efficient. And that work is ongoing and has more and more impact. I would just suggest that if you need to quantify the most important financial impact, and our relevance going forward, I would suggest that our ability to tie together hybrid solution between certified humans like our national network and other solutions together with AI-driven programs that as a result, create much better financial and clinical outcomes with much lower cost and much higher engagement is the heart of the influence of AI on our financial performance. Charles Rhyee: But I guess it sounds like then maybe, Mark, in terms of how should we think about next year? And also if we're not necessarily charging more for these innovations and obviously demonstrating more ROI for customers, how should we think about margins at least? Is the current rate, I think it was 52% here in the quarter. Is that sort of the right level we should be thinking about next year? Or maybe any kind of thoughts there would be helpful. Mark Hirschhorn: Yes. Charles, I don't believe the introduction of the AI features and the attributes that we're looking to implement throughout the year are going to have any meaningful impact on our margins. What's going to lead to the margin probably variation from '25 to '26 will be exactly what we saw in '25, which was the greater ability to bring more software revenues into the top line. Clearly, we had significant to the tune of tens of millions of dollars of implementation revenues generating very high margins. They impacted the margin profile tremendously. And that's why we're exiting at these stronger margins compared to '24. '26, I believe, will be consistent with the '25 margin profile. Charles Rhyee: And maybe one last one, if I could. You talked about sort of divesting sort of noncore assets. Obviously, APC was an example. Is there a lot of other assets still that you would consider in that noncore bucket? And is there a sense for timing? Is this something that we'd like to do very soon? Or is this when you can get something a good value for it? Mark Hirschhorn: It's more the latter, Charles. We're not in the market with either of these, what I would suggest are a couple of defined assets that can be bifurcated from the rest of the business without losing any focus, without challenging any of the clients right now with removing some of these. These are distinct assets that have a certain profile of clients that we could, in fact, cordon off, we could run them separately. But I think throughout '26, we will try to, again, narrow our focus in those areas that Ido shared in his prepared remarks. Operator: Our next question comes from the line of Jailendra Singh of Truist Securities. Jenny Cao: This is Jenny on for Jailendra. Just had a question around macro with all the macro noise, tariffs and economic uncertainty. Have you seen any impact on your sales pipeline as health systems continue to evaluate their IT budgets? Just curious how that conversation has been going in terms of the last couple of months? And related to that, can you talk about your direct tariff exposure? Ido Schoenberg: Jenny, well, essentially, what we see in the market is that our solution is serving very important pain points that many of the customers using the new ones see as obligatory in the sense that if you think about it for a payer, the ability to have reliable, effective solution around hybrid care and technology-enabled care is a tool that is demanded by the sponsors, by employers and others and generate enormous savings. Implementing effective AI-driven care programs is not a question of if, it's really a question of how. You must do it, and that's very clear for our customers. That's very dangerous. It's very confusing. It's error-prone. We offer our customers an ability to create less noise by having one platform that is embedded in their infrastructure and much less vendor fatigue by allowing us to do the heavy lifting of connecting to more and more solutions and making it still part of one experience and one report. So when we talk to them, that's not a line item they are likely to pass upon even if pressed. As it relates to health systems, we definitely believe that when we look at things like workflow automation, inpatient solutions, hardware solutions, things of that nature, there's definitely some resistance right now and some caution because of the economical impact. And that's one of the reasons why we are moving away resources from promoting such solutions into our core offering. At the same time, when you look at delivery network that are implementing value-based care, when you look at their competition for patients, their need to add, for example, behavioral health to their core offering, things of that nature, their ability to expand their reach beyond catchment areas, all these things directly influence revenues, directly influence their livelihood and are considered as essential. And therefore, we see that we still have an offering that resonates and is relevant right now. As it relates to tariffs, very minimal impact. We have a tiny business line that still has some hardware outside the United States. And that, of course, is impacted, but it has a negligible impact on our performance. We are proudly creating our software as a U.S. firm and therefore -- and our businesses in the U.S. as well. So we don't see any meaningful impact -- direct impact as it relates to tariffs. Of course, it may influence the market and the macro like everyone else, but it's not Amwell specific. Operator: Our next question comes from the line of Kevin Caliendo of UBS. Jack Senft: This is Jack Senft on for Kevin. I wanted to go back to the comments on diverting resources away from the noncore assets. So just to clarify, this is something that's not embedded in guidance this year, correct? And then maybe as a second part to that, is this -- if it's not, is this something that could move up your time line on being cash flow breakeven next year? Or is this something that could even meaningfully move up cash flow expectations? If you can just comment on kind of what your expectations are there, that would be great. Mark Hirschhorn: Yes. This is not included in any of the guidance that you've seen throughout 2025 or the new guidance we provided for the final quarter this year. The impact that it would likely have would not be substantial to the degree that it would change our perspective on cash flow breakeven from operations in the end of 2026. Jack Senft: And then maybe just a quick follow-up. I know your sales and marketing expense, it took a nice step down sequentially this quarter. I know you're still targeting the declines of at least 25% plus this year. But maybe as we look at each like kind of line item in the operating expenses here, are these kind of good run rates to think about going forward? Or is there still additional leverage that you can pull next year? I think you touched on it a little bit briefly, but if you can just talk a little bit more about it, that would be great. Mark Hirschhorn: Yes, sure. As you pointed out, right, we had we really optimized the spend and reduced significantly the sales and marketing costs quarter-over-quarter, but obviously, compared to last year, that's material. I think there's still some meaningful opportunity to take out some costs in 2 other areas, probably G&A. We -- another significant area, probably the most from an absolute dollar perspective was in our costs and the delivery functioning. That's where we're likely going to be benefiting from the implementation of AI tools, both clinical operations, clinical delivery. We'll be able to scale the growth at a lower cost. And I think that will be visible throughout 2026 and beyond. Operator: Our next question comes from the line of John Park of Morgan Stanley. John Park: I know you guys talked about the cash flow breakeven target in '26. And also given the noncore divestitures that are conversations that are going on, if you had to prioritize or rank the factors going into this -- going into that target, factors such as customer renewals, perhaps price increases, service mix, maybe some other factors that I'm not considering right now, how would you rank those? Mark Hirschhorn: Are you asking how we would rank those in consideration of our target for cash flow breakeven next year? Or how do we rank them purely from a top to bottom priority? John Park: Yes. Like how would you prioritize those things? Obviously, the divesting noncore assets is probably going to get you a decent chunk there, but just wondering how -- any other factors to consider to reach that target? Mark Hirschhorn: Yes. The divestiture of those noncore assets will certainly help to focus the company on our core initiatives and would obviously provide some additional dry powder for the balance sheet on top of our $200 million that we just ended the quarter with. And again, we have no debt. So that gives us a little bit more leverage. But I think we primarily have to focus on client retention, ensuring that our platform is delivering and our teams are handling the requests, the growth, the other opportunities for ROI that our clients are demanding. So I'd probably tell you retention is #1. And then, of course, some of the growth initiatives on the product side would then likely be ranked as the #2 priority John Park: I know you mentioned Sword as kind of a way to implement more partners. Is there any areas or topics that you would not want to partner where you would want to just own outright versus integrate with third party? Ido Schoenberg: So our service to our customers is the ability to help them under the brand, create one customer acquisition cost gateway connected to programs of their choosing. The fact that we come out of the box with a very long list of solutions across the full continuum doesn't hurt. But even more exciting is the fact that we can very easily add anything they want to or their clients want to implement. So as long as our customers believe that the solution is logistic, it's secure, it's compliant with different regulations, things of that nature, we will gladly implement it as part of their solution so they can benefit and monitor the value of such implementation. Operator: I'm showing no further questions at this time. I would now like to turn it back to Ido for closing remarks. Ido Schoenberg: Thank you, everyone, for joining. We really appreciate your time. It's interesting to see how relevant Amwell is in a time of great change, and it's exciting to see how this will grow even more as we go forward. Thank you again, and have a good evening. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you.
Operator: Good day, everyone, and welcome to the Finance of America Third Quarter 2025 Earnings Call. At this time, I would like to hand the call over to Mr. Michael Fant. Please go ahead, sir. Michael Fant: Thank you, and good afternoon, everyone, and welcome to Finance of America's Third Quarter 2025 Earnings Call. With me today are Graham Fleming, Chief Executive Officer; Kristen Sieffert, President; and Matt Engel, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release on our Investor Relations website at ir.financeofamericacompanies.com. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in today's earnings release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the Risk Factors section of Finance of America's amended annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on May 20, 2025. Such risk factors may be amended and updated in our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change. Please note, today, we will be discussing interim period financials for our continuing operations, which are unaudited. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures to the extent available without unreasonable efforts in our earnings press release on the Investor Relations page of our website. Now I'll turn the call over to our Chief Executive Officer, Graham Fleming. Graham? Graham Fleming: Thank you, Michael, and good afternoon, everyone. The third quarter of 2025 marked a period of strategic execution and strong performance for Finance of America. In a dynamic market environment, we remain focused on operational excellence, proactive balance sheet management and long-term growth. Year-to-date, we have reported GAAP net income of $131 million or $5.78 per basic share, reflecting the benefit of lower interest rates and tighter spreads, partially offset by softer home price appreciation projections in the third quarter. On an adjusted basis, we generated adjusted net income of $33 million for the quarter or $1.33 per share, representing a significant sequential improvement and more than double the level from a year ago. The increase was driven by improving revenues across our business with increased margins on HomeSafe and HECM products, stronger origination fee income and higher capital markets revenue as a result of the over $3 billion of notes issued in our securitizations backed by our proprietary loans during the quarter. Compared to the first 9 months of 2024, we have seen funded volumes increase by over 28% and adjusted net income grow by more than 5x from $9 million in 2024 to $60 million in the first 9 months of 2025. This translates to $2.33 of adjusted earnings per share, a major step toward our full year guidance. Turning to adjusted EBITDA. The company generated $114 million for the first 9 months of 2025, a 171% improvement compared to the same period a year ago. During the quarter, we completed a series of transactions to enhance liquidity and balance sheet flexibility. We repaid $85 million of higher cost working capital facilities and entered into an agreement to repurchase the entirety of Blackstone's equity stake in FOA. We also closed our largest proprietary securitization in company history in September, a nearly $2 billion issuance. As of September 30, these actions left the company with $110 million in cash and cash equivalents compared to $46 million as of June 30. This increase in cash provides FOA with enough liquidity to satisfy the $53 million corporate bond payments due later this month. In addition to our strong results, in October, we announced a strategic partnership with Better.com, expanding our product offerings and enhancing our technology backbone to better serve our demographic, which Kristen will touch on in more detail. Over the last several years, we've continued to invest in digital innovation, AI and data analytics, strengthening the foundation of our business. While still very early in the adoption of AI technology, we fully expect these investments to improve the customer experience, enhance the ROI on our marketing spend and increase the productivity of the organization, driving improved operating leverage. Kristen will share more on the progress we've made in these areas and the impact across our platform. Kristen? Kristen Sieffert: Thanks, Graham, and good afternoon, everyone. The third quarter represented a disciplined period of execution across Finance of America. We delivered solid origination performance, advanced our technology transformation and continued to strengthen the core fundamentals that position FOA for sustainable, profitable growth into 2026 and beyond. Origination performance remained robust with funded volume reaching $603 million and submission volume reaching $887 million for the quarter compared to $764 million in the same period last year. By the end of October, for the year 2025, we funded $1.97 billion in reverse mortgages, surpassing our entire 2024 production of $1.92 billion, and October submissions totaled $336 million, the highest month in 3 years. Beyond headline volume, the team continues to make substantial progress in transforming the business model. We're embedding AI, digital automation and advanced data analytics across our wholesale and retail channels, driving measurable gains in efficiency and conversion. We're already seeing tangible results from our digital-first strategy. Over 20% of customers who engaged with our new digital prequalification completed the process without loan officer intervention. The tool, which includes a soft credit pull, delivers a 3-minute prequalification experience, setting a new benchmark for speed and customer engagement in the reverse mortgage industry. This will translate into greater efficiency per loan officer, and we saw this in October's numbers as our loan officers were able to service 25% more opportunities and generated a 32% increase in monthly submission volume over the year-to-date averages. Our continued investment in and attention to the top of the funnel is driving stronger digital engagement and setting the foundation for efficient volume growth in 2026. Unique web leads increased 16% quarter-over-quarter. Customer e-mail retention increased 36% from the time of the AAG platform acquisition and leads generated through e-mail nurture from our database increased 206% quarter-over-quarter. In the coming months, we're enhancing this digital ecosystem further with SMS engagement tools for sales teams, AI-powered call agents to provide 24/7 borrower support and AI-powered wholesale tools to improve our partner experience. These initiatives are expected to increase conversion at critical funnel points, expanding our operating leverage and the scalability of our model. We are also continuing to advance our diversification strategy through a strategic partnership with Better.com that broadens our impact into the total addressable market. These traditional home equity products enable us to serve approximately 30% more of the potential borrowers already engaging with our brand who need higher loan-to-value solutions than our current reverse suite provides. At FOA, we're not just adapting to the future of home equity, we're defining it. Our investments in digital automation, data infrastructure and AI are structurally enhancing unit economics, driving margin expansion and strengthening our long-term earnings power. As home equity continues to move from the most underused retirement asset to a mainstream solution for the modern retiree, FOA is positioned at the center of this transformation, committed to unlocking opportunities for millions of Americans to realize the full potential of their retirement. With that, I'll turn it over to Matt to review the financials. Matt? Matthew Engel: Thank you, Kristen, and good afternoon, everyone. The third quarter reflected strategic execution and strong performance for Finance of America, highlighting both the consistent progress of our operating performance and our ability to take advantage of opportunities as they arise. On a GAAP basis, the company reported a net loss of $29 million for the quarter as lower interest rates and tighter spreads were more than offset by softer home price appreciation projections impacting the noncash fair value of our residuals. Year-to-date, the company is still significantly positive, reporting $131 million of pretax income for the first 9 months of 2025. Adjusted net income for the quarter totaled $33 million or $1.33 per share, a 125% increase from the prior quarter and more than double the level from the same period last year. This improvement was driven by higher origination margins and increased capital markets activity. For the first 9 months of 2025, we have funded approximately $1.8 billion in originations compared with $1.4 billion during the same period last year, an increase of 28% year-over-year. Adjusted net income totaled $60 million or $2.33 per share, up meaningfully from $9 million or $0.38 per share in the same period of 2024. This improvement reflects stronger margins, increased capital markets activity and continued expense discipline across our platform. Excluding fair value changes from market and model assumptions, Q3 revenues totaled $103 million, bringing year-to-date total revenue to $263 million, an increase of 22% year-over-year from $215 million in the first 9 months of 2024. During the quarter, we strengthened our liquidity through the issuance of $40 million of 0% convertible notes as well as the monetization of residual assets, completing over $3 billion in securitizations, including a nearly $2 billion securitization in September, the largest in the company's history. Additionally, we paid down $125 million of working capital and other financing facilities with $60 million remaining to be redrawn for future use. Despite these paydowns, cash levels increased from $46 million as of June 30 to $110 million as of September 30, allowing us to set aside funds for the scheduled $53 million corporate debt paydown later this month. As announced in August, we entered into an agreement to repurchase all existing shares owned by Blackstone. In accordance with GAAP accounting rules, this agreement is seen as an obligation and therefore, accounted for as a liability and a reduction to equity as of the date of the announcement. Our September 30 balance sheet reflects this liability and reduction to equity. Turning to guidance. We are reaffirming our full year 2025 adjusted EPS target of $2.60 to $3 and anticipate tracking toward the low end of our previously stated volume range of $2.4 billion to $2.7 billion. Looking ahead to 2026, we expect volume growth of 20% to 25% year-over-year, supporting a 2026 adjusted earnings per share guidance of $4.25 to $4.75 per share, which is up from $2.60 to $3 in 2025. With that, I'll turn it back to Graham for closing remarks. Graham Fleming: Thank you, Matt. As we close the third quarter, I want to take a moment to reflect on the progress we've made. In just over a year since our transformation, we have achieved consistent profitability and expanded our leadership in reverse lending while delevering and strengthening our balance sheet. As Kristen mentioned, we're seeing strong momentum at the top of the funnel with record lead generation, higher digital engagement and continued efficiency gains, all of which give us confidence to achieve a 60% year-over-year increase in 2026 adjusted EPS guidance. These accomplishments demonstrate our progress in building a stronger, more efficient and more diversified Finance of America. Our continued investment in modernization, digital innovation and AI is enhancing productivity, expanding operating leverage and positioning us to scale efficiently as demand for home equity solutions grows. We believe we are well positioned to deliver sustained volume growth of roughly 20% annually over the coming years as we build the most trusted and technologically advanced platform for retirement-focused home equity solutions in America. We are confident in our direction, encouraged by our results and excited about the opportunities ahead. As we look to 2026, we remain committed to driving sustainable growth, enhancing shareholder value and helping more Americans discover there is a better way with FOA. And with that, we'll open the call for questions. Operator: [Operator Instructions] We'll take the first question today from Doug Harter, UBS. Douglas Harter: Just on the buyback, I guess, has that been completed yet? Or what is the updated time frame on that completion? Matthew Engel: It has not been completed yet, Doug. It's really -- we're on track to complete it. Most likely that will begin later this month and into December perhaps. Douglas Harter: And can you remind me the cash total of that, just as we think about kind of this, the uses of your current cash position? Matthew Engel: It's about $80 million. Douglas Harter: Okay. And then how do you think about what is the right level of cash to hold? Like how much of that capacity do you have to redraw do you think you need to do in the coming months? Matthew Engel: So if you kind of piece it together, Doug, I think we ended the quarter with $110 million. We indicated we had paid down during the quarter $125 million of working capital facilities, right, which was $85 million of the kind of corporate general facilities and then other kind of warehouse debt. So of that $125 million, $60 million of it is available really to be redrawn as necessary. So you can really kind of add that to the $110 million we had on hand at the end of September to give you the kind of the adjusted cash capacity we have heading into the fourth quarter. Douglas Harter: Got it. And then I guess, how should we -- obviously, a strong securitization quarter, which I imagine was a big part of the cash generation. How should we think about your cadence in the coming months, quarters of securitization? And just any update on how that market is functioning right now? Matthew Engel: Yes. I think generally, our cadence has been to do kind of one large securitization every quarter. We did accelerate. We probably accelerated, pulled one that we had planned for Q4 into Q3. But that said, we do have a smaller securitization we expect to complete this month and it remains to be seen exactly what that timing looks like. But I do think the Q3 activity was larger than what you'd normally expect to see on a go-forward basis. The market has been performing very well. Spreads have been tight. Demand has been good. One thing we've seen, especially as we started doing some larger deals. Remember, we did a $1 billion deal in July, which at the time was our largest deal ever, followed that up with a $2 billion deal in September, doubled that. Both were very well received. And that when you start talking bigger numbers, you just get a different class of investor, multiple new investors coming in. So we saw a very good reception for our bonds in those deals. Operator: The next question is from Leon Cooperman from Omega Advisors. Leon Cooperman: There are lots of different measures of earnings. How much cash do you generate in a typical year? In other words, how much cash would you generate in a 12-month period on average? Graham Fleming: So Leon, I'll answer that one. So in any given year, when you look at our PTI, it may -- because we create residuals in MSR, I would say within 24 to 36 months after our P&L, that number all turns green. So if we post $100 million or $120 million of PTI for this year, you would expect over the course of 3 years that, that would all become cash? Leon Cooperman: Okay. But I want to take the $100 million divide by 3, it's a typical year. Graham Fleming: Well, we do have currently on our balance sheet, we still have roughly $300 million of residuals and retained securities, right, that over the coming years, we'll continue to monetize those residuals, and they'll continue to turn to cash. And then our new residuals -- we'll create new residuals and new MSR on a go-forward basis. Leon Cooperman: So basically, how many shares is the new capitalization going to be? Matthew Engel: So total what we have today about 24 million shares outstanding, right? 8 million of that will be repurchased in the Blackstone transaction, which leaves you with about 16 million. And then the convertible notes, both the $150 million we have from the prior convertible notes and the $40 million notes we just added would add about 7 million plus our stock options get you back to about 24 million. So you'll see our total fully diluted share count go from what today is about 31 million, down to about 24 million on an adjusted basis going forward. Leon Cooperman: So are you suggesting that you generate about $4 a share in cash earnings? Graham Fleming: Yes, at $100 million in PTI, that would be correct. Operator: And everyone, at this time, there are no further questions. I'll hand the conference back to Graham Fleming for any additional or closing remarks. Graham Fleming: Yes. Thank you, everybody, for joining. We appreciate your participation, and we look forward to updating the full year numbers in March of next year. So thank you very much, everybody. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Operator: " Jerrell Shelton: " Robert Stefanovich: " Mark W. Sawicki: " Thomas Heinzen: " Todd Fromer: " Kanan, Corbin, Schupak & Aronow Kyle Crews: " UBS Investment Bank, Research Division David Saxon: " Needham & Company, LLC, Research Division Puneet Souda: " Leerink Partners LLC, Research Division Matthew Stanton: " Jefferies LLC, Research Division Subhalaxmi Nambi: " Guggenheim Securities, LLC, Research Division David Larsen: " BTIG, LLC, Research Division Mason Carrico: " Stephens Inc., Research Division Operator: Good afternoon, and welcome to Cryoport's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I will now turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead. Todd Fromer: Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors and elsewhere in our annual report on Form 10-K to be filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission. As a reminder, Cryoport has uploaded their third quarter 2025 in review document to the main page of the Cryoport Inc. website. This document provides a review of Cryoport's financial and operational performance and a general business outlook. Before I turn the call over to Jerry, please note that because of the strategic partnership that has been established with DHL Group and related sale of CRYOPDP to DHL, CRYOPDP's financials, which were previously a part of Cryoport's Life Sciences Services reportable segment are now presented as discontinued operations. Cryoport previously provided quarterly historical information on this basis for fiscal year 2024 and our first quarter 2025 in review document, which remains available on the Cryoport, Inc. website. This information is intended to support the financial modeling efforts of those needing this information. Please note that unless otherwise indicated, all revenue figures discussed today will refer to continuing operations. This includes Cryoport's fiscal year 2025 revenue guidance. It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours. Jerrell Shelton: Thank you, Todd, and good afternoon, everyone. With us this afternoon is our Chief Financial Officer, Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. During the third quarter, we continued our strong momentum, delivering double-digit growth in both our Life Sciences Services and Life Sciences Product segments. Notably, revenue from our support of commercial cell and gene therapy grew 36% year-over-year to $8.3 million, driven by the continuing global adaptation of these life-saving therapies. It is imperative that the growth of the -- it is impressive rather it is impressive that the growth of the regenerative therapies market, which we believe is still in very early stage of development, has remained resilient despite ongoing challenging macroeconomic, political and geopolitical backdrops. Within Life Sciences, revenue increased 16% year-over-year and represented 55% of our total revenue from continuing operations for the quarter. This included a 21% increase in the BioStorage - Bioservices revenue, underscoring the persistent demand for our integrated platform. Driving this growth is the rising prevalence of chronic and rare diseases, prevalence of chronic and rare diseases, coupled with continued advancements in cell and gene therapies targeting solid tumors and autoimmune diseases. We also are encouraged by signs of stability in our life sciences product market, where revenue grew 15% year-over-year, driven by improved demand for our market-leading cryogenic systems. In the third quarter, we expanded our product portfolio with the launch of MVE Biological Solutions next-generation SC4/2V and SC4/3V vapor shippers. These cryogenic systems models have been redesigned, utilizing innovative technologies to offer customers added protection during extended or challenging shipments and include several key advancements designed to enhance the performance and reliability. MVE's newly designed condition monitoring solutions for these doors are integrated with each unit, combining our trusted cryogenic systems with advanced real-time condition monitoring technology supplied by Tacromed, another Cryoport company. These innovations reflect MVE's unwavering commitment to support the life sciences with advanced intelligent connected assets to safeguard vital biological materials. Beyond our core systems and services, we are progressing on a number of other growth initiatives designed to better serve our clients and diversify our revenue streams. These initiatives include the onboarding of our first clients for IntegriCell, our cryopreservation services located in Liege, Belgium and Houston, Texas. These cryopreservation services are designed to address a critical aspect in optimizing the supply chain for the development and commercialization of cell-based therapies through high-quality standardized cryopreserved starting materials. We're excited by IntegriCell's recent progress as it moves forward to become a significant revenue and profit generator. Additionally, in late October, we opened the logistics portion of Cryoport Systems' new state-of-the-art global supply chain center at the Charles de Gaulle Airport in Paris, France. This 55,000 square foot facility provides us with increased ability to serve our clients in the European and global markets. It is designed to support complex life sciences life sciences supply chain needs, including biologistics, bioservices and future cryopreservation services. An official grand opening is scheduled -- is to celebrate the launch of this facility will be held on November 20 with Bioservices opening in mid-2026. In addition, we are also advancing toward opening a global supply chain center in Santa Ana, California, which is expected to come online in the second half of 2026. This facility will consolidate 3 existing locations and feature next-generation technology to optimize operations and client support. Complementing all of these activities, we have begun implementing our recently established strategic partnership with DHL Group. Due to the -- to DHL size, this strategic relationship will take some time. And when completed, it will enhance our positioning in the APAC and EMEA regions and reshape our competitive profile within the industry by leveraging DHL's global scale and capabilities. Regenerative medicine has been advancing steadily, largely driven by the expanding pipeline of regenerative therapeutics entering clinical development and commercialization. Despite any short-term headwinds, cell and gene therapies have continued to enter and move through the clinical pipeline, which should ultimately result in growing revenue from commercially supported therapies. Cryoport's temperature control supply chain solutions are supporting the largest portfolio of clinical and commercial gene therapies in the world with a record total of 745 global clinical trials and 83 of these in Phase III, representing approximately 70% of the cell and gene therapy clinical trials. In the third quarter, 4 BLA MAA filings occurred and 3 more were filed in October. For the remainder of 2025, we anticipate up to an additional 7 application filings, 1 new therapy approval and 2 additional approvals for label or geographic expansions or moves to earlier lines of treatment. Of course, the timing of these filings may be impacted by the current government shutdown of the FDA in the United States. While global trade conditions remain dynamic, Cryoport did not experience any new material impact from tariffs in the third quarter. Furthermore, we have, of course, taken steps to diversify our supply chain to mitigate potential impacts that could come as a result of tariffs, impacts not covered by these mitigations are covered by surcharges. With the strong momentum we have achieved year-to-date and our progress across the board, we are updating our full-year 2025 outlook for total revenue from continuing operations to the range of $170 million to $174 million. Our team is dedicated to building long-term value for our shareholders. Cryoport is maintaining and growing its competitive differentiators as the only pure-play end-to-end temperature-controlled supply chain platform that supports the largest portfolio of clinical and commercial cell and gene therapies globally. This concludes my remarks. So I'll now ask the operator to open the lines for your questions. Operator: [Operator Instructions] Your first question comes from the line of Kyle Crews from UBS. Kyle Crews: Congratulations on the quarter. Maybe just to start, the high end of the guidance implies a sequential decline in revenues. At the same time, you're seeing positive momentum across the entire business. You have an increased number of commercial therapies supported higher number of clinical trials, and you've launched new products within MDE. Can you help us reconcile that with the implied sequential decline in guidance? And then for a second question, can you discuss if the recent release of the triple FDA draft guidance is that support making clinical trials easier has resulted in an uptick in clinical trial interest at your company? Jerrell Shelton: Well, you had a lot of questions in there. And I think Robert will start answering your financial questions, and Mark will address your FDA question. Robert Stefanovich: Yes. Look, you're certainly right in terms of how you phrased the question. Given all the macro uncertainties right now, we think it's a responsible guide. It balances the momentum that we are seeing versus the macro conditions, such as the current government shutdown and the ever-changing tariff landscape. I think we've managed it to date very well. And we're obviously, of course, focused on profitable and disciplined growth. If you look at the revenue guidance and the increase in revenue guidance represents about 8% to 11% revenue growth over the prior year from continuing operations. But as you said, at the same time, we continue to be very bullish on our market-leading position. We feel that our long-term growth rate will be close to that of the cell and gene therapy market, as you can see in our Q3 performance, and as more and more commercial therapies come to market. In fact, if you look at our commercial revenue right now, it's already a fairly significant portion of our total revenue. I think it's roughly about 18%, 19% of total revenue. So we're trying to balance those 2 parts. One, the cautious view on the macro uncertainties, but at the same time, we are very bullish in terms of the outlook and bullish in terms of finishing the year strongly. Jerrell Shelton: Mark, do you want to answer the FDA portion? Mark W. Sawicki: Sure. Assuming you're referring to the REMS requirement, is that correct? Kyle Crews: No. They recently released 3 new draft guidances related to clinical trials. Yes. Mark W. Sawicki: Yes. So obviously, yes, some of the draft guidance announcements that you're talking of that came out recently, some of them are targeting some generic small molecule programs. Those don't have a significant bearing on our market. Those that are aimed at the orphan markets and those that are focused on driving biologics approvals much more quickly, are impactful to us and our clients, and we do believe that those will help drive more activity in the future from a BLA standpoint. Just turning to REMS because I think it's important to understand that one, too. So the REMS requirement, which has also one that's been announced, will have an even more impactful positive impact for us as it will drive the implementation and utilization of cell therapies into the community care setting. And I think if you look at both BMS and J&J's CARVYKTI revenue in Q3, both of them had very strong growth. And in fact, CARVYKTI folks even came out and said almost 80% of the patie. Kyle Crews: Great. And then maybe just one last one. Can you discuss whether you're seeing increasingly different trends within gene therapy and cell therapy within the broader cell and gene therapy market? Mark W. Sawicki: Yes. I mean, obviously, there's a little bit of tentativeness around financing in the gene therapy space because of some of the challenges that have been seen, but that doesn't impact the long-term opportunity. And so there are still a lot of new start-ups in the gene therapy space. There's a lot of activity and investment that's going into the gene therapy space. But obviously, the lion's share of funding at this point is still going into the cell therapy side of things. And obviously, with the number of potential approvals moving forward later this year. We've got another potential, as Jerry mentioned in his introductory comments, and potentially another 7 filings this year, and potentially even another 1 new and 2 supplemental approvals this year. So there's very strong activity in the cell therapy space as well. Thomas Heinzen: Just to round that off, Mark, just would point out in our review piece, we broke down by percentages the clinical trial portfolio that we have. And the number of gene therapies in there is a single-digit percentage, and the number of vaccines is even smaller. It's like 3%. So we're much more exposed to the cell therapy side of the world. Operator: Your next question comes from the line of David Saxon from Needham. David Saxon: Congrats on another strong quarter here. Maybe, Robert, I'll start with you. I didn't hear anything on EBITDA guidance. I think the expectation is to reach profitability on a quarterly basis sometime this year. So is that still the expectation? And then how should we think about profitability as it relates to 2026? Could you see that on a full-year basis? Or are there any meaningful investments we should be aware of? Robert Stefanovich: Yes. No, thank you. As you can see from our '25 performance to date, the adjusted EBITDA, we improved it by over $10 million for the first 9 months, bringing our adjusted EBITDA loss in Q3 to $600,000. So we are getting very, very close to getting and crossing the line to positive adjusted EBITDA. From a cash flow perspective, cash flow from operating activities was positive for the quarter. We had about $2.2 million positive cash flow from operating activities. And we think we can get to positive EBITDA. We're very close to it as early as year-end. That was our target. At the same time, I do want to highlight, we're obviously trying to balance some of the growth initiatives that we have with driving towards solid positive EBITDA. There are some specific client-driven growth initiatives that we have, including the global supply chain center that we're opening in Paris this month, as well as the IntegriCell platform that we started out a while back. And those, in some cases, require some upfront investments. So that's really balancing those 2 parts, but we're certainly making very strong progress towards that goal. And overall, we like our momentum. We like the positioning that we're in, and our teams are working towards executing on that goal. In terms of profitability itself and crossing the line of profitability, we have not given guidance. Our main focus is really on executing on our initiatives, driving positive EBITDA, and obviously creating that pathway to profitability. Jerrell Shelton: David, you've heard us talk about the pathway to profitability before, and we certainly are on that pathway to profitability. And as Robert points out, we're moving toward positive adjusted EBITDA. And so we think possibly we can get there in the fourth quarter and certainly early next year. And that's a surrogate for cash flow. But remember, we have a number of facilities, which I went over in my opening comments. I just mentioned a couple of examples, a number of capital investments taking place. We know that those are the right capital investments. We vetted them thoroughly. We know that they're the right thing to do for the future. But as we're building those out in today's accounting, it does affect your income statement. So our pathway to profitability includes all the things that Robert said, plus building out those facilities and then starting to experience the operating leverage that comes with getting those facilities up and running and utilized. David Saxon: Jerry, maybe my second one is for you. Just on product, that growth really improved versus kind of the first half. So maybe talk about what's driving that strength? How much of that is market versus some of those new products you called out, maybe driving some mix benefit? And then in terms of the backlog, I guess, can you talk about that at least qualitatively? And then what level of visibility does that give you into the product growth outlook as we head into 2026? Jerrell Shelton: David, we talked about backlog a lot during the COVID period because we had an extraordinary period. But we don't talk about backlog now as much because we are on more normal -- we're in a more normal market, which is about a 6- to 8-week lead time. It's no longer 6 months or a year lead time. It's back to the normal, which is about 6 weeks lead time. So we do monitor our sales trends. We do monitor our order intake, and that order intake does give us indication that the market is beginning to stabilize. And of course, government shutdown hasn't helped us there any, but it still continues to go on. It hasn't helped us because it does slow down the government sales that are associated. But so we're doing well in terms of the industry and the stabilization. There was no impact on the new things that I talked about in my comments and opening up. No revenue coming in from that. It wasn't time. It does take time for these things to get out. The 3 -- the 2 doors that were developed with the integrated condition monitoring at MVE are focused on the animal health business. And so that's a seasonal business, and there will be an uptake there. But we have a number of things going on at MVE. Does that answer your question, David? Or is there other parts to it? David Saxon: That was super helpful. I guess maybe if I could rephrase it, like how -- the market has been stable year-to-date. I guess as we think about our models for 2026, like do you -- is making the assumption that, that continues a fair assumption? And then with, I guess, those product launches in the animal health space, maybe some increased demand across the other end markets, like maybe how should we frame or how would you frame product growth potential for 2026? Jerrell Shelton: I would look at it with stability and use a very high single-digit growth rate. Operator: Your next question comes from the line of Puneet Souda from Leerink Partners. Puneet Souda: So maybe first one on some of the cell therapy exits that we have seen. I mean you're delivering relatively strong growth. Some of it is comps, but some of it is just overall market stability, which you talked about. But just trying to understand if you could contrast with what we're seeing, Takeda exiting its allogeneic programs, Galapagos is winding down their programs. Novo is divesting its cell therapy assets. Are you seeing any downstream impact from those exits on your pipeline or the service demand overall? And then within that, as Jerry said, high single-digit growth -- is that still something you -- I mean, is that you're contemplating into 2026 and '27, just given sort of these exits? And maybe just provide us any context for backfilling some of these programs that might have been lost. Jerrell Shelton: Yes, Puneet, we're honored that you're on the call because we thought you might miss it because of conflicts. But let me start, and then Mark will add to what I have to say. First of all, the 9%, I said high single digits, so you said 9%, that's fine. But that supplies to MVE product segment and you mix product and services. And so in the Service segment, where you have Galapagos, you've cited and some of the other activity that's happened, that's -- that's normal to me. You should probably know this, but it's normal to have puts and takes. And people make their investments and other -- and sometimes they can support them financially going forward. Sometimes they can't. Sometimes they're rationalizing what they're doing, and we have no insight on that. What we do know is we are continuing to grow. We continue to see robustness. We have an increase in the clinical trials that we support with 83 being in Phase III. I think it was 83 in Phase III. And we're doing well, and we see a continued buoyancy in the market. This science is not going to stop. It's going to change the way medicine is practiced around the world. It just takes time. And it has had some headwinds, but it's buoyant, it's strong, and we're growing, and we intend to continue to. Do you want to add to that? Mark W. Sawicki: I think you answered it pretty well. The only thing I would just add is Jerry is right. I mean, I think some of the changes that you mentioned are really strategic portfolio decisions. I don't think they're market-driven decisions. There's also other companies that are putting a lot more money into and expanding their programs from a top 5 pharma standpoint. So we don't have a level of concern around that. As Jerry had mentioned, very strong pipeline activity, very strong activity from a regulatory standpoint. As we had mentioned, upwards of another 7 filings this year, upwards of potentially another 25 filings next year. So there's a lot of activity in the space, which will continue to expand the number of commercialized therapies and the revenue associated with those therapies as the market matures. Thomas Heinzen: [Indiscernible]. Could I thing in there just to pile on? Mark W. Sawicki: Yes, Tom, please. Thomas Heinzen: Just to point out, September funding in biopharma was quite strong, and October was the best month of the year so far. We had over 20 IPOs and follow-on offerings of greater than $100 million in October alone. So some of the programs you mentioned are falling off, but certainly other ones are coming in up and taking the place. Puneet Souda: On the government shutdown piece and the implied 4Q guide, I'm just trying to understand how should we think about the segments within the guide for the fourth quarter, Bioogistics versus BioStorage, Bioservices versus the MVE Life Sciences product line. Maybe just help us understand -- how should we think about modeling each of those, if you could provide some segment commentary? And just maybe just if you could pinpoint in the government shutdown exactly, I mean, what are customers telling you? What are some of the worries here if this shutdown extends into December? Jerrell Shelton: On the first part of your question, Puneet, it depends on what you think about the government shutdown. Frankly, the government shutdown is temporary. Right now, you can't make a filing, you can't pay your fees for a filing. But that's going to end soon. It can't go on forever, and there's an election coming up, which I think will motivate a political end to the shutdown. And then we'll see some things open up. We'll see things start to move through, and we'll catch up. So it's not going to last forever. The government shutdown is. And again, under the backdrop we've had, we've shown substantial growth in spite of any headwinds there. Mark, do you have anything to add to that? Mark W. Sawicki: Yes, I think you answered it well. I mean, yes, from a service standpoint, we haven't seen any impact other than the delay in filing activity, which they just can't do because they can't pay -- as Jerry mentioned, their filing their application fees. That's the only impact that we've seen is there may be a short-term delay in some of the filing activity, but the service activity still remains very robust. And then just looking at Q4 without going into too much detail, obviously, we expect year-over-year increase on the services side. On the product side, it largely depends on timing, especially if you look at some of the larger freezer orders or even some of the potential delays in government shutdown, that they could just have an impact on timing of whether those are going to come in, in Q4 or be shifted in Q1. Jerrell Shelton: That's because they're capital expenditures and somebody has to sign off on them. Does that help you? Puneet Souda: Yes. Operator: Your next question comes from the line of Matt Stanton from Jefferies. Matthew Stanton: Maybe one for Mark. Just on the commercial trends, you're tracking up over 30% here year-to-date. It sounds like you saw some approvals here early in the quarter to continue more filings and then I think next year, '25, which is a big number. Can you just talk about the durability of the growth in terms of what you're seeing here from customers? And as we think about that kind of 30% plus, how you feel about that on the commercial side into '26? And I mean, is there opportunity for that to accelerate even further if some of these things kick in on REMS or some of these filings kick in, and to your point earlier, start to get signed off and get out there? But just talk about the kind of growth algorithm on the commercial side. Mark W. Sawicki: Yes. I think as you focus, you're going to focus on two things. One is the existing therapies as they mature, they move to earlier line and they go through global expansion. And as we had mentioned earlier, I mean, both BMS and Janssen and J&J have come out with very positive comments around growth and their data -- their financial data supports that. [ Janssen ] said their goal is 10,000 doses by year-end and 20,000 patients by the end of 2027, which is a substantial increase. And then you have the newer therapies as they launch, they're also expecting significant ramps. Vertex has come out and said they expect to see CASGEVY start to ramp more significantly. And then we have other data on some of these earlier launches, so which most of it has come out at or ahead of guidance. So if you take those in addition to the new filing activity, we think it will remain robust in '26 and beyond. Matthew Stanton: Great. And then, Robert, maybe just to go back and know a few times just on the 4Q ramp. I mean, I know last quarter, you guys were kind of saying 4Q probably higher than 3Q, part of that seasonality. Obviously, 3Q came in better than we expected. Is it fair to say that the sequential quarter-over-quarter implied 4Q, I mean, the government shutdown, maybe some of the timing you talked about, I mean, is that kind of a low single-digit million impact tied to those and maybe erring on the side of conservatism? Just kind of thinking about three months ago, 4Q higher than 3Q and now we have kind of the opposite playing out. And maybe just confirm there was nothing kind of that fell in 3Q that you had previously expected to fall in 4Q. Robert Stefanovich: No, no, there's not. But you already really framed it. Yes. I think it's really balancing that and looking at our guidance. Certainly, we have upside potential, no question. But given some of the uncertainties, we felt that that guidance kind of reflects where we stand right now to acknowledge some of those other aspects that we discussed earlier. Operator: Your next question comes from the line of Subbu Nambi from Guggenheim. Subhalaxmi Nambi: You recently announced the Cryoport Systems received ISO certification. Could you speak to what this means in terms of your customer win rate or any competitive dynamics? How meaningful is this? Jerrell Shelton: I want Mark to speak to that. But in addition to that ISO, we've also won an award or two and certainly one that we're proud of, and we did help on that ISO. So Mark, take it away. Mark W. Sawicki: Yes. So ISO 21973, which is really around the governing of handling of cell therapy-based materials is what we received that certification in. We are the first entity that has received a formal ISO certification. Others have claimed that they have compliant with it, but we actually have received a certification from the ISO governing body related to that. Yes, on a global basis. So what it really does is it reinforces us as the best-in-class and the gold standard as it relates to the management of these therapies on a global basis and reinforces, obviously, the quality paradigm that we have. And I think as you look at our growth as it relates to commercial revenue as well as our clinical trial adds, the market continues to respond very favorably to that as they continue to put a larger share of the overall clinical trial count as well as the commercial activity into our portfolio. So we believe that will be a continued positive influence on decision-making by our clients and sponsors. Jerrell Shelton: You might mention that award that we won also. Mark W. Sawicki: Yes, we actually won two awards, CPHI award, which is one of the larger chemical industry awards for excellence of supply -- temperature control supply chain solutions. And then we also won another one from a biotech agency, which also reinforces that in the quarter. So I think the markets are absolutely responding to our platform is best-in-class. Subhalaxmi Nambi: That's great. Any updates you can share on how you're progressing with your China first strategy? What milestones can we expect as we look to growth in that region for you guys? Jerrell Shelton: We have not assumed any growth in China for the -- will not be assuming any growth in 2026. There's no change right now. We do have some efforts underway. It does take time to implement strategies of that nature. And we hope by 2027, it will be -- certainly one thing, we cannot ignore China. It is an advanced country. It has a very big population, and it has resources and it can move very quickly. So we will continue to work on our China strategies, but we don't have anything we can report right now. Subhalaxmi Nambi: Perfect. And last one for me. Is there a potential for a catch-up heading into 2026, just given the environment is improving, something that you touched on previously? Jerrell Shelton: You're talking about a catch-up in terms of--- What are you talking about, Subbu, in terms of catch-up? Subhalaxmi Nambi: Catch-up as in ordering. Just do you anticipate there could be some sort of catch-up orders next year? Thomas Heinzen: I think she's referring to the product side, guys. Robert Stefanovich: Yes. When you talk about the products, I think what we said is it's really stabilizing. I don't think we can speak of that at this point in time. And in general, conceptually, obviously, more and more material is being developed that requires cryogenic storage and MVE being the largest global provider of storage and cryogenic systems, certainly, we will be the first beneficiary of that. But at this point, it's just stabilization of the market that we can see. Operator: Your next question comes from the line of David Larsen from BTIG. David Larsen: Congratulations on another very good quarter. It looks like the number of clinical trials, the growth rate year-over-year was the highest it's been in like 2.5 years. And just any thoughts on The Big Beautiful Bill Act, reductions in Medicaid enrollment, reductions in exchange enrollment, maybe as high as 10% or 30%. Does that matter or not? Any thoughts on payer mix? Are most people getting cell and gene therapies? Are they covered by commercial plans, not Medicaid and exchanges? Just any thoughts there would be helpful. Mark W. Sawicki: Yes. I personally don't think it's much impact at all. The vast majority of therapies, by understanding, are not being covered by public funds. They traditionally are typically private plans that are reimbursement at this point. David Larsen: Okay. And then are there -- do you have any concerns around drug pricing like with price caps due to the Inflation Reduction Act or rebate flow limits on price increases? Has that entered into any conversations at all or not? Robert Stefanovich: No, cell and gene therapies are exempt from all of that, Dave. Mark W. Sawicki: Yes. I was going to say the same thing. As said, yes, I mean, the White House has actually come out in support of cell and gene and their interest in continuing to support it in an aggressive manner. And there is -- they are exempt from some of those pricing constraints that the White House is currently working through. Robert Stefanovich: They're also not impacted by any tariff talk either. David Larsen: Okay. Great. So minimal regulatory risk heading into '26. Fantastic. And then in quarters past, you talked about the growth in number of clients at these bio storage facilities, I think, in New Jersey and also like allogeneic storage. Any color there in terms of like capacity or number of client growth? Mark W. Sawicki: Yes. I mean we're still continuing to onboard a significant number of clients at those sites, both existing and new clients. And so that rate continues to be very robust as evidenced by the sales data that we put forth publicly. So we anticipate continued growth in the Bioservices area into '26 based on that. Jerrell Shelton: By the way, David, this is not a singular thing. It's not a singular strand. I mean our -- we built these on a strategic basis. We built them to support our clients and to create more of a one-stop shop and because clients actually prefer doing business with less vendors and especially one that they can trust. So it's kicking in, and our clients are beginning to take hold of our BioStorage Bioservices operations within Cryoport Systems. Mark W. Sawicki: Yes. We're averaging almost 2 audits a week at this point. So that's obviously a significant volume of new workflow that's coming into the facility. Jerrell Shelton: So you're witness a strategy play out right now. David Larsen: Great. One more quick one. IntegriCell, I get questions on that all the time. Just any more color there would be helpful. It sounds like you're building a new facility. Is that going to support global efforts for . IntegriCell? And do you have revenue coming in for that business yet or not? Just any more color would be helpful. Jerrell Shelton: Well, let me start, and Mark can give you more detail. But IntegriCell is another strategic endeavor, and we do have a network in mind, but we are carefully going into the development of IntegriCell. As Mark said earlier, we have revenue coming in at both locations. But I want to see those locations closer to cash flow to positive cash flow before we add other operations. We do have plans for other operations. They will be added. The network will work. All the information that we've gotten so far is very encouraging. And now we're on the uptick by getting customers, clients and revenue coming through those 2 facilities. And I'll just turn it to Mark after that. Mark W. Sawicki: Yes, Jerry, as Jerry -- what Jerry said is exactly right. We opened those facilities at the end of Q3 last year. And the tech transfer process takes time because it's part of the production process. So there's regulatory activity that needs to occur for adoption. But we have completed our first tech transfers from both biotech and top 10 pharma, and we have started to generate revenue from both sites, both the site in Belgium as well as the site in Houston, Texas. And our expectation is that it will -- revenue will ramp modestly in '26 with a significant ramp, almost in a hockey stick modality post '26. Operator: Your next question comes from the line of Mason Carrico from Stephens Inc. Mason Carrico: Robert, maybe just a quick one on margins. Just as this new facility comes online, can you just walk us through how the start-up costs and the ramp and timing have been factored into your model and just how you expect that to influence margins over the next few quarters? Robert Stefanovich: It's a very good question. And it's again one of those balancing acts because you're absolutely right. We have new facilities going online. [indiscernible] went online, as Mark mentioned. We have a Global Supply Chain Center in Paris by the Charles de Gaulle Airport going online with the official opening being in in a few weeks from now. At the same time, we are seeing some operating leverage already of the existing facilities, and that allowed us to show gross margins reaching 48% and even higher on the service side in particular. We do typically have start-up costs that we run the SG&A. But then as we open the facilities, you'll see some impact on the margins. So while we see operating leverages in some of the existing facilities that are driving higher margins, you'll have some margin depression by these new facilities coming online and starting to see revenue ramp over time. So that's -- as we start and really '26, '27 is really about that operating leverage, really about driving utilization of the existing footprint -- global footprint that we have that will ultimately drive the gross margins. Our target is 55% gross margins overall and a 30% EBITDA margin. And obviously, there's still some time to go to get to the gross margins, but we'll see that operating leverage kick in later in 2026. Mason Carrico: Appreciate that. And just touching on those long-term margins. Can you just highlight your thinking in terms of timing around those as well? I know it's been a longer-dated proposition. I just kind of want to get your updated thoughts there. Robert Stefanovich: Yes. We're not giving guidance on that at this point in time because it's really -- if you look at the cell and gene therapy market, it is still a fairly new market when it comes to actually commercialization of therapies. So we want to see more progression and more therapies come to market. But we're clearly on that pathway, as you can see in terms of the significant improvements to adjusted EBITDA as a first indicator, and we'll certainly drive that further into '26 and '27. Operator: There are no further questions at this time. Turning over back to Jerrell Shelton, your line. Jerrell Shelton: Well, thank you very much, and thank you for your questions and our discussions. In closing, in the third quarter, we continued to see strong momentum in our business. This included double-digit revenue growth in both our core business segments. Our Life Sciences Services segment, the key driver of our future growth, grew 16% year-over-year, driven by 21% increase in BioStorage Bioservices revenue and a 36% increase in commercial cell and gene therapy support. We also continue to see further steadiness in our Life Science product business, where revenue grew 15% for the quarter. Cryoport is positioned as the critical temperature-controlled supply chain company supporting the life sciences that derisk the end-to-end delivery of cell and gene therapies worldwide. Thank you for joining us today. We appreciate your continued support and interest in our company and look forward to speaking with you again when we report our fourth quarter and our full year financial results. Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Masimo Third Quarter 2025 Earnings Conference Call. The company's press release is available at www.masimo.com. [Operator Instructions] I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Eli Kammerman: Thank you. Hello, everyone. Joining me today are CEO, Katie Szyman; and CFO, Micah Young. Before we begin, I would like to inform you that this call will contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our periodic filings with the SEC. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Furthermore, these non-GAAP financial measures reflect the continuing operations of Masimo's Healthcare business and includes Sound United business, which is reported [Technical Difficulty] operations for both current and historical reporting periods. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release, earnings presentation and supplementary financial information on our website. Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q in order to make informed investment decisions. I'll now pass the call to Katie Szyman. Catherine Szyman: Thank you, Eli, and good afternoon, everyone. I just want to do a quick speaker check because we're getting feedback that there is a big echo. Is there any possibility that the echo [Technical Difficulty]. Eli Kammerman: I'm not log to the call... Catherine Szyman: As I completed my first 9 months at Masimo this week, we are pleased to share that once again, we delivered strong results. Our revenue grew 8% in the quarter, driven by strong underlying demand for our Innovative Technology. We also drove 450 basis points of operating margin expansion and we increased adjusted earnings per share by 38% year-over-year. The strength in our margin [Technical Difficulty] is a direct result of higher revenue and the cost efficiencies and product [Technical Difficulty] over the past year. Now let me highlight some exciting [Technical Difficulty] and strong execution from our [Technical Difficulty] this quarter. First, we closed the sale of Sound United to Harman in September, marking a key milestone in our [Technical Difficulty]. Second, we announced the expansion of our strategic partnership with Philips in early September, marking a key milestone in our collaboration. Within the [Technical Difficulty], we remain significantly underpenetrated relative to our overall share [Technical Difficulty] in the market and [Technical Difficulty] represents a compelling [Technical Difficulty]. We expect that the expansion of our share [ position ] over the next 5 years within the [Technical Difficulty] will have the potential to be even greater than what we have seen over the previous 5 years. And [Technical Difficulty] continues to strengthen. This new agreement advances our joint [Technical Difficulty] commitment to innovation and delivering enhanced value to customers and the broader industry. [Technical Difficulty]. I want to call out that our competitor studies have been performed mostly on healthy patients where it's easier to obtain positive results. We are highly encouraged by the 0 undetected hypoxemia event rate seen in this study alongside spot-on accuracy of less than 1% median bias among critically ill adult patients with both dark and light skin under the most challenging real-world circumstances imaginable. We are looking forward to publication of the fully completed INSPIRE study next year alongside other similar prospective real-world skin tone accuracy studies for neonates and separately for pediatric patients. We believe this new data clearly demonstrates our superior performance for all patients regardless of skin tone. Eli Kammerman: We're going to try to disconnect and reconnect. It's good. Catherine Szyman: Sales teams are armed with this new data to continue to drive growth into new accounts. Overall, we're confident in our technology's performance where accuracy matters most at the bedside during motion and low perfusion in the setting of critical illness and procedural care. Now let me recap our strategic and financial goals and the progress we are making. We continue to invest in our core health care business to position for strong, sustainable long-term growth. Specifically, we are focused on driving 3 waves of growth ahead. First, elevating commercial excellence; second, accelerating intelligent monitoring; and third, innovating wearables. In terms of commercial excellence, we are continuing to leverage our leadership position in pulse oximetry to broaden our impact on patients across other advanced monitoring categories. We are consistently winning broader contracts as evidenced by the growth we are seeing in advanced monitoring. Recently, we had a big win for capnography with one of our key accounts in the Southeast region that will drive significant capnography growth within the territory. Collaborations like these exemplify our ability to leverage our portfolio to drive growth and deepen relationships with customers that will create more diversified revenue streams over time. In our second wave, accelerating intelligent monitoring, we are very focused on using AI and machine learning to upgrade our sensors and create next-gen monitors. A key part of this is taking the incredibly advanced algorithms the team had developed for use outside the hospital and redeploying these into sensors for use inside hospitals. One specific example we are working on is to leverage our de novo grant for opioid halo that was cleared in April 2023 for detection of opioid-induced respiratory depression to create a hospital solution that can be integrated into our next-generation of smart sensors and AI-enabled patient monitors that are going to launch next year. In 2026, CMS is going to require hospitals to report opioid-related adverse events as a new electronic quality measure required reporting. Our new technology detecting OIRD with our smart sensors will help hospitals keep these patients safe and meet the reporting requirements. This is one of a number of exciting AI-enabled sensor opportunities that we have and that we are planning to launch in the future. As I covered last quarter, our third wave of growth will come from innovating wearables. We recently announced the finding of a new study from Dartmouth-Hitchcock Medical Center, demonstrating that surveillance monitoring with Masimo SET pulse oximetry and patient safety net is operationally cost effective and save hospitals money. For context, previously published Dartmouth clinical outcome studies have shown a 43% reduction in transfers to higher levels of care and a 65% reduction in patient rescues, in addition to 0 preventable deaths due to opioid-induced respiratory depression over a 10-year implementation period. In the latest study, Dartmouth-Hitchcock calculated that each 10% reduction in rescues and transfers achieved through earlier detection led to projected savings of about $350,000 to $400,000 a year, respectively, for 200 general floor beds equipped with Masimo monitoring, which broke down to over 5,500 per rescue event prevented and about $10,700 per higher level of care prevented. We are confident these findings will apply to the other health systems adopting a curve-to-curve strategy of continuously monitoring all patients inside the hospital. In terms of additional growth opportunities, our diverse portfolio of wearable technology and telehealth solutions continues to be successfully piloted globally to address numerous unmet patient needs. We look forward to sharing more details of our intelligent monitoring and wearable innovations at our upcoming Investor Day on December 3. Before I close, I want to thank our global team for their hard work and commitment this quarter. With our highly innovative technologies, we have a unique opportunity to improve outcomes for millions more patients around the world. Our focused execution once again demonstrates the benefits of our recurring revenue contracts and the durable growth profile of our business. We are looking forward to a strong finish for the year as we realize growth from continued demand and new customer installations throughout this year. As a result of our strong performance, we are pleased to raise our adjusted EPS guidance, which Micah will expand on later in the call. Above all, we are confident in our ability to deliver on our goals for 2025 and beyond and execute on our mission to empower clinicians to transform patient care. With that, I'll turn it over to Micah. Micah Young: Thank you, Katie, and good afternoon, everyone. For the third quarter, we once again delivered strong results with revenue growth of 8%, EPS rising 38% and operating cash flow of $57 million. Healthcare revenue was $371 million, representing 8% growth. We continue to see strong underlying demand trends as evidenced by Trace data, sales pull-through and other metrics we track. Growth rates this quarter are impacted by unusual year-over-year comparison. Consumables grew 1% this quarter compared to a growth rate of 20% in the third quarter of 2024. Capital equipment and other revenues grew 67% this quarter compared to a decline of 33% last year. When looked at on a 2-year or on a multiyear basis, compound annual growth rates in consumables continue to be double digits and growth rates in capital are low to mid-single digits. The incremental value of new contracts secured in the third quarter reached $124 million, marking a robust year-over-year increase of 48%. As we've talked about this before, it's highly dependent on the timing of large contracts that come up for bid throughout each year. This achievement represents the strongest third quarter contracting performance in our company's history, fueled by the outstanding results delivered by our U.S. commercial team. Notably, as of the end of the third quarter, the amount of unrecognized contract revenue expected to be realized within the next 12 months was $507 million, representing a year-over-year increase of 17%. As a reminder, contract-related shipments account for approximately 1/3 of our overall revenue. This quarter, we shipped 66,000 technology boards and monitors, reflecting a strong increase of 8% compared to the 61,000 drivers shipped in the same period last year. This growth underscores the sustained and accelerating demand for our products, which continues to exceed our initial forecast for the year. Moving down the P&L. Our gross margin of 62.2% experienced a decline of 70 basis points compared to the prior year due to tariff impacts outweighing operational improvements. While operational enhancements contributed to a gain of 70 basis points, tariff-related costs caused a margin erosion of 140 basis points. Tariffs increased our cost of sales $5 million this quarter, aligning with our expectations. Our operating margin of 27.1% increased by 450 basis points year-over-year, driven by operational improvements of 590 basis points, partially offset by a tariff impact of 140 basis points. The cost optimization measures implemented late last year have contributed to solid margin expansion this year despite tariff [ pressures ]. Excluding the effects of tariffs, operating margin for this quarter would be 28.5%. We are proud of the substantial margin expansion our team has achieved in recent years and are confident in our ability to continue improving margins going forward. Our margin expansion alongside solid revenue growth was a key factor contributing to adjusted earnings per share of $1.32, representing a 38% increase from the prior year. We generated strong operating cash flow of $57 million and secured net proceeds of $328 million from the strategic divestiture of Sound United in late September. These proceeds were proactively deployed to repay $56 million of outstanding debt and to optimize capital structure through repurchasing $163 million of common stock by the end of the third quarter. The remaining proceeds were further invested in repurchasing an additional $187 million of common stock in the fourth quarter. Collectively, we have returned $350 million of capital to shareholders through the repurchase of 2.4 million shares over the third and fourth quarters, underscoring our disciplined approach to capital deployment and our unwavering focus on enhancing long-term shareholder value. Now moving to our updated fiscal 2025 financial guidance. We are tightening our full year revenue guidance to be in the range of $1.510 billion to $1.530 billion compared to a prior guidance range of $1.505 billion to $1.535 billion. Changes in our revenue guidance are driven by 3 factors. First, we are tightening revenue range by $5 million on the top and bottom end. Second, we are accounting for foreign exchange benefits of $4 million realized to date. And third, we are accounting for the impact of a switchover to a distributor model in some international markets that creates a $6 million headwind to our full year revenue guidance that has no impact on profitability. Please keep in mind that we have an extra selling week in the fourth quarter of this year. This contributes approximately 1 point to full year 2025 growth. As a reminder, this benefit has been primarily offset through this fiscal year by a variety of factors, including revenue loss from discontinuing product lines at the end of 2024, our shift to a distributor model in some international markets, among other factors. In 2026, we will return to a typical 52-week fiscal year and provide more details when we initiate formal 2026 guidance. Moving down the P&L. We are raising our operating margin guidance to be in the range of 27.3% to 27.7%, representing an increase of 25 basis points at the midpoint versus our prior guidance range of 27% to 27.5%. And we are raising our earnings per share guidance to be in the range of $5.40 to $5.55 compared to our prior guidance range of $5.20 to $5.45. This represents an increase of $0.15 at the midpoint, primarily driven by improvements in operating margin contributing $0.05, the benefit from share repurchases adding $0.08 and a reduction in interest expense accounting for $0.02. In conclusion, our third quarter results highlight the strong underlying demand for our products despite challenging year-over-year comparisons. We delivered solid contracting performance, successfully securing new business for our technologies alongside higher-than-expected demand for our technology boards and monitors. Our business' exceptional earnings power remained evident with continued significant improvements in operating leverage. Looking forward, we are confident in our ability to close out the year strong, driven by accelerated growth in consumable revenue and solid execution of contracts. With that, we'll open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Rick Wise with Stifel. Frederick Wise: Great to see the strong performance this quarter. Maybe just it's hard to not start off with the outperformance and the resulting guidance. How do we think about the rest of the year and the potential for -- I mean, what can I say for further outperformance in the short run? What would the drivers be some of the new contracts or new product launches? And maybe -- I know it's early to ask about '26. It's hard to resist. How do we envision this setting us up for '26? Micah Young: Yes. Thank you, Rick. First, I'll start off with -- we're not going to give -- we typically don't give guidance on '26 or the next year on the third quarter call. What I can kind of hit on, and we'll talk about that more later in the year. What I can hit on is where we see the strength in our business. Number one is in the contracting that's picked up in Q3. We expect a strong finish in Q4 to close out the year. We expect that's going to drive a good acceleration in our consumable growth. We talked about unusual comps being in the first or in the second and third quarter this year, and those comps normalize throughout the year. So we expect a very strong finish in the fourth quarter with increased shipments in consumables. And that will set us up well as we move into next year. Catherine Szyman: And as you think about the profitability side, part of it is due to the share buybacks, right... Micah Young: Yes. So if you look at the change in EPS guidance, as I laid out, we're up in the guide at the midpoint by $0.15. $0.08 is coming from share buybacks, but we have about $0.05 coming from the operational improvements that we've been making. We continue to see strong expansion of margins this year. A lot of that was throughout the past year, we've done a lot of optimization of costs, becoming more efficient with our cost structure, and that's paying dividends this year. Frederick Wise: Great. And just as a follow-up, Katie, obviously, thank you for clearly laying out the 3 priority areas. But just to take one of them, you've been very focused on elevating commercial excellence or enhancing commercial excellence at Masimo. Last quarter or you've recently made multiple hires, realigned the sales force structure to be more regionally focused rather than specialized by product. Just maybe at a high level, I know we'll hear more in early December, but where are we in that process? Or are you pleased with where you are? How much more to go? What's the impact going to be? When are we going to see it? Aside from that, I have no questions. Catherine Szyman: Thanks a lot, Rick. So yes, like how you said that, that essentially we focus on enhancing and elevating and it's really focused on our specialty categories to give them more resources to match our success in pulse oximetry. So you see more of a partnership of our pulse oximetry top sales force being able to help pull through the reps in the specialty categories. And we've made strategic investments in capnography, hemodynamics and brain monitoring to give those platforms similar commercial horsepower to what we have in pulse oximetry. And so the question about the timing, we're starting to see small wins, but it's something with kind of the length of our sales cycle here at Masimo. You'll see it really begin to pick up more and more momentum into next year. Operator: Your next question comes from the line of Jason Bednar with Piper Sandler. Jason Bednar: Congrats on a good quarter here. Katie, I want to start with you and I hope you can expand on the comments you made of the share gains in Philips. I think you said being greater over the next 5 years versus what you've seen in the last 5 years. Help us with maybe where you're currently at with Philips share and/or what kind of share gain you've seen in the last 5 years just so we have some kind of baseline. And don't get me wrong, I really like the confidence, but can you give us a bit more on what gives you that confidence to make that statement? I'm assuming this is coming from some of those advanced parameters, maybe building off the question you were just -- or the answer you just gave to Rick, but any additional color you can provide here would be appreciated. Catherine Szyman: Yes. Thanks, Jason, for the question. So with -- we have a duty of confidentiality with Philips, and so we can't disclose our specific position in their installed base. But what we do know is that when the first agreement was signed back in 2016, Masimo had relatively almost 0, very, very low market share in the Philips installed base. And so we've kind of gotten to a runway, but we still see ourselves as disproportionately low on a relative market share position versus what we are kind of for the whole market, right? So if you think about us as globally in the 50-ish, 50-plus percent market share globally, we're still under-indexed in the Philips installed base, and that's what we see as this opportunity to run in the installed base. Jason Bednar: Okay. And I'll ask one follow-up and then a separate question. When you answered that question, I think you emphasized globally. Is that the opportunity more so than advanced parameters with Philips? And then Micah, a question for you here. And sorry, this might be a little long, but I apologize in advance. So the incremental contract figure was really strong. It seems like you're on pace for a normal year or maybe a better-than-normal year for that metric. But you've been focusing this all on the unrecognized contract revenue figure that's going to be recognized over the next 12 months. That was up 17%. I'm sure you're going to say mid-teens plus is a bit hotter than where we should be -- what we should be thinking about for next year. So -- but as we try to aggregate and dissect these data points that we all now have, how would you counsel us to interpret the trend line in that unrecognized contract revenue? Does that give you confidence in delivering on your revenue growth objectives as we look out over the next couple of years? Micah Young: Yes. Let me start there with the contract revenue. If you -- as a reminder, I mean, 1/3 of our revenues are contracted and come through in shipments of those contracts. So that's important to understand. So we're getting good growth, and that's really coming through in our [indiscernible] incremental that's feeding into the growth that we're seeing in our -- what's going to be recognized within the next year. And as you know, I mean, it's all due to timing, size, duration of contracts, so that can ebb and flow. But we are seeing very good strength. And I think that's going to be a good driver for us. It's not to indicate that our overall revenues grow at that level, but it's good strength coming from the contract wins we're getting this year. Jason Bednar: And just a follow-up question on the... Catherine Szyman: Yes. Jason, on the relative installed base, I would say it's hard to be specific. I would say it's about equal between those 2 categories. Operator: Your next question comes from the line of Michael Polark with Wolfe. Michael Polark: I have a question about the third quarter performance, 1% consumables growth. You called out a tough comparison. Capital was quite a bit better from a growth perspective. Can you just remind us on the third quarter last year, what was unusual about that compare and kind of maybe reassure us that the consumables line specifically will return to a more normal rate of Masimo growth in the quarter and year ahead. Micah Young: Yes. Thanks, Mike. So one place to start would be inpatient admission growth last year was running at about 4%. One thing we talked about through the first 3 quarters of last year is we kept seeing a stepped up consumer revenue, and that was being driven by higher ordering patterns from customers. So it's created a tougher comp, 20% growth last year in the third quarter. And -- but if you look at it and what I pointed out to in my prepared remarks is that if you look at it on a 2-year basis or a multiyear basis, you see double-digit growth in consumable revenue. So -- and then very similar, we have another kind of comp going the other direction with last year, our capital and other revenues was down about 33% due to [indiscernible] timing. And on a 2-year stack basis, that growth rate is more in line with low to mid-single digits. So we're seeing things come through as we expected this year. Again, just facing the unusual comp that we've talked about coming into this year, by the time we get to the end of the year, we'll see that normalize out. Catherine Szyman: I was going to say that we expect to see increased shipments associated kind of in the back half -- in the Q4 time frame. So we also see it kind of accelerating as we get into Q4. Michael Polark: For the follow-up, Micah, I just want to ask on the $6 million distributor call out. I just want to understand exactly what that is. So you're shifting from a distributor model to direct and that's creating the $6 million headwind, can you confirm that? And then can you also confirm that, that $6 million that's new news for your guidance that you're absorbing that in today's update. It wasn't in there before. Micah Young: That's correct, Mike. So if you look at it, our guidance does include that $6 million revenue headwind for the full year with a large portion of that coming in the fourth quarter. We are moving to a distributor model in one of our -- some of our international markets that's causing that headwind. We think this is the best decision as we look forward because it will give us more durable growth, and it's neutral to our earnings and margins. So we think this is going to drive more sustainable growth within the region. Catherine Szyman: But it's kind of -- it's going from direct to distributor, not distributor to direct [indiscernible] on the question. Operator: Your next question comes from the line of Jayson Bedford with Raymond James. Jayson Bedford: Congrats on the progress. Just on the last line of questioning on consumables, was there anything kind of onetime-ish in there? Specifically, I guess I'm just looking at the sequential move from 2Q to 3Q. Micah Young: Yes, Jayson. So sequentially, just to remind you that we had a sizable consumer revenue in the second quarter this year, and that was driven by that large international contract. We expect to see higher shipments in the fourth quarter under that contract as well, and that's going to contribute to our increase in consumable revenue in the fourth quarter. So that's given us the confidence to -- in our accelerated growth rate that we expect in Q2. Jayson Bedford: Okay. That's clear and helpful. Katie, I think you called out growth in advanced monitoring. Would love to -- if you could give us a little bit of either the growth rate there or some context as to the growth in 3Q versus the first half of the year. Catherine Szyman: Yes. So thanks for the question. We really don't disclose kind of the details until the end of the year in terms of breaking out the different product line growth rates. But suffice it to say that we are seeing an acceleration in the growth rate in the advanced monitoring categories. It's really consistent with the strategy. So it's -- we have a goal kind of in that double-digit range for those categories. And so we are seeing us deliver an acceleration of that as we implement the cross-selling strategy. Operator: Your next question comes from the line of Mike Matson with Needham. Michael Matson: So just one on the wearables strategy. So is this really based on products, hardware that you already have like the W1, and I think you have like sort of wireless pulse oximeter. Or is it going to require new hardware? And what's with the timing of that, if so? Catherine Szyman: Yes, that's a great question. So we already have launched a product called the Radius VSM. And that product is actually being piloted at 5 major institutions here in the U.S. and then a couple of institutions outside the United States. And honestly, Masimo has been working on perfecting that technology from a pilot basis for the last 2 to 3 years. And so what we're seeing is that over time, we expect to actually go more for a full market launch with that. So we -- that product already exists and is in good shape. Related to the W1, the W1 is used more for what I would call telehealth in the hospital to home category. And for that, we do have some pilots that we're working on outside the United States where you have more centralized health care where it's easier to do that through virtual hospitals, et cetera. So that product is available, but we haven't actually decided yet how we will launch that inside hospitals. Does that make sense? And then the last product we have is a product called Radius PPG, which is a very simple wrist-worn unit that can tap in and WiFi connect that has a pulse oximetry on the patient's hand. That product is also in pilot phase and would be part of what we're going to get a full connection with the Philips monitors. And so we'll be able to launch that. Right now, we've also piloted that in several cases with Philips. But as that actually gets finalized with Philips with the collaboration, we would be able to launch that. Probably -- that's harder to say with the Philips timing, but probably in the next 1 to 2 years. Michael Matson: Okay. Great. That's helpful. And then the -- just on the AI algorithm. So what -- can you give us any more detail on the timing there? And is this something where you've already -- like the opioid monitoring, I think you've already got an FDA clearance or something, but are any of these going to require navigating the FDA? Will it be 510(k)s? And what do you have left to do there, I guess, to commercialize these things? Catherine Szyman: Yes. So thanks. So the first thing for opioid-induced respiratory depression, or OIRD is easier to say, 10x fast. But -- so for OIRD, we actually, as I mentioned, have it a clearance for the algorithm. What we are doing is actually submitting it to get it on to our monitor and onto our new Smart set technology. So we would imagine that launching towards the end of next year. And so all of this will be covered at our Investor Day, the first week of December. Operator: Your next question comes from the line of Matt Taylor with Jefferies. Matthew Taylor: I guess the first one I wanted to ask about was just to clarify on the Q4 guidance. It looks like about 10% growth at the midpoint. So with the extra week days adjusted, would that be roughly 6% to 7% growth? And I guess what are the puts and takes impacting the growth rate in Q4? Micah Young: Yes. So for the fourth quarter growth, we're expecting a stronger or acceleration in growth rate from consumables. Capital, we're expecting that to be lower in the fourth quarter. So that strength should come from the growth that we're expecting in our consumables business. And we talked about how we'll see acceleration part of that coming from that large OUS contract shipping more in Q4. We expect to see the performance coming off the contract than we did in the third quarter and to finish out the year strong in that area. So I'd say outsized growth in consumables, partially offset by the softness more in capital in terms of comparison year-over-year. Matthew Taylor: And then can I ask a follow-up on the Philips agreement actually? So I just remember from 2017, '18 time frame when you struck the first one, I think the commentary was that through the course of that first agreement, you had thought your share would kind of get up to your natural share. But then today, saying it's still well below that and you have an opportunity to gain even more share over the next 5 years. So I just wanted to kind of do a postmortem of sort of what happened over the last 5 years and talk -- maybe have you talk about why the next 5 could be better. Catherine Szyman: Yes. So thanks for the question. I mean -- so I wasn't here, I guess, during that time. But what you have is the fact that when you start at a very low position and how contracts move once every 5 years, it takes a little bit longer to gain your share position inside an installed base than you think. So I would say that what happened is we probably gained a lot of the share that was anticipated, but we still have a gap that we're excited about trying to close. Operator: And your final question comes from the line of Vik Chopra with WF. Vikramjeet Chopra: Maybe just on Sound United, after using the sale proceeds to repurchase stock and pay down some debt, maybe just talk about what your broader capital allocation framework is going forward. Micah Young: Yes. Thanks, Vik. We'll outline a lot more at Investor Day, but at current levels, we would definitely lean into share repurchases going forward. We also -- another important area for us is tuck-in technologies to continue to augment our portfolio in the hospital across whether some of those areas and ways of growth that we talked about earlier. So as we look into wearables or some additional sensors or monitoring capabilities in the hospital, that's another area of capital allocation. So those are kind of the 2 main areas of focus for us, especially with where we're sitting at levels. Vikramjeet Chopra: Great. And then just a quick follow-up. I appreciate all the color you provided on Philips. But I'm just curious at a high level how this expanded partnership with Philips will influence your product road map and perhaps your revenue mix over the next few years. Catherine Szyman: So thanks, Vik, for the question. I think that we -- since the majority of our -- a large portion of our advanced sensors, even the rainbow sensors are sold through the Philips monitors. It's going to, I think, help us to continue with the same product mix. The question is really for advanced monitoring categories, including kind of brain and capnography, et cetera, can we get a stronger presence? And so some of that is still underway. It takes a while to get our sockets out there. So it's one thing if they can add it, but then it's another for us to be able to get our sockets out there. So I would say it's not going to dramatically change our product mix in the short term, but it will be something that just continues to help us drive our growth and presence, but the mix itself will probably stay about the same. Operator: At this time, I will now turn the call back over to Katie Szyman for closing remarks. Catherine Szyman: So first of all, I just want to thank everyone for joining today and really thank you for your interest in Masimo. I'd like to welcome you all to listen to our upcoming Investor Day on December 3, where we look forward to reviewing our strategic focus areas, detailing our product pipeline and outlining our longer-term financial outlook. Thank you all for joining, and have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to Ascent Industries Q3 2025 Earnings Call. Today's speakers are CEO, Bryan Kitchen; CFO, Ryan Kavalauskas; and the company's outside Investor Relations adviser, Ralf Esper. We will begin with prepared remarks followed by Q&A. Before we go further, I would like to turn the call over to Ralf Esper as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Ralf? Ralf Esper: Thanks, Dana. Before we continue, I would like to remind all participants that the discussion today may contain certain forward-looking statements pursuant to the safe harbor provisions of the federal securities laws. These statements are based on information currently available to us and are subject to various risks and uncertainties that could cause actual results to differ materially. Ascent advises all of those listening to this call to review the latest 10-Q and 10-K posted on its website for a summary of these risks and uncertainties. Ascent does not undertake the responsibility to update any forward-looking statements. Further, the discussion today may include non-GAAP measures. In accordance with Regulation G, the company has reconciled these amounts back to the closest GAAP-based measurement. The reconciliations can be found in the earnings press release issued earlier today and posted on the Investors section of the company's website at ascentco.com. Please note that this call is available for replay via webcast link that is also posted on the Investors section of the company's website. Now I'd like to turn the call over to our CEO, Bryan Kitchen, to walk you through the third quarter results. Bryan? J. Kitchen: Thanks, Ralf. Q3 was a breakout quarter for Ascent, the strongest earnings performance we've delivered since 2022 and our first full quarter operating as a pure-play specialty chemical company. Revenue grew 6% sequentially to $19.7 million. Gross profit rose 20% to $5.8 million, lifting margins 400 basis points to 30%. Adjusted EBITDA improved by more than $1.7 million quarter-over-quarter, swinging from a modest loss to a 7% positive margin. As a subsequent event to this quarter, these gains aren't episodic. They're structural. They reflect disciplined execution, strategic focus and a business model that's working. Over the past 6 quarters, we've tightened cost structures, optimized mix and built price and margin discipline across every part of our organization. Those moves are now showing up directly in profitability with gross margin improvement tracking ahead of plan. As I've said before, the market didn't do it to us, and it's not going to fix our performance for us. We own our outcomes. Every game we deliver comes from relentless self-help and execution, and that's what's driving the structural earnings power of this platform. We've strengthened the foundation this quarter with successful implementation of our new ERP system on time, on budget and without disruption. It delivers a single source of truth and the visibility to manage growth at speed. Our team turned what's often an enterprise crippling endeavor into an enabler of scale, control and customer responsiveness. Simply put, Ascent has moved well past stabilization to acceleration. Our commercial engine is gaining speed, customer relationships are deepening, and our pipeline is converting at exceptional [Audio Gap] levels. This is the inflection point where stabilization meets commercial momentum and where we begin to unleash our fullest earnings growth potential. In Q3, we welcomed 10 customers across our sites for audits, trials and joint development workshops. That kind of engagement doesn't happen by chance. It's a direct reflection of trust and the capability that we've been building. When customers visit, they meet our operators, our engineers, our chemists, our quality professionals and service teams that drive our success, and they see firsthand what makes Ascent different. This is our Chemicals as a Service model in action, agile, customer [Audio Gap] customer-centric and outcome-driven. We meet customers where they are, helping them solve real-world problems faster with less friction and more flexibility. And that approach is translating to results. Last quarter, I shared that we added roughly $25 million of new projects in Q2. By the end of Q3, nearly half or 49% had converted into customer commitments. That's an incredible success rate and a clear validation of our model and our execution. About 65% of those commitments were related to custom manufacturing opportunities and 35% were product sales, long-term, high-value relationships in key segments like case, infrastructure and water treatment. They represent repeat, trust-based partnerships that deepen our customer relevance and extend the durability of our growth. Of course, the CEO wants all of those commitments to turn into purchase orders and shipments tomorrow morning. And yes, our sales and operations team get more than a few calls from me checking in on exactly that. but we know that implementation timelines vary. We know that customers are qualifying new technologies. They're rewiring their supply chains, and they're working down inventory. What matters is the direction is unmistakable. The commercial flywheel is turning and the earnings leverage is building. And that momentum continues to grow. In Q3, we added another $18.2 million of selling projects into our pipeline, extending a robust base that will fuel growth well into 2026. Over the past 6 quarters, Ryan and I have emphasized the strategic recapitalization of SG&A, rebuilding the commercial and technical engine that drives our growth. Those deliberate investments in sales, marketing and revenue operations have reshaped our go-to-market capability and are directly reflected in the record pipeline activity and customer engagement that we're seeing today. Now we're extending that focus to R&D, making targeted investments in people and capabilities that accelerate product and process development, shorten scale-up cycles and strengthen our technical differentiation. These investments are already delivering results through new chemistries, improved manufacturability and deeper integration with our customers' innovation pipelines. What gives us confidence in this next phase is the strength of our operating platform. Our quality and service have never been stronger. Across every site, teams are debottlenecking processes, boosting reliability and grinding out waste with incredible urgency. That discipline is the backbone of our margin expansion story, and it allows us to grow efficiently, protect profitability and deliver for customers in any environment. Every investment we make, whether in people, processes or technology is deliberate and return-driven. Self-help at Ascent means disciplined capital use, sharper execution and improvements that compound into lasting earnings power. Our priorities are clear: drive organic growth by filling our available capacity with high-margin opportunities; deepen customer partnerships through innovation, reliability and speed and maintain balance sheet strength and disciplined capital allocation to accelerate earnings growth. We're not waiting for the market to recover. We're creating our own. Ascent is stronger, faster and laser-focused, and we're building a company to perform in any environment. Our culture is turning execution into endurance and endurance into compounding value. The numbers tell the story, but our people write it. To the entire team at Ascent, grit, hustle and ownership are what make this possible. You are our unfair advantage. Our foundation is solid. The distractions are nearly gone, and the flywheel momentum is accelerating. And the best part is, we're just getting started. With that, I'll turn it over to Ryan to walk through our financial results in more detail. Ryan? Ryan Kavalauskas: Thanks, Bryan, and good afternoon, everyone. I'll start by echoing Bryan's earlier comments. From an operational perspective, the transition to a pure-play specialty chemical platform is complete. We're now zeroed in on structural margin improvement, capacity and throughput lift and durable growth in target segments. Let me walk through the quarter and how that translated to our results. Revenue from continuing operations was $19.7 million, down 6% versus the third quarter of last year, but importantly, up nearly 6% sequentially from Q2. The modest contraction in revenue was driven primarily by a low single-digit percentage decline in volume, which created the bulk of the shortfall. Pricing was a partial tailwind, reflecting selective increases and product mix contributed incrementally positive gains as higher-value programs continue to scale, though not yet at the level needed to fully offset the volume impact. In other words, while demand softness weighed on shipped pounds, pricing discipline and ongoing portfolio upgrading helped cushion the impact, reinforcing that the earnings profile of the business continues to strengthen even in a softer volume environment. The evidence of that stronger earnings profile can be seen in gross profit increasing to $5.8 million with gross margins expanding to 29.7%, up from 26.1% in Q2 and just 14.4% in the prior year period. For those tracking our progression, Q1 gross margin was 17.2%, Q2 was 26.1% and Q3 is now 29.7%. We have said publicly that 30% was our gross margin target. As utilization improves across our network and we layer operating leverage rebuilt earnings base, we now believe meaningful upside above 30% is achievable on a sustained basis with the right execution. Moving to SG&A. Expenses were $6.3 million compared to $5 million in the prior year period. About $0.5 million of the current quarter's SG&A was tied to residual divestiture and legacy segment activity, partially offset by other income. As Bryan alluded to, we view the modest increase as part of the foundational investments we've been talking about each quarter that ultimately scales and drives growth. With that foundation beginning to produce results, you are beginning to see the earnings power of the business more clearly. Adjusted EBITDA for the quarter was $1.4 million, an increase of $2.1 million year-over-year. Excluding the legacy divestiture noise, adjusted EBITDA would have been $1.6 million. Turning to the balance sheet. We ended the quarter with $58 million of cash, no debt and $13.7 million of incremental availability under our revolver. That is a position of strength and one we intend to preserve. M&A still remains part of our long-term capital allocation strategy. But as we've evaluated what's in market today compared to returns on internal growth, we've been very comfortable being patient. We said before, and I'll say it again, we won't deploy capital simply for the sake of activity. Our capital priorities remain clear and consistent: protect the balance sheet, prioritize free cash flow and deploy only when the returns are undeniable. When the right opportunity comes, whether internal or external, it will compound value over years, not just quarters. The work of the past 18 months, stabilizing operations, rebuilding talent, exiting distractions, sharpening commercial focus doesn't always show up in a single quarter, but it shows up in trajectory. 3 straight quarters of margin expansion, stronger commercial wins, all with meaningful capital and capacity still ahead of us. That's why we're confident in where the business is heading. With that, I'll turn it back over to the operator for questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Gregg Kitt with Pinnacle Fund. Gregg Kitt: Bryan and Ryan, congratulations on a great quarter. Can you help me make sure I understood correctly? You said that you added $25 million of new projects in Q2 and that 49% converted into customer commitments. So does that mean that you won approximately $12.5 million of new business in Q3? J. Kitchen: That's correct. So that $25 million was in reference to the pipeline that was built up in Q2 -- in Q3, we won roughly half of that business opportunity. So as I mentioned earlier, from a phasing standpoint, that will be feathered in over time. We're looking forward to that hitting kind of full run rate clip as we get into 2026. Gregg Kitt: And when I think about that win rate or that conversion rate, I think in the past on the Q2 call, you talked about 14% being more like industry average. You had 18% in Q2. So you're betting above average in Q2 and obviously, 49% is excellent. Is there some reason why your conversion rate or your win rate was so high in Q3? Can you give me some color? J. Kitchen: I mean I really think it gets back to the health of the projects that are making their way into the selling project pipeline. So kind of rules of engagement, right? Nothing goes into our pipeline that we can't make, right? So either we've made the product before or we know that we have the capabilities to manufacture it. Underpinning both of those things, though, is a specific customer need. So in other words, there's an expressed requirement from a customer that is driving us to pursue that particular activity. So I think those things, along with just improved execution is really the reason why we were pretty successful in the third quarter. So proud of what the team has done in Q3 and looking forward to continuing to inch that up over time. Gregg Kitt: Is there a way to think about how much of that business is from existing customers versus new? I think the prior couple of quarters, you tried to help give some color around that. J. Kitchen: Yes. It was in the last quarter, so that was about 50-50, 50% custom manufacturing -- sorry, 50% existing customers, 50% new customers. Gregg Kitt: For Q3? J. Kitchen: Yes, for the Q3 wins. That's right. Operator: Our next question comes from Eric McCarthy with InLight Capital. Eric McCarthy: Bryan, Ryan, great quarter. It's really good to see the progress that you have made in such a short while. As I'm looking through the new business that you've added to the funnel and then converted to revenue, what are some of the end-user markets that are really driving some of the new business? J. Kitchen: Yes. I think in this last quarter, if you think about it in the context of that $12.5 million of new business that we were awarded, certainly, case, so coatings, adhesives, sealants, elastomers, water treatment and other infrastructure-related applications. That was kind of the core. Certainly, we gained in other areas like oil and gas, but those 3 are really the driving force behind our wins in the last quarter. Eric McCarthy: And then more on the big picture business side. When I look at the structure of the Board, many of the directors are more tied to the legacy business lines and some have even been actively selling the stock. What are the organization's plans to maybe align the Board more with the future strategy and what we have in place now and maybe even getting someone like yourself on the Board? J. Kitchen: Yes. Look, I appreciate the question. I think a similar question was thrown over the fence in our last earnings call. I mean, look, our Board has been incredibly supportive of Ryan and I. When we came in the door last year, they have done exactly what they committed to do. So for that, we're certainly grateful. But you're right. I mean, as we kind of look forward to the evolution of the business and where we're going as a company, no longer do we have tubular assets, we're a pure-play specialty chemical company. And the Board is actually in the process of reimagining what that future forward complement needs to look like moving forward. They've been kind enough to solicit my input and the input of others. So we're making progress. I think we'll have some information to share in the coming quarters. And yes, that's the short story. Eric McCarthy: Okay. That's great news. I guess in that same vein, is there anything about what you're seeing in the landscape, both operationally and from a corporate perspective that is front of mind for you is giving me any concern that keeps you up at night? J. Kitchen: What keeps me up at night. Ryan, I'll let you jump in on this one as well. I mean I think for me, it's all about retention, right? So you know, right, transformations aren't easy. Done the right way, they're just world-class hard, a lot of tough decisions, a lot of late nights, crazy pace. So for me, it's just making sure that we do everything in our power to retain the talent that has gotten us to this point, and that's going to take us that next phase in our transformational journey. So that's what keeps me up at night. Ryan? Ryan Kavalauskas: Yes. I think as we move into this next phase of growth and we're moving through and past the stabilization phase, it's how do we scale and how do we make those investments appropriately. How do we do that without diluting margins? I think that is really the next phase and challenge for us is how do we continue to make these gains, win new business and scale the organization after we've kind of rightsized the cost structures in a lot of different places, challenged the team, stretch the team as much as we can. So that is really the focus. I think that is really our big challenge coming up is can we operationally execute in pace with the commercial team as they bring these wins. And I think we're doing a good job today, and we've got to keep going. And I think that's really our focus and really what I think if you had to say what keeps me up is how do we do that and how do we do that appropriately in the next few quarters. Operator: Our next question comes from the line of Adam Waldo of Lismore Partners LLC. Adam Waldo: I hope you can hear me okay. J. Kitchen: We can. Adam Waldo: Great. Well, solid quarter, and I wanted to probe and expand on Ryan's prepared remarks, comment a little bit about gross margin. I think, Ryan, you articulated that you felt comfortable with the ability to sustain a 30% gross profit margin going forward on a pure-play business now that you reached that stage of corporate development. Is it fair to say that there may be some additional headroom beyond that on an intermediate-term basis just to the extent that you're comfortable commenting on that? Ryan Kavalauskas: I do. I don't think we're going to see kind of the rapid expansion of gross margins we saw this year. We did a lot of work of purposely repositioning the product portfolio and really attacking costs. So I think for us, we got a lot of those gains early on. Here, I'd expect basis point improvements going forward. As I just alluded to Eric, we have to grow appropriately. And I think as we scale and find where the pain points are, we are going to have to invest in people, both at the operational level and in the back-office level. So I expect there to be some margin expansion, especially with layering on volumes onto this optimized base that we have. So we should see some operational leverage pull through. But again, I don't think it's going to be this 300, 400 basis point increase every quarter, but I do expect some nominal increases as we keep going. So how far up that can go remains to be seen, but we do -- we have a tremendous amount of capacity. We have a lot of room to pull on that operating leverage. And I think if we are mindful of where we make those investments and how we scale, I think I expect to see nominal increases in gross margin throughout the next few quarters. Adam Waldo: Okay. So 30% plus gross margin in the coming 1 to 2 years, modest sequential improvement [Technical Difficulty] modest headroom. [Technical Difficulty] adjusted EBITDA margin 15%, you're already at 7% this quarter. At what level of adjusted EBITDA margin do you need to be to achieve sustainable positive operating cash flow in the business? Ryan Kavalauskas: Yes. I mean we're almost there. So if you kind of pull out some of the legacy Munhall activity and formerly -- former steel assets and you look at just our Chemical segment with corporate layered on, we're right there today. So I feel comfortable that if we can get up to 10%, that should be where we need to be to sustain kind of positive cash flow going forward. Like I said, we're effectively there today. So we just need to keep this kind of improvement going, be mindful of how we're investing in SG&A. But that high single digits, low, low teens is where we effectively are. And I think if we can kind of just keep continuing to not only build off this base, we should see cash flow generating. Adam Waldo: Okay. one more, if you permit me. On the Munhall divestiture, and I apologize, I got on the call late. Did you make any prepared remarks, comments as to the update on your hope for timing on closing that wind down? J. Kitchen: No, I didn't offer any prepared remarks on that. But what I will say is we are efforting to getting this completely off of our books by the close of this year. We're making good progress. We're not over the finish line yet. But I would look for 2026 to be a clean sheet of paper. Adam Waldo: Fabulous. Okay. Last question, if you permit me. [Technical Difficulty] Maintenance CapEx in the business at your current unused capacity. How do you think about the IRRs from share repurchase as you get over that 10% adjusted EBITDA [Technical Difficulty] based on multiples you're seeing in the market right now before any potential [indiscernible] synergies or revenue synergies? J. Kitchen: Adam, I hate to bring it to you, but we could not hear hardly anything that you just said that you... Operator: We're having a hard time hearing you. Yes, I apologize. Do you want to try calling back in or... Adam Waldo: If you can't hear me now, I'll call back in. I apologize. Operator: [Operator Instructions] Our next question comes from Gregg Kitt of Pinnacle Funds. Gregg Kitt: One of the other more encouraging statements that I heard you say, Ryan, was that you're very comfortable being patient on acquisitions right now. And it sounds like in part, that's because you're winning business organically and maybe that's at a rate more than what you previously thought. I think when I talked to both of you earlier this year, my thought was that maybe you'd go look at acquiring some proprietary products like a portfolio that could help accelerate your ramp to that $120 million to $130 million of revenue. It seems like you're winning business organically at a rate where maybe that you don't need to do that. Could you give just a little bit of color around how you're thinking about product -- proprietary product portfolio acquisitions relative to your organic growth? J. Kitchen: Yes, sure. Great. Can you hear me okay? Gregg Kitt: I can hear you just fine. Can you hear me? J. Kitchen: Yes, I can. Yes. Just from -- look, from an M&A perspective, we're certainly active. We're just not -- we're not in a rush to do a bad deal. We were actually under an LOI in Q3. Obviously, that didn't move through, but that just goes back to our patience and how we're going to be good stewards of the capital that we do have. From a product perspective, certainly, we're very interested in acquiring product lines that could then be integrated in within our existing underutilized asset base. Obviously, that's a little bit more difficult to find, but we are efforting that. Gregg Kitt: And so because you have this opportunity to be patient on acquisitions, you have a bunch of cash, which is generating interest income in the meantime. I think maybe to piggyback on some of Adam's question, how do you think about your current balance sheet repurchase activity? And how do you evaluate -- I think you said what's an IRR on your -- a repurchase versus some other use? Ryan Kavalauskas: Yes. I mean what we like is we have the optionality right now. And I think that's a unique position for a lot of people in our industry who are just trying to kind of get by every quarter. So we look at it all holistically, we have been more successful at a faster rate in organic growth. We have a tremendous amount of upside within our own assets. So ideally, that is the safest, lowest risk return if we can find ways to allocate capital internally to growth CapEx, for example, operationally to support growth. That will be our first and foremost point of allocating capital. Like Bryan said, we've been looking at M&A. We've been looking at inorganic growth. But frankly, there's just not been a lot of assets out there that we feel are worth the distraction and that would generate the returns on a risk-adjusted basis to equal what we can do organically. And then we've always had the option to buy back stock. If the stock continues to stay at this level, we'll continue to be active in the market. We are buying back shares daily. It's a small amount. We took quite a bit of shares out of the float earlier this year. So we kind of just look at it holistically, and we're always keeping our ear to the ground on what's out there from an M&A perspective. But with the amount of idle capacity we have today, it doesn't make a lot of sense for us to go buy capacity, right? We have to fill our own plants. If we can find a product line that we can slot in, if we can find a new vertical to go into that's outside of the core ones that we participate in today, we'll look at that. So we do have some IRR benchmarks internally depending on where that investment goes, but we like the optionality point as we continue to kind of evolve and see where this business is taking us and see where we're successful, I think that's where we're going to be able to allocate capital and drive again, like organic first, and then we'll look at the other options. Gregg Kitt: One last question for me. Can you talk about some of the targeted R&D investments that you're making? How quickly can those turn into -- are those new products? You have the capability to manufacture it in your existing equipment and you're looking at how can you develop a new product? Or if you could flesh that out, that would be great. J. Kitchen: Yes. I mean I think first and foremost, it was the -- was hiring Prashanth, our new R&D leader. Prashanth's an industry expert, came to us by way of Olin and prior to that, DuPont. So within literally weeks, Prashanth was helping us crack the code on some product development challenges that we have had. He's leaned in. He's helped us resolve some process R&D-related challenges, so improving the manufacturability of products that we've developed in the lab and helping them scale up more efficiently and effectively in the plants. So he's already making a huge difference. Obviously, from a capability standpoint, we have lab capabilities today. There's probably some targeted investments that we'll be looking at making in 2026 to close a couple of capability gaps that we have from a lab equipment perspective. But really just really pleased with how Prashanth has leaned in and the impact he has made in such a short period of time. Operator: Our next question comes from the line of Adam Waldo of Lismore Partners LLC. Adam Waldo: Apologies for the earlier connectivity issues. I hope you can hear me okay now. J. Kitchen: Yes. Adam Waldo: Great. Okay. All right. So at the kind of 30% gross margin and with some headroom above that going forward over the next couple of years, what kind of variable contribution margins do you think you'll be able to achieve at the adjusted EBITDA margin line as you bring on -- continue to bring on strong levels of new volume? And then related to that, what do you think your current system-wide capacity utilization is presently? Ryan Kavalauskas: I'll speak to the incremental margin. So not to be kind of difficult here, but it's really the way our assets are set up, it's not a straightforward calculation where 1 pound equals x margin or incremental margin. So it's really dependent on the customer, the engagement, the product mix and where we make that product, right? So we have 3 plants today, depending on what it is and where it is, that's how we're able to kind of define that incremental margin pickup. So where we're at today, the business we're bringing in today, again, I think it's going to -- you're going to see incremental margin improvement on top of this going forward. So it's really difficult to say 5 million pounds a week million of margin. It's just really dependent on how this mix plays out, where we determine that it's the best place to fit those products into our current assets. So I would say incremental margin improvements as we keep going. Again, I don't expect tremendous pickups every quarter here just despite the volume growth. So that's kind of how I view the incremental margin gains. Bryan can speak to capacity. J. Kitchen: Yes. Just to add a little bit more color on that, Adam. I mean, so from a manufacturing process, some of the products that we make have a 6-hour cycle time. Some of the products that we manufacture have like a 48-hour cycle time. So obviously, the cost is very, very different from product to product from manufacturing-to-manufacturing locations. So we're not trying to be difficult, but that descriptor, it depends, it really does depend. From a utilization standpoint today, we're right around 50% utilized. So tons of runway for organic growth inside of the existing asset base with minimal capital requirements. I mean if you do a look back over the past 3 to 5 years, our average CapEx spend has been in that, call it, $3 million a year range. Moving forward, there's nothing standing in our way from being able to deliver $120 million to $130 million of top line through our existing asset base without additional material capital required. So tons of runway for organic growth, super excited about the momentum that's being built up from a commercial standpoint. We want to see those wins start hitting the income statement sooner than later. But the momentum is real and it's building. Operator: This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kitchen for closing remarks. J. Kitchen: Okay. Great. Thank you, Dana. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you again when we report our second quarter -- our third quarter, fourth quarter 2025 results. We'll get that right next time. Thanks a lot, everyone, and have a great evening. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs Q3 '25 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Leslie Green, Investor Relations for Astera Labs. Leslie, you may begin. Leslie Green: Good afternoon, everyone, and thank you, Eric. Welcome to Astera Labs Third Quarter 2025 Earnings Conference Call. Joining us on the call today are Jitendra Mohan, Chief Executive Officer and Co-Founder; Sanjay Gajendra, President and Chief Operating Officer and Co-Founder; and Mike Tate, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward-looking statements regarding, among other things, expected future financial results strategies and plans, future operations and the markets in which we operate. These forward-looking statements reflect management's current beliefs, expectations and assumptions about future events, which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and the periodic reports filed and filings we filed from time to time with the SEC, including the risks set forth in our most recent annual report on Form 10-K and our upcoming filing on Form 10-Q. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward-looking statements or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. In light of these risks, uncertainties and assumptions, the results, events or circumstances reflected in the forward-looking statements discussed during this call may not occur, and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today, and the company undertakes no obligation to update such statements after the date of this conference call, except as required by law. Also during this call, we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with U.S. GAAP. The discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed through the Investor Relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs. Jitendra? Jitendra Mohan: Thank you, Leslie. Good afternoon, everyone, and thanks for joining our third quarter conference call for fiscal year 2025. Today, I'll provide an overview of our Q3 results, followed by a discussion around the current trends within AI Infrastructure 2.0. I will then turn the call over to Sanjay to walk through Astera Labs near- and long-term growth profile. Finally, Mike will give an overview of our Q3 2025 financial results and provide details regarding our financial guidance for Q4. Astera Labs delivered strong results in Q3 with our revenue and profitability metrics coming in above our outlook. Quarterly revenue of $230.6 million was up 20% from the prior quarter and up 104% versus Q3 of last year. Growth within the quarter was broad-based across our signal conditioning, smart cable module, and switch fabric products. Scorpio P-Series continued its initial volume ramp at our lead customer, and we are excited that our P-Series revenue will further broaden with recent new design wins across a variety of AI platforms at multiple hyperscaler customers. Scorpio X-Series is shipping in preproduction quantities with a volume ramp expected throughout 2026. Our Aries portfolio continues to perform well with PCIe 6 solutions contributing robust growth during the quarter. Our Aries 6 products are the industry's first and only PCIe 6 retimer solutions ramping in high volume today. Taurus drove strong growth during the quarter as incremental opportunities began shipping in volume across both AI and general purpose systems, and we expect further growth in 2026 as we expand to 800-gig switching platforms. For Leo CXL memory expansion products, customers are exploring AI inference use cases, especially to offload memory from expensive on-package HPM to large pools of DDR5 memory. This will broaden Leo opportunities beyond the current general purpose compute applications that we continue to support. On the organizational front, we have grown aggressively and plan to exit 2025 with a global team of more than 700 employees, up 60% compared with the beginning of the year. Lastly, we are happy to report that our non-GAAP operating margin of 41.7% marked a new record level for the company. In addition to our strong financial performance and new design wins, we continue to lay the foundation for future growth with the advancement of our technology roadmap and scaling of our team and capabilities. In October, we announced that Astera Labs had entered into a definitive agreement to acquire Xscale Photonics, a provider of leading-edge fiber chip coupling technologies. This acquisition will help enable us to develop photonic scale-up solutions by combining Xscale's fiber chip coupling capabilities with Astera Labs connectivity and signal conditioning expertise. We envision future Scorpio scale-up switches to be enabled with photonic solutions to optically expand rack scale cluster sizes containing hundreds of connected AI accelerators. This acquisition represents an important step within our long-term optical journey to intercept a large additive market opportunity associated with scale-up photonics. The industry continues to see strong momentum with major announcements pointing to ongoing rapid growth in large-scale AI infrastructure deployments. Increasing AI use cases are driving higher monetization and surging demand for compute as evidenced by token generation doubling every 2 months and significant year-over-year increases in LLM user activity. To meet this demand, the industry is rapidly adopting rack-scale infrastructure, which analysts forecasting CapEx at the top 4 U.S. hyperscalers to surpass $500 billion in 2026. This shift to AI Infrastructure 2.0 will require ultra-low latency all-to-all connectivity for large workloads, and Astera Labs is advancing its intelligent connectivity platform to deliver high-performance, energy-efficient fabric switching solutions that maximize AI platform efficiency and productivity. To achieve the goal of providing our customers with a wide choice of innovative, flexible and efficient connectivity solutions, we are building our portfolio based on open standards. Our full portfolio of standard-based solutions was in display at the 2025 Open Compute Project Global Summit with the support of 15 industry partners, all highlighting the importance of an open ecosystem for AI rack-scale infrastructure. We believe the proliferation of open standards-based AI rack-scale platforms will allow the industry to leverage broad innovation and enable interoperability while providing a diverse multi-vendor supply chain. We are particularly enthusiastic about the continued momentum behind the UALink scale-up connectivity standard, which exemplifies the open ecosystem approach by combining the low latency of PCIe and the fast data rates of Ethernet to deliver best-in-class end-to-end latency and bandwidth. UALink was built from the ground up with broad contributions from market-leading AI infrastructure participants to specifically solve the mounting challenges of scale-up networking. We believe UALink delivers the bandwidth efficiency and the ultra-low latency needed to unlock full accelerator performance and enable effective scaling as AI clusters expand. Customer activity around UALink continues to be strong. We are engaged with several leading hyperscalers and AI platform providers in the RFP and RFQ stages to align on the designs and applications that fit best with their technology and business requirements. We continue to expect a portfolio of UALink solutions to be available to customers in the second half of 2026 with early revenues generated in 2027. With that, let me turn the call over to our President and COO, Sanjay Gajendra, to outline our vision for growth over the next several years. Sanjay Gajendra: Thanks, Jitendra, and good afternoon, everyone. Today, I want to provide an update on our recent execution, followed by an overview of the meaningful market opportunities that will fuel Astera Labs growth over the next several years. Astera Labs has a singular goal to deliver a purpose-built intelligent connectivity platform, including silicon, hardware and software solutions to customers for rack-scale AI deployments. The forthcoming evolution to AI Infrastructure 2.0 will not only be defined by faster silicon and larger AI clusters, but also by open connectivity standards and software that promote innovation at scale. In short, standardized high-speed interconnect technologies will be essential to deliver AI open racks that are highly performant while operating as one cohesive unit. During Q3 of 2025, Astera Labs continued its high-growth trajectory and further diversified our overall business to deliver another record quarter. We are excited to report several new design wins at multiple hyperscalers during the quarter for Scorpio P-Series fabric switches across a variety of AI platforms supported by both merchant GPUs, including NVIDIA's GB300 and B300 as well as designs based on custom AI accelerators. Additionally, our Aries PCIe 6 smart retimer business and customer opportunities are now expanding as AI racks built around custom AI accelerators and new merchant accelerators begin to adopt PCIe 6. This dynamic is poised to further accelerate the broader adoption of PCIe 6 across the ecosystem and further drive our dollar content opportunity. Overall, our PCIe 6 solutions contributed in excess of 20% of our Q3 revenues, illustrating our market-leading position. We see a similar dynamic taking shape within the Ethernet market with the transition to 800-gig links putting additional strain on signal integrity. Given faster speeds and larger AI cluster sizes, system architects are turning to Ethernet AEC applications to solve the reach challenges of passive cabling. This transition is expected to drive market growth with increasing overall volumes and a generation over generation ASP lift. While we expect strong continued demand for our 400-gig solutions throughout 2026, we also believe our customer base will diversify with 800-gig solutions, driving a new layer of growth for our Ethernet smart cable modules. We believe our approach to enable multiple cable partners with our smart cable modules, supports the scale and flexibility that is preferred by hyperscalers. Looking ahead, we are gearing up for Scorpio X-Series to shift to high-volume production over the course of 2026. With this ramp of Scorpio X-Series for scale-up connectivity topologies next year, we expect our overall dollar content opportunity per AI accelerator to significantly increase, representing another step-up from a baseline revenue standpoint. Overall, given the extreme importance of scale-up connectivity to AI infrastructure performance and productivity, we see Scorpio X-Series solutions as the anchor socket within next-generation AI racks. Our early engagements are providing us valuable insights in terms of both hardware and software requirements to deploy scale-up switching networks for a diverse set of GPUs and AI accelerators. Beyond the connectivity protocol like PCIe, UALink or Ethernet, there are additional functions, both in the data part and management of scale-up networks that can make or break the performance and deployment of scale-up networks. We are learning this every day, building a competitive moat and ensuring our solutions are ready for real-world deployments at scale. From an implementation perspective, the architecture of our Scorpio X family was built to support multiple platform-specific scale-up protocols and customizations. We are actively expanding our PCIe-based scale-up fabric solutions. And in parallel, we are working on future UALink products for applications that need higher bandwidth. For PCIe, we are engaged with over 10 AI platform providers with opportunities that are expected to drive revenue growth across multiple generations of AI platforms over the next several years. We view UALink opportunities to be meaningfully additive to our PCIe scale-up revenues. Our flexible fabric architecture, hands-on experience with scale-up networks, support for diverse workloads that run on training and inference clusters of various scale and complexity and open approach puts us in an excellent position to win next-generation designs. As we look to 2026 and beyond, our playbook remains the same: one, stay closely aligned with the multigenerational technology roadmaps of our customers and partners; two, innovate exponentially in everything we do; and three, separate the noise from reality and continue to be laser-focused on execution needed for a thriving, durable business. In conclusion, we are motivated by the meaningful opportunity that lies before us, and we will continue to passionately support our customers by strengthening our technology capabilities and investing in the future. With that, I will turn the call over to our CFO, Mike Tate, who will discuss our Q3 financial results and our Q4 outlook. Michael Tate: Thanks, Sanjay, and thanks to everyone for joining the call. This overview of our Q3 financial results and Q4 guidance will be on a non-GAAP basis. The primary difference in Astera Labs non-GAAP metrics is stock-based compensation and its related income tax effects. Please refer to today's press release available on the Investor Relations section of our website for more details on both our GAAP and non-GAAP Q4 financial outlook as well as a reconciliation of our GAAP to non-GAAP financial measures presented on this call. For Q3 of 2025, Astera Labs delivered quarterly revenue of $230.6 million, which was up 20% versus the previous quarter and 104% higher than the revenue in Q3 of 2024. During the quarter, we enjoyed revenue growth from our Scorpio, Aries and Taurus product lines supporting both scale-up and scale-out PCIe and Ethernet connectivity for AI rack-level configurations. Scorpio P-Series demand for PCIe Gen 6 scale-out applications was robust during the quarter. Aries demonstrated solid growth during the quarter for both Gen 5 and Gen 6 solutions. With the transition to PCIe Gen 6, we gained increased dollar opportunities with both our Scorpio and Aries Gen 6 products as demonstrated with our Gen 6 revenues exceeding 20% of our Q3 revenues. Taurus growth during the quarter was driven by increasing shipments for 400-gig scale-out connectivity and AI systems. Q3 non-GAAP gross margin was 76.4% and was up 40 basis points from the June quarter levels with product mix remaining largely constant across higher volumes. Non-GAAP operating expenses for Q3 of $80 million were up $9.4 million from the previous quarters due to higher payroll taxes and the continued expansion of our R&D organization. Within Q3 non-GAAP operating expenses, R&D expenses were $57.2 million. Sales and marketing expenses were $10 million, and general and administrative expenses were $12.8 million. Non-GAAP operating margins for Q3 reached a new record level of 41.7%, up 250 basis points from the previous quarter. Interest income in Q3 was $11.5 million. Our non-GAAP tax rate for Q3 was 18%. Non-GAAP fully diluted share count for Q3 was 180.6 million shares, and our non-GAAP diluted earnings per share for the quarter was $0.49. Cash flow from operating activities for Q3 was $78.2 million, and we ended the quarter with cash, cash equivalents and marketable securities of $1.13 billion. Now turning to our guidance for Q4 of fiscal 2025. We expect Q4 revenues to increase within a range of $245 million and $253 million, up roughly 6% to 10% from third quarter levels. For Q4, we expect growth across our Aries, Taurus and Scorpio product families with particular strength from our Taurus smart cable modules. We expect Aries growth to be driven by a number of end customer platforms where we support scale-up and scale-out connectivity. Strong Taurus growth is expected to be driven by increased volumes on 400-gig designs for AI scale-out connectivity. Scorpio growth will be primarily driven by the continued deployment of our P-Series solutions for scale-out applications on third-party GPU platforms, while we expect Scorpio X-Series to ship initial volumes. We expect Q4 non-GAAP gross margins to be approximately 75% with the increased mix of our Taurus hardware modules in the quarter. We expect fourth quarter non-GAAP operating expenses to be in the range of approximately $85 million to $90 million. Anticipated operating expense growth in Q4 is driven by the expectation of continued investment in research and development functions and also the incremental operating expenses from the Xscale acquisition anticipated to close during the quarter. Interest income is expected to be approximately $11 million. Our non-GAAP tax rate should be approximately 15%. Our non-GAAP fully diluted share count is expected to be approximately 183 million shares. Adding this all up, we are expecting non-GAAP fully diluted earnings per share to be approximately $0.51. This concludes our prepared remarks. And once again, we appreciate everyone joining the call. And now we will open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Harlan Sur with JPMorgan. Harlan Sur: Again, great execution by the team. Post the announcement of UALink 1.0 specification in April, this is the industry's first standard scale-up networking architecture. There have been a plethora of new scale-up announcements, mostly Ethernet-based scale-up architectures. I think the market has been concerned about these competitive architectures, but we know that GPU and XPU chip design cycle times are anywhere from 18 to 24 months and the scale-up architecture associated with these designs have been spec out like way in advance. So in other words, I assume that your design win pipeline and engagements, XPUs or GPUs that either have decided to use Scorpio X or UALink has not changed at all since the last earnings, maybe even expanded, but wanted to get the team's view. Sanjay Gajendra: Yes, absolutely, Harlan. We continue to see our market opportunity grow for our scale-up products, particularly Scorpio X product like you noted. Scale up, as you can imagine, it's a very large market. We estimate it to be in tens of billions of dollars. And like you correctly noted, some of these design wins take last over multiple generations simply because of the investment that goes into developing the software and the hardware required for scale-up topologies. For us, if you think about our business, today, we are getting ready to ramp into production with our PCIe-based scale-up solutions. It's been extremely popular. There are several customers that are using PCIe like protocols for scale-up. A new entrant was Qualcomm that publicly announced their new AI 200 inference racks that feature PCIe-based scale-up. For Astera, we have engaged with over 10 AI platform providers, and we expect that these design wins and engagements that we have will continue to ramp. In fact, we expect this to go 2029 just based on some of the multi-generation nature of these design wins. For us, UALink is also a very meaningfully additive opportunity as customers start adopting it just based on the higher data rate support. The spec has been around, like you noted, for over a year now in terms of the consortium being formed. The spec is stable. The ecosystem is forming. Silicon development is in full gear. And many of these customers, we have currently engaged with RFPs and RFQs. So the momentum is really built up very nicely and continues to grow. So we do expect meaningful revenue from UALink to start coming in, in 2027. There are, of course, other standards being defined, and that is to be expected. This is a market that will have multiple standards that will coexist. But for us, the bottom line is that we are in a good position to address all of the emerging scale-up market opportunities with the engagements we have, the learnings that we have had by being in the trenches over the last, let's say, 9 to 12 months, developing scale-up solutions, understanding what is needed and what is not needed, and with production ramps happening in 2026. So overall, we feel very confident that this is going to present multiple opportunities for us, resulting in a multi business -- multibillion-dollar business on the scale-up side based on all the opportunities that we see in the market. Harlan Sur: No, I appreciate that. And the team has talked about the Scorpio X as an anchor product, right? In other words, customers design your switch fabric solution. This creates the opportunity for additional content pull in, right, whether that's your signal conditioning products, your AEC, optical cable modules. Is this strategy playing out? In other words, if you look at, let's say, all of your Scorpio X engagements, what percentage of these engagements are also using your retimers, your AEC or optical cable module solutions? And do you have a sense of the average content uplift per XPU on these incremental attach? Sanjay Gajendra: Yes. So like you correctly noted, if you are a system designer at a hyperscaler, on day 1, when you decide on building a new platform, you generally think of 2 things. One is the accelerator and other one is the scale-up switch and the topology for it. So fortunately, we get invited to the conversation very early. And some of these conversations are multigenerational. So it gives us a good outlook for not just on requirements that we have in the near term, but also on the long term. We announced the acquisition that we are working towards for Xscale. And that was driven based on similar insights that we've been able to gather in terms of what is needed for us. In terms of content itself, once that we are in the sockets for our scale-up solution, it naturally opens up conversations around other products that we have, whether it's retimers, gearbox devices, controllers and things like that, which we have been able to maximize in terms of how we can service. In terms of dollar content, what I would say is that overall, if you look at some of these future design wins that will ramp up, they scale up to multiple thousands of dollars if you look at it from an accelerator and a rack level. So in general, we do see that having a strong presence in the scale-up network allows us to pull in several other products and technology that we currently have and also working on in terms of future product lines that we intend to offer to our customers. Operator: Your next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one I wanted to follow on to the switch fabric side of things with Scorpio. You talked about more design wins across several platforms and more customers. I guess where I really want to get some more color is on the diversification theme. How are you seeing that business diversify? And when Scorpio X launches, does that naturally come back to some concentration? Or does that further diversify the business? And what I appreciate is a naturally concentrated market. But within that framework, how do you see that business diversifying over time? Sanjay Gajendra: Yes. So in general, the theme that we have been working towards is to ensure that there is a good diversity, both with our product lines and customer base that we have. Like you correctly noted, the hyperscaler market is fairly concentrated. I mean that's the occupational hazard that we all have to deal with. But to your point, today, like we have noted for things like PCIe-based scale-up and in the future, UALink and other protocols. Today, we have over 10 customer platforms that we are engaged with. We have made tremendous progress in the last quarter, making progress in terms of not just design wins, but also for some of the opportunities moving them forward from a technical POC software development and other aspects that are needed to deploy this technology at scale. So at this point, given our presence with the fabric devices, that's truly allowing us to be very broad-based. And this not only includes third-party GPU-based platforms, but also custom accelerator-based products. And that's been an exciting momentum for us right now as we seek to add many more design wins to the customers that we have on Scorpio Series. Ross Seymore: And I guess one for Mike on the gross margin side of things. It's very, very impressive. I understand the mix dynamic and why it might be going down a bit in the fourth quarter, but it's still well above your 70% long-term target. So I think investors are just wondering what would be the puts and takes that would drive it down from kind of the mid-70s to 70% over time, especially if the scale-up architectures and different products are going to become so important to you and as Sanjay said, are relatively accretive on the dollar amount, and I assume even on the gross margin side. Michael Tate: Yes. So on the first order effect, generally, when we sell hardware products and modules versus silicon, that's margin dilutive. So we do see an uptick in tours in Q4. So that's the guidance to 75%. As we look longer term, we are going to greatly broaden our product portfolio and the design cycles are moving very fast. So in doing that, we will have a wider range of margins for our products generally because the market is moving so fast, we can't have very pointed products for every opportunity. So some will have a cost structure which is a little more overburdened for the opportunity set, and that will be part of the mix. So we still encourage people to think about us going to our long-term model. But with that, we do see operating leverage as we grow our revenue dollars at a very good pace. Operator: Your next question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Great results. Maybe I just want to start off on just level set. Obviously, you beat by a wide amount. I think you mentioned kind of the first 2 you mentioned was single conditioning and these SCM modules. I'm just trying to figure out if you can kind of -- I know you don't want to break out certain segments, but can you give us a little bit more color as to what drove the beat and what changed during the quarter? Michael Tate: Yes. We saw breadth through all the 3 product lines. We generally want to be conservative because a lot of the revenue growth that we have are from new programs, and these programs are very complex. So we just want to give a little cushion in case there's any delays in the product launches by our customers, but it was a very successful quarter for our customers in their deployments. So that enables us to deliver the upside. Blayne Curtis: And I want to ask you, I mean, obviously, the -- what NVIDIA has done with retimers was a lot of the talking points throughout the year, but you're starting to see these ASIC platforms going to be more material next year. Is there a way to think about that Aries family as these ASICs ramp on a relative basis versus kind of the retimer content you're seeing today? Sanjay Gajendra: Yes. So just to kind of level set, right? So we do expect a significant growth in Aries revenue this year, and we do expect the revenue growth for Aries family to continue to next year as well. So in general, obviously, the ASP of the retimer business is different compared to the Scorpio or the switch fabric business that we have. And we do expect that Scorpio to be our largest product line from a revenue standpoint. And there are obviously several different design wins that we have that -- that are expected to ramp to production volume in 2026. So in general, what I want to say is that the business has transitioned to some of these larger sockets and the higher ASP business that we have, and that trend will continue with the inflection point happening sometime in 2026, when Scorpio will overtake Aries and other product lines from a revenue standpoint. Operator: Your next question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congrats on the strong results. So I had a question on the acquisition and you now penetration into the optical scale-up market. Just curious, material revenue time lines. I assume this is potentially the beginning of more to come. And maybe you could also discuss a little bit why you decided to intersect optical now versus perhaps prior or later. Jitendra Mohan: Yes. Thanks, Tore. Maybe I'll begin and then Mike can add on. Look, our vision has always been to deliver complete connectivity infrastructure at the rack scale. We have stated this many times, we call it AI Infrastructure 2.0, and we are laser-focused on building solutions for that. Today, we are focused on copper-based solutions, mainly because this is what our customers ask us to do. However, as data rates increase and scale-up domains go beyond 1 rack, clearly, at some point, you will need optical interconnects for scale-up. And there is already a big market for optical interconnects at a data center scale. So we view our kind of entry into optical as a big additive opportunity, and we will intercept the market with unique solutions that are aligned with our customers' roadmaps in the sense of when they want to transition from copper to optical. So as far as the timing is concerned, why now and why not earlier or why not later? It is part of the plan that we have with our customers on when we want to intercept with an optical solution. It is also important to note that with this acquisition of Xscale, we are adding capabilities to the company that we did not have before. Xscale allows us to get the glass components that are required to deliver a successful optical product, whether it is a CPO or an LPO or an NPO. But this is a technology, that's very complementary to the signal conditioning and switching expertise that we have. So our vision would be to deliver a product line where our Scorpio family is optically enabled with photonic solutions to allow for higher data rates and longer reach in scale-up domains. With the Xscale acquisition, we get a phenomenal team that we can kickstart this development and this acquisition is just again our commitment to enter this market and intercept at the right time. Michael Tate: I'm sorry, Tore, you had a question on the timing of... Tore Svanberg: Yes. As part of my first question, when can we start to expect material revenue coming from optical products from Astera? Is that '27, '28, '29? Michael Tate: More likely, the earliest for scale-up optical connections will be in the '28, 2029 time frame. Tore Svanberg: Very good. And just as my follow-up, you talked about Taurus driving strong growth here in Q4. I think you mentioned 400 gig. Is that also diversified growth? Is this with more than one customer? And when do you see the inflection happening for Taurus for 800-gig in 2026? Sanjay Gajendra: Yes. So the 800-gig deployments, I want to say, are just starting in terms of the market need. So for us, we are engaged with several customers. Our business model for AEC is to offer the smart cable modules that then gets enabled through multiple cable vendors. And generally speaking, there is a little bit of lag between when customers start their initial POC or initial deployment to when they start scaling. So overall, we believe that from an 800-gig standpoint, our business -- our revenue impact would start in 2026. I want to say, early part of '26 as the qualifications complete and start ramping to production. Operator: Your next question comes from the line of Mehdi Hosseini with SFG. Mehdi Hosseini: A couple of follow-ups. I just want to go back to the target that Scorpio would be about 10% of your revenue. And if that's the case, then does it imply that Scorpio would be like closer to 20% of the revenue in the December quarter? Michael Tate: Yes. The 10% was for the full year. It started to launch materially in Q2. So the exit rate would be closer to the 20%. That's correct. Mehdi Hosseini: Okay. And then with the X ramping, let's say, spring of next year, that's when the contribution is going to actually accelerate. Am I thinking about this right? Michael Tate: Yes. P will continue to grow given that we have new designs that will be ramping throughout the year. So P and itself is a nice growing piece of revenue for Scorpio. The X-Series is in kind of low initial volumes right now, but then it starts to ramp materially next year. What we said before is the X is ultimately a bigger opportunity, the scale-up opportunity. So at some point, and we're not saying exactly when, it will be bigger than P, and we're very excited about that potential. Mehdi Hosseini: Sure. And then I have a rather clarification question. I'm new to the name, maybe just me, but when you say you have 10 AI platforms involved with your Scorpio product, what does that mean? Does that mean 10 different CSPs, 10 different customers? The AI platform, if you could just elaborate on it, it would be great. Sanjay Gajendra: Yes. So we refer to the customer base that we have that includes the folks that are developing their own accelerators. It also includes the hyperscalers that are buying some of the third-party accelerators and integrating it into their AI servers. So those are the 2 broad categories to think of in terms of the 10 customers that we noted. Mehdi Hosseini: Okay. So that basically implies the diverse set of customers that are adopting the UALink, the open-source, right? Is that -- would that be fair? Sanjay Gajendra: Yes. So that comment itself is correct. We do believe that there's quite a bit of momentum around UALink based on the fact that it's developed grounds up. But the 10-plus customer comment we made was in reference to folks that are using PCIe-like protocols for scale-up. However, we do believe that the folks that are using PCIe-like protocols would also be looking at UALink as an option to service platforms that require higher data rate, meaning from a physical layer standpoint. So to that standpoint, UALink would be additive to our PCIe customer base. At the same time, it will also provide an upgrade path for folks that want higher speed on specific AI platforms. Operator: Your next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Let me offer my congratulations as well. I just wanted to come back to the Xscale Photonics acquisition as it's your first entry into the optical side of things. I think this technology looks like it's fiber chip coupling. It seems like you probably need some kind of silicon photonics capability to complete a scale-up CPO type solution. So just wondering, is that something you look to develop in-house? Would that be sort of an acquisition that you would look to pursue in the future? Just how do you complete that full scale-up CPO solution? Jitendra Mohan: Quinn, good question. Yes. So as you have correctly pointed out, in order to build a full optical solution, you need 3 pieces. You need an electrical IC that takes the signals from, let's say, a switch chip or an XPU chip, converts it into a format that's applicable for a photonic chip. So that's the second component that you need, a photonic chip that will now convert these electrical signals into light. And then you need a packaging technology that will couple this light into fibers and so on. And there are very specific requirements for each one of them. With the acquisition of Xscale, we solved 2 of the 3. So they are working on some very cutting-edge technology on package development. Once the acquisition closes, we will be able to reveal more about what that means to us and how we will intend to use it. But they are, as you correctly pointed out, working on packaging technologies that is a very critical part of the equation. We also get a lot of photonics expertise as part of this acquisition as well. So we will look to put a team together internally to work on photonics. But at the same time, photonics is a very complex equation wherein customers also have a lot of say into what photonics to use. So we are open to not only work on our solution, but also use third-party photonics solutions to enable an overall optical solution that is suitable for our customers' requirements. And then when it comes to electrical, we've been doing electrical chips for many years as part of Astera Labs and a long time before that. So we feel pretty confident in building the electrical components. But all 3 of them put together is what makes a compelling optical solution. And we have some great ideas on how to build a unique solution as we enter -- as we contemplate entering this space. Quinn Bolton: And then I guess just wanted to come back to the comment about initial Scorpio X shipments in the fourth quarter. Is that kind of preproduction more sample units? Or are you starting to see the initial Scorpio X design win going to production? Is this the initial build of a production system? Sanjay Gajendra: Yes. So this is the initial build. So we've gone through the qualification stage and all the intermediate stages. So we start shipping into production volumes -- production systems end of the year, but the big ramp will happen in '26. Operator: Your next question comes from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Congrats again on the results. I wanted to ask maybe a bit of a technical one on the PCIe switch transition to a UALink native switch as we look towards that product's launch next year. How much of a step change is that in terms of silicon complexity and design? Or is it much more on the, call it, firmware or SDK side and the silicon is largely similar since they're both based on memory semantics rather than networking semantics? And then sort of related to that, you talked about your customers taking a look at the UALink protocol, even though they're on PCIe today, how much of a lift is on their side when they're looking at the scale-up communication kernel and what can you do to sort of derisk that transition for them? Jitendra Mohan: Yes. It's a great question. And you are very correct in pointing out that there are similarities between both PCI Express and UALink from a protocol standpoint and also that customers have made good investments into their software stack that is tuned to a particular type of protocol. So let me answer them one by one. So to begin with our Scorpio X family today supports PCI Express and PCI Express like protocol. And when we transition from PCI Express to UALink, it will indeed be a new chip that addresses the future generation of these AI systems. However, when we designed Scorpio X, we took into account future generations of this product where the line rates will go up. So the switching architecture and many of the features that go into the switching product, which are beyond the protocol are already ready for the next generation. So while it is going to be a new development for us to go to a UALink switch, we will certainly leverage the development that we have done for the current Scorpio X generation very heavily, including all of the software features that are part of our COSMOS software stack that are responsible for optimizing, customizing and delivering a lot of diagnostics and telemetry to our end customers. In terms of the similarities between PCI Express and UALink, they are both load store-based protocols. PCI Express has been around for many, many years. It is a memory semantic-based protocol. So from an XPU perspective, the ASIC can simply say, I want to access this memory location, and it doesn't matter whether that memory location is in the same GPU or the same XPU or a remote XPU. This is the beauty of memory semantic-based protocol. And UALink carries forward the same thing. It carries forward the memory semantic-based protocol. It carries forward the lossless nature of the network and the software lift for an end customer is much easier. So we do see UALink as an evolutionary step for our PCI Express customers, as Sanjay mentioned before. At the same time, UALink does a few things that are very much customized for AI scale-up. The data rates are much faster. Obviously, we go from 64 and 128 gig to 200 and then beyond in the future. But more importantly, the protocol was built ground up for AI scale-up. It takes into account the AI workloads, the AI traffic patterns and simultaneously delivers low latency as well as increased throughput. And most importantly, UALink is also an open standard. So it's been around for 1 year now, 1 year officially, which in AI terms is probably a decade. And during this time, the IP ecosystem has become mature. The spec is very solid. And a lot of vendors are working on new silicon to deploy UAL-based switches in the 2026 time frame with revenues coming in, in 2027. Sean O'Loughlin: I really appreciate the color there. And I'll follow up with a quick clarification on the 20% PCIe Gen 6. I believe that was inclusive of both Scorpio P and Aries or was that an Aries-specific comment? Jitendra Mohan: That's inclusive of Scorpio, which is all Gen 6 product -- in our Aries Gen 6 products. Operator: Your next question comes from the line of Suji Desilva with ROTH Capital. Sujeeva De Silva: Hi Jitendra, Sanjay Mike, congrats on the progress here. I know the optical revenue is down the line here. But just wondering in comparing pain points of bandwidth versus XPU density, which one kind of pushes customers faster to scale up using optical? Or is there a way to kind of handicap one versus the other? Jitendra Mohan: Yes. I think what our customers have told us, and you can see this in the product announcements that various AI platform providers and hyperscalers have made is they prefer to stick with copper for as long as possible. And the reason for that is multifold. Clearly, copper is so far proven to be more reliable. It's lower power. It offers better TCO. And so as part of the focus that we have on copper, we'll continue to push copper for as long as possible. And that is copper is not going away anytime soon. However, as the topologies of scale-up networks evolve, you will end up with a practical limitation of trying to provide megawatts of power into one rack. And so as a result, at some point in time, we will have to disaggregate the rack into multiple racks, which will then be beyond the reach of copper. So that is what we are planning for. And in the outer years, as Mike mentioned, in the 2028, 2029 time frame, we expect to see these optical deployments from POC and eventually turning into revenues. Sujeeva De Silva: Okay. Great. So rack to rack. And then just a clarification on the 10 POC customers for PCIe, UALink for scale up. Are any of the customers pursuing anything Ethernet related with you? And are you working on any Ethernet stack efforts in-house yet? Or is it all PCIe to UALink roadmap today? Sanjay Gajendra: Yes. So again, we can't comment on what customers are looking at. But let me talk about what we are doing. Like we have highlighted many times, we are heavily engaged right now on scale up. Today, most of the deployments are PCIe like. And these are engagements that obviously will have -- will live for multiple generations, and that's probably something that perhaps is a little underappreciated. We do expect the revenues to go into 2029. And in terms of like other protocols, what I would say is that think about it this way, we believe in open standards. We believe in doing what's right for the customers. Our Scorpio X-Series is developed today to support PCIe and it can easily upgrade to UALink, especially on the non-protocol-related functions. So overall, what I would say is that if a time comes when customers require alternate implementations, we are well setup for it because one key thing to highlight is that although there is so much a focus on like the physical layer protocol, PCIe or Ethernet or other things, what we are learning is that the most important or some of the most important functionality is required in the data part, in the management side because these clusters are giant and having a link that is nonperforming or a subsystem on the data part not delivering the right performance could significantly impact the overall performance of the cluster. So to that standpoint, what we are seeing is that there are several things that needs to be done at the upper levels, and those are things that will remain constant for us irrespective of the physical layer that we end up supporting based on market and customer requirements. Operator: Your next question comes from the line of Sebastien Naji with William Blair. Sebastien Cyrus Naji: I wanted to ask about the opportunity for Astera in China and in particular, the willingness for Chinese hyperscalers to maybe use more open technologies like PCIe or UALink. Jitendra Mohan: Yes. So there is a difference in the hyperscaler opportunities in the U.S. relative to the hyperscaler opportunities in China. Because of the constraints that are placed on the availability of IP and technology, we actually see a lot of demand in China for PCI Express-based scale-up. And the reason that has to do with that is the IP availability there is limited in terms of the data rate, 200 gig is not readily available. PCI Express Gen 5 and add-in card formats are most common in China. And in order to build a larger scale-up network so that they can address the same problems that you might be able to solve with an 8 GPU cluster here in the U.S. might require 16 or 24 clusters of GPU to address the same problem. So when you have more GPUs, our revenues are typically indexed by the number of GPUs. So when you have more GPUs and more accelerators, it is a bigger opportunity for us to sell both our switching solutions as well as solve our retiming solutions from both chip-down opportunities as well as active cable opportunities. Sebastien Cyrus Naji: Got it. Okay. That's really helpful. And maybe if I could do just one follow-up. Just I'd love to get your thoughts on NVIDIA's shift to more of a cable-less design with their Rubin servers or Rubin rack. Does that design shift change Astera's opportunity with Aries or Taurus at all? Jitendra Mohan: So as we have said before, the opportunity for us for NVIDIA-based designs is when hyperscaler customers customize their design to deploy in their own infrastructure. That has been true of the Blackwell platform, and we believe that something like this will happen for the Vera Rubin platform as well. The choice of using a cable backplane versus a PC board-based backplane has to do with the number of GPUs that are present in the design. And certainly, we should let NVIDIA explain the rationale from going from one to the other. But the opportunity for Astera comes when hyperscaler customers take the very performant high-performance GPU platform and customize it for their use cases. Operator: There are no further questions at this time. I would like to turn the call back over to Leslie Green for closing remarks. Leslie Green: Thank you, everyone, for your participation and questions. And please refer to our Investor Relations website for ongoing information regarding upcoming financial conferences and events. Talk to you soon. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good afternoon. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to Live Nation's Third Quarter 2025 Earnings Call. I would now like to turn the call over to Ms. Amy Yong. Thank you, Ms. Yong. You may begin. Amy Yong: Good afternoon, and welcome to the Live Nation Third Quarter 2025 Earnings Conference Call. Joining us today is our President and CEO, Michael Rapino; and our President and CFO, Joe Berchtold. We would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K, 10-Q and 8-K for a description of risks and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G, Live Nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in our earnings release. The release reconciliation can be found under the Financial Information section on Live Nation's website. With that, we will now take your questions. Operator? Operator: [Operator Instructions] And the first question comes from the line of Brandon Ross with LightShed Partners. Brandon Ross: First, going into 2025, it seemed like it was one where the sun, the moon, the stars were all going to align with stadiums and arenas and amphitheaters all coming together. It's turned out, it seems to be a great stadium year, but there's definitely been underperformance in the other venue sizes. Can you explain what happened with amps and arenas this year? And what can give us confidence that they will rebound strongly in 2026? And I have a follow-up. Michael Rapino: Thanks, Brandon. I'll take it. Just to be clear, we had an incredible quarter, an incredible year so far. We had revenue up 11%, operating up 24%, AOI 14%. These are numbers you pray for every quarter. So we've had an incredible year. One of the things we've always said about Live Nation is the great strength you have in investing in us is we are a global diversified business and both geographically and venue type. And sometimes Europe overdelivers and America underdelivers. Sometimes the amps are having a record year, sometimes the stadiums are having a record year. And that's always been the pattern here. And what's great is at the end of the day, we're going to deliver our AOI 10% growth and had an incredible growth internationally, Mexico, Latin America, a lot of our European businesses and stadiums, up 60%. Now again, we would hope we have this problem every year where stadiums are dominating the business. It just continues to show the strength of the consumer and the buyer. This year, we had a few less amphitheater shows. We're looking towards '26. It looks like it's going to be a great pipeline. We look like amphitheaters, arenas and stadiums are going to have a very strong year next year, and on both International and American basis. Probably be sitting here in a year from now telling you one of those markets overdelivered and that's the strength of our diversified platform. So we don't think there's anything structural. We think there is a lot of content out there. A lot of artists decided not to play or not to play arenas and amphitheaters and go for stadiums. We support that on a global basis, and that helped deliver our global revenue growth of over 11%. We think next year, we'll have the same great combination on a global basis and deliver what we've been delivering for many years. Record attendance, record revenue and record AOI will be in the books again for next year with the combination of international amps and arenas. Brandon Ross: Great. And then on the Ticketmaster side, following the FTC suit, it seems like you've really begun to crack down a lot on ticket scalpers. Can you remind us of the actions that you've taken so far? And what impact you expect each to have on both LYV financials and the broader ticketing industry? And it seems like most of the work that you're doing, most of the changes you're making are concerts only as opposed to both concerts and sports. Any color on why that's the case? Joe Berchtold: Sure, Brandon. I'll get going and Michael can jump in. First, again, as always, just to set the context, secondary is a low single-digit percentage of our revenue. It's a feature to us as we've long talked. We focused on primary and helping content get the tickets priced and sold how they want. First, just to answer sports versus concerts, it's very different. Sports, the teams and leagues use secondary as a distribution platform for disaggregation of season tickets. So the secondary I would think about is being -- it's really heavily a liquidity market in sports. In concerts because they're all sold one-off, there is no liquidity market. It's all a price arbitrage market. So as we look at it, it's a matter of how much are the scalpers taking? How much arbitrage are they getting? And the actions that we're taking, I think, are heavily driven by the fact when we look hard at it, it's just too much. So the pieces first, even though it gets pressed is less important is Trade Desk. It's a tool that brokers use to manage their tickets and simultaneously place them on multiple marketplaces. It started because of sports. It's often confused that somehow it's a tool that the brokers could use to get tickets in some advantaged form relative to fans. It's not this. It's never been this. But just to eliminate the noise, we're shutting it down. We don't expect it to have any financial impact on us or on the market. We expect most of these folks will either do it manually or go to one of the other multitude of platforms that offer this service. More impactful to the industry is the identity verification tools we've started to deploy. So now when our system identifies high-risk accounts based on 100 different signals, we can require validation that the account holder is a person and their government ID matches the account. This is a key tool we've used in canceling over 1 million accounts over the past month. And on a recent high-demand on sale that got some press, we used it after the fact looking at the signals and putting fans through to determine whether they were real fans or it was bought purchase. So that's been helpful. We're optimistic in the short term, this can help rein in some of the excessive abuse that's developed. But frankly, we're also realistic that without legislative and enforcement changes, the scalpers will continue to invest in new tools to fool our systems and mask the fact that they're bots. So it's hard to fully translate into financial impacts. But I think given the low percentage of revenue that secondary accounts for, what we've seen so far in terms of the activity and the volume, we don't have any reason to think it would be more than a low to mid-single-digit impact to Ticketmaster's AOI next year. But I think even more importantly, we don't see this fundamentally impacting our growth strategy given our focus on the primary side. So as we lay out our multiyear strategy tomorrow, this is not going to have an impact on that strategy or on the numbers that we would show you in terms of where we think we can get to. Operator: The next question comes from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Joe, maybe on the concert segment for the quarter. I was wondering if you could help us break down some of the puts and takes to concert segment AOI growth izn 3Q. I think there's a number of factors that investors are trying to better understand. You have growth in Venue Nation attendance and the profitability that might be coming on as you layer on some new capacity there. You have more stadium activity as you called out earlier and then some pressure on amp and arena attendance. I think any color to help us better understand the sizing of some of these drivers would be helpful as we look into next year. I would appreciate any of that. And then I have a follow-up. Joe Berchtold: Sure. I'll give you the detail on the quarter. Overall, for the concert segment we grew AOI by about $40 million with roughly 1 million or just over 1 million fans. So pretty good per fan incremental profitability. It's 120 more stadium shows that really drove the growth, which was pretty well balanced between the U.S. and international. And it was also heavily driven by stadiums that we operate. So [indiscernible] GMP reopening and building back up, the Rogers Stadium in Toronto. So it was a lot of fans that we operate at, which is what drove some of the high profitability per fan. We had about 250 fewer amp shows, as Michael alluded to, just from a cyclical standpoint, fewer shows. And arenas are about flat, but we did grow our activity in our operated arenas with the new Portugal arena coming online and some of our other European arenas. So a big shift to stadiums and overall, in some of the large venues outside of the amps, we had more activity in our operated venues that helped in the context of the few amp shows. Stephen Laszczyk: Great. And then maybe secondly, just as a follow-up on regulatory and some of the commitments you made on the FTC side. Just would love any other color you could provide about where we stand in your dialogue with the FTC? And then maybe related to that, where we stand in the DOJ's process? And to what extent you feel like maybe some of the more recent dialogue you've had, maybe perhaps both agencies has created a framework or common ground with these agencies or lawmakers. Joe Berchtold: Sure. I'll start with the FTC. I think the government shut down pretty much immediately after that came out. So no real action there. What I would say, and we've said this before, when this happened, we feel very good about our case with the FTC. We think it's an extremely expansions view of the BOTS Act. The fact that they would file the suit when we do more to stop bots and to counter a lot of this activity than the rest of the industry combined, we find the very far afield. And from a legal standpoint, we don't believe that they have a strong case. A lot of the changes that we just talked about are friendly things that have been in motion for a while. Obviously, you don't roll out identity verification in 2 weeks. That's a tool we've been building and we're just ready to deploy it. So we have done so. On the DOJ, that case is advanced procedurally. Generally speaking, discovery is complete. Everybody has exchanged expert reports, and we're in the middle of some of the expert depositions. All that's left is a few straggler depositions. So that process continues. The judge reaffirmed the March 6 date for the trial. So we'll continue on that process for now. But the other development that I think is of real note is that we think the remedies decision in the Google search case has very much validated our view that the claims in our case, can't lead to a breakup of Live Nation and Ticketmaster even if the DOJ prevails on one claim or another. So we expected that, but certainly welcome news in that side. Operator: The next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: First, on the ticketing side of the business. You've talked about the competitiveness in the ticketing industry in the past, particularly in the U.S. I was wondering if you could just kind of describe how that landscape has been evolving and how you've been responding to that level of competitiveness? And particularly whether it raises your appetite or the attractiveness of capturing international growth within that segment of your business? Joe Berchtold: Yes. Cameron, I don't think we think of it as an either/or. We look at it as a global business. We're a global platform. We're global in concerts. We're global in ticketing. Were underdeveloped in international markets in Ticketmaster, particularly if you look at Latin America, you look at Asia, even parts of Europe. So there's a heavy focus on building out our presence in those markets. We think we have the best ticketing platform and enterprise tools out there. And that's clearly been helping us win a lot of business as we've given you those numbers over the past several years in international markets. North America is competitive, but that's fine. Most businesses in life are competitive. And I think we continue to win a lot because we can compete effectively on all dimensions, and we've continued to add clients and tickets in North America as well. We'll continue to fight that fight. But we certainly see international over the next several years as a great growth opportunity. Cameron Mansson-Perrone: Got it. And then on the numbers in the release around deferred revenue, some pretty healthy growth both in event-related deferred revs and ticketing revs. Any color you can provide in terms of how we should think about that as indicative of 4Q activity relative to indicative of 2026 activity? Joe Berchtold: Yes. I think most of that will be getting into next year at this point, given the size of those numbers and the fact that Q4 is cyclically one of the smaller quarters. And it goes hand-in-hand with the other things we've given you on the strength of the pipeline for '26 in terms of large venues and the fact that our ticket sales for shows next year are up double digits. Ticketmaster, you'll continue to see some growth in the deferred also as we're adding more venues and the tickets for those venues get deferred. Operator: The next question comes from the line of David Karnovsky with JPMorgan. David Karnovsky: I wanted to see if you could refresh on the venue pipeline that will impact in 2026 in terms of the buildings opening in the second half of this year and those planned for the coming year. And when we look at your fan count growth at Venue Nation, I think you had previously guided this to around 7 million fans. Any reason to think you wouldn't be able to sustain a pace comparable to that next year? Michael Rapino: I was just going to jump. The good news, David, is we're going to take this through our Investor Day tomorrow and get into more detail on the venue stuff. So that's probably the best place for it. But no, we continue to see the same pipeline of growth as we've outlined previously, and we've made great progress this year in getting these buildings either started or opened up this year. And tomorrow, we'll take you through kind of the longer-term vision of it. David Karnovsky: Okay. And then just on the stadium outlook, just wanted to see if you could check in on the pipeline for next year. I know there had been some hope expressed in September that you could get to a comparable year in the U.S. with the growth internationally despite the FIFA factor. I just want to get an update there. Michael Rapino: Yes. I would say the World Cup FIFA, some of those fears that everyone had earlier haven't seem to come to life. We are looking right now at this time of the year, which is early still, but good for stadiums to have a very strong year next year. International, which already had a spectacular year, looks very strong on a global basis. So we look at next year being a very, very strong stadium year again. And going to Brandon's concern, add a few extra shows in amphitheaters and arenas and you're back to your annual higher double-digit fan growth that we've been able to do for the last 15 years or so. So we see that consistency will continue onward for the next few years. Operator: The next question comes from the line of Robert Fishman with Moffett Nathanson. Robert Fishman: I have 2 for either Michael or Joe. Maybe just following up on where you just went. The earnings release calls out the international fan count is on track to surpass the U.S. for the first time. So I'm just wondering if you can shed some additional light on where you see that mix shift going with international fan growth over time? And how much of that factors into your confidence of delivering another year of double-digit AOI growth in '26? I'll start there. Michael Rapino: I'm not sure I got the question right, but I think if you're asking about international, we believe this will be a continued global international business. And most of our growth, both in Ticketmaster sponsorship, venues, concerts will continue to be on a global basis, given there's so many markets that were not very high in market share or haven't entered yet. So that mix will continue to grow and continue to be an international story for many years to come. Robert Fishman: Got it. And then just secondly, can you discuss your recent hire of a new Global President for Ticketmaster and maybe how that -- you expect that to help in the AI transformation of your overall business or at least with Ticketmaster? Michael Rapino: Yes. I think we thought it was time. Mark has done an incredible job growing the business dramatically. Our focus under Mark based out of London originally was to really focus Ticketmaster to be a much more international business, away from being just solely U.S. focused and think about a global platform. We had many different technologies at the time. And Carlos and Mark have done a fabulous job standardizing our global business, launching in many markets. And Mark will continue as Chairman, and that will be his focus to keep running hard on international. But we absolutely wanted to find somebody that had a very strong technical background, engineering AI-based that could look at the platform overall and not just how do we make the enterprise marketplace better. But of course, how do we make sure we are leading the charge on AI from an agent perspective at the front door to all the places that we're adding on the enterprise level. Operator: The next question comes from the line of Peter Supino with Wolfe Research. Logan Angress: This is Logan Angress on for Peter. Just a quick question for me. Your release reiterates your expectations for long-term AOI compounding, but doesn't discuss 2026 specifically. I'm curious given all the strong leading indicators that you've called out, is it fair to assume that you can continue to grow AOI double digits next year? Or are there mitigating factors that we should keep in mind? Joe Berchtold: This is Joe. I think what I would say is no mitigating factors. We've just never sitting in November before the year has started, made that call. I think that's traditionally a conversation that we have in February. I think what we try to give you now, which is what we're looking at is the leading indicators that have to do with our show pipeline, tickets sold, our sponsorship committed, our deferred revenue, a lot of factors that are pointing extremely positively. But I think we all view we'll get to -- and nothing -- no mitigating, no concerns. But we generally want to wait and get to February and have the full data set to make that call. Michael Rapino: But your point is what we've been saying for year after year, the last few is we think this business on a global basis has incredible growth ahead of it that would mirror the history we've been able to deliver. Operator: And the next question comes from the line of Jason Bazinet with Citi. Jason Bazinet: I know you guys have long held that your business is not particularly economically sensitive. But there seems to be growing press reports about maybe the low-end consumer sort of running out of gas. And I just wonder, underneath the hood, are you seeing any sort of signs of sort of maybe sort of bimodal behavior whre the high-end consumer spending more, but you are seeing a little bit of pressure at the low end to offset some of the strength at the high end? Or is that not what you're observing? Michael Rapino: No. We have not seen any of that. We have -- our business is very diverse. It's powered from clubs to arenas, to festival, stadiums, small town to big on a global basis. So we see it all. And we need all levels of consumers consuming to make the show sell out. And we're already on sale for next year for many shows and festivals of certain sizes, and they are selling as fast as ever. So the appetite, the consumption going to that show still seems to be #1 priority for them, and we saw no pullback anywhere yet. Operator: The next question comes from the line of Eric Handler with ROTH Capital. Eric Handler: Just wondering if you could talk about corporate appetite for sponsorships now in terms of what they're willing to do and sort of how much they're willing to spend? Michael Rapino: Yes. Again, our sponsorship numbers, you saw the 14%. They've been growing for double digits for years. And as we grow our business, we provide more inventory. The more arenas, the more international, the more cities we add, the more inventory our team has to sell. So we think that live show continually right now to a marketer is a really good return on investment. They may not have all the other media channels solved, while they're figuring out where to put their dollars. But if you want to absolutely touch consumers on a live location like sports or music, these 2 places are where marketers tend to be spending more money today. So we're matching that with them. We have the best inventory in the world and we see continued growth for a long time in sponsorship and brands that want to be part of that exciting 2 hours of magic. Operator: The next question comes from the line of Ian Moore with Bernstein Research. Ian Moore: I just wanted to zoom in a little bit, hone in on food and beverage spend. I was just wondering if you could stratify the growth that you're seeing a little bit across different venue types and then front of the house, back of the house, VIP, if possible. Michael Rapino: Yes. We've had a strong year again in food and beverage in our amphitheaters, our festivals, owned and operated clubs. We delivered on our growth targets this year again. Continue to be better at diversifying our portfolio, increasing our hospitality, increasing our kind of our offerings across all platforms. So had a strong year. We continue to see year-over-year growth on-site, food and beverage, VIP, hospitality, premium, all of the ancillary revenues. When they come to that show, they still want to find that place to have fun and spend some dollars to enjoy it. Operator: There are no further questions at this time. I'd like to hand the call back to Michael Rapino for closing remarks. Michael Rapino: Thank you, everyone, for your participation, and we'll talk to you tomorrow afternoon at our Investor Day. Look forward to it. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the NGL Energy Partners 2Q ' 26 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO. You may begin. Brad Cooper: Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials. NGL had another solid quarter with record water volumes and 30% growth in Grand Mesa volumes. Consolidated adjusted EBITDA from continuing operations came in at $167.3 million in the second quarter versus $149.4 million the prior year second quarter or approximately 12% higher. The increase was primarily driven by the performance of our Water Solutions business segment. On the heels of this strong performance in Water Solutions and additional growth opportunities in Water Solutions that Mike will speak to later, we are increasing our full year adjusted EBITDA guidance range from $615 million to $625 million, to $650 million to $660 million. With this increased guidance and operating cash flow associated with this increase, we project a zero ABL balance at the end of the fiscal year and approximately 4x leverage. Also in the month of October, our Water Solutions segment has averaged over 3 million barrels per day of physical disposal volume. Doug White, EVP of our Water Solutions segment, will be providing a Water Solutions update following my comments. We continue to be focused on our capital structure and remain opportunistic with how we are addressing it. Since April, we have purchased 88,506 units of the Class D preferred, which represents approximately 15% of the outstanding units. Based on the last Class D distribution, the Class Ds purchased represent $10.4 million in annual distribution savings going forward. We have opportunistically taken advantage of the ability to reprice our Term Loan B as permitted in the documents. In September, we launched a repricing and reduced the SOFR margin from 375 basis points to 350 basis points. This was the second repricing of the Term Loan B since February 2024. When you consider the 2 repricings and Fed rate cuts, we have achieved annual interest savings of $15 million on the Term Loan B. Under the Board-authorized unit repurchase plan, we have purchased an additional 4.4 million units in the quarter for a total of approximately 6.8 million units, which equates to about 5% of the outstanding units. The average price for the units repurchased since the inception of the plan is $4.57. With the additional water growth capital projects and the Class D preferred and common unit repurchases, we are demonstrating the optionality we have with our capital allocation. All three of these provide attractive returns to the partnership and our investors. Water Solutions adjusted EBITDA was $151.9 million in the second quarter versus $128.9 million in the prior second quarter, an 18% increase. Physical water disposal volumes were 2.8 million barrels per day in the second quarter versus 2.68 million barrels per day in the prior year second quarter, a 4% increase. Total volumes we were paid to dispose that includes deficiency volumes were 3.15 million barrels per day in the second quarter versus 2.77 million barrels per day in the prior year second quarter. So total volumes we were paid to dispose were up approximately 14%, second quarter of fiscal '26 over second quarter of fiscal 2025. The increase in EBITDA was primarily driven by higher disposal revenues due to an increase in produced water volumes, processed from contracted customers as well as higher water pipeline revenue due to the LEX II pipeline commencing operations during the quarter ending December 31, 2024, as well as higher revenues for skim oil. The increase in skim oil revenue was due to an increase in skim oil barrels sold due to more skim oil recovered from receiving more produced water. Operating expenses for the quarter were $0.22 per barrel, in line with previous quarters. Crude Oil Logistics adjusted EBITDA was $16.6 million in the second quarter of fiscal 2026. During the quarter, physical volumes on the Grand Mesa pipeline averaged approximately 72,000 barrels per day compared to approximately 63,000 barrels per day for the quarter ended September 30, 2024. When compared to our previous fiscal quarter, Grand Mesa volumes are up 17,000 barrels or approximately 30% higher fiscal Q2 over fiscal Q1. Volumes for the fiscal third quarter were strong with October over 80,000 barrels per day for the month. It's early in the fiscal year for the butane blending business, a bulk of their EBITDA generated for the fiscal year is occurring right now. We will have a better read on the fiscal year for this group at our next earnings call. With that, I would like to turn the call over to our EVP of our Water Solutions segment, Doug White. Douglas White: Thank you, Brad. This has been a year of excellent growth, both volumetrically and on an adjusted EBITDA basis. With respect to water disposal volumes during this year, we have recently surpassed 3 million barrels per day of physical volumes for an entire month and over 3 million barrels per day, including deficiency barrels related to volume commitments. We have underwritten new growth capital projects for approximately 750,000 barrels per day of newly contracted volume commitments. These projects are scheduled to be placed into service by the end of this calendar year. As a result of these contracts, we now have 1.5 million barrels per day of total volume commitments going into fiscal 2027. These commitments have an average remaining term of almost 9 years. Regarding our Delaware Basin asset position, we now have over 5 million barrels per day of permitted injection capacity at 131 injection wells and 57 water processing facilities. We have the largest capacity pipeline system in the Delaware Basin with more than 800 miles of pipe, including approximately 700 miles of 12- to 30-inch diameter pipelines. This is a key metric as it determines the volume of water that is able to be transported directly affecting physical volumes and reliable takeaway. With respect to permits and pore space, we have maintained a large inventory of legacy injection well permits in Texas. And this year, we have increased our inventory by almost 1 million barrels per day in Andrews County, Texas, where over a year ago, we secured approximately 4 million barrels per day of pore space that is unburdened by legacy injection, legacy vertical production or seismicity. This sets us apart from our competitors, creating a moat for future growth to more than double our current Delaware Basin volumes. In addition to strategically increasing our pore space portfolio, NGL has been pioneering the effort to bring the Delaware Basin, its first large-scale produced water treatment plant through the Texas Commission on Environmental Quality, TPDES permitting process. We began this effort for a treated produced water discharge permit in 2023. And as of last month, received the first draft permit issued in the state of Texas. Our permit application is for influent volumes of approximately 800,000 barrels per day, which is a material amount of produced water that can be diverted to treatment for beneficial reuse and recharging the Pecos River Basin. This shows our commitment to sustaining our pore space inventory, and adding an alternative disposal option for our producer customers. H. Krimbill: Thank you, Doug. This is Mike. As you've heard from Brad and Doug, NGL is firing on all cylinders, both operationally and financially. First, some of this may be a repeat, but I think it's important. So first, let's discuss the operations. Last 60 to 90 days, we've contracted the 500,000 barrels per day of volume commitments that require in-service dates no later than December 31. Our Water Solutions employees have also exceeded our adjusted EBITDA guidance on the base business in addition to the new business. These two business developments have allowed us to increase our fiscal year 2025 adjusted EBITDA to a range of $650 million to $660 million with potential further increases in subsequent quarters. We began the fiscal year with modest growth expectations as reflected in our initial growth CapEx guidance of about $60 million. The increase in contract volume requires an additional $100 million of growth CapEx, which we are pleased to spend. The majority of adjusted EBITDA will be generated in fiscal 2027 from these new projects. So we are providing initial fiscal 2027 adjusted EBITDA guidance of at least $700 million. So there'll be more to come to that as we progress through this year. I would like to congratulate the entire Water Solutions team, led by Doug White and Christian Holcomb on their strong operational performance and positioning the business to capture new incremental business driven by the confidence producers have in NGL Water Solutions as the most reliable operator with the largest integrated water disposal network in the Delaware Basin. Next, I believe there's been some misinformation and literature published recently. So I would like our unitholders to know that your NGL, a, generates the most adjusted EBITDA annually of any water company, transports the greatest volume of water for disposal of any water company, has the largest volume of water under volume commitments of any water company, operates its water business with the lowest cost per barrel of any water company, provides the most capacity to move water predominantly through the pipes, 12 to 30 inches that Doug mentioned of any water company, and has millions of barrels of pore space, as Doug stated. We are not waiting until calendar '26, '27 or later to grow. Our growth is here today, approximately 10% in fiscal '26, and another 10% estimated next year. So let's jump to our long-term corporate strategy and where we came from and where we sit today. So several years ago, we were settled with leverage above 4.75x and a dividend arrearage obligation that we needed to repay. So our first initiative was to remedy the situation. So we began identifying excess and idle assets that we sold. Next, we sold our crude oil trucking and marine divisions at very attractive multiples. These were not businesses that provide a real competitive advantage or we could grow. Then we sold the majority of our Liquids Logistics business, that was the most volatile business in terms of adjusted EBITDA that fluctuated quite a bit from year-to-year. Not a great asset for an MLP. Finally, we sold our New Mexico Ranches. All of this cash allowed us to eliminate the dividend arrearage and reduce leverage. So our next target were the Class D preferred units. As you've heard, we've redeemed 88,000 shares of them at this time with more anticipated in the coming quarters. Under the terms of the pref, we must redeem them in $50 million tranches unless offered to us in small amounts. Each redemption or purchase should be accretive to our common unitholders. With the increase in adjusted EBITDA, we are deleveraging, which provides greater flexibility to finance our growth capital to attack the capital structure and purchase common units simultaneously. We believe our common unit purchases thus far have been an excellent investment by the partnership. In terms of valuation, we are seeing the market reward pure-play water companies. We have been simplifying our business and focusing on the water business and providing substantial growth capital to this division. We anticipate becoming more and more a pure-play water company as our adjusted EBITDA from water operations continues to grow. Our finance group led by Brad Cooper has done an outstanding job financing NGL and managing these equity purchases, while reducing interest expense when the opportunity presents itself. They are also reducing corporate overhead, not taking their eye off the ball even in the good times. So finally, barring a negative macro event, I believe we're in the final leg of our journey to finish strengthening balance sheet by limiting Class Ds and decreasing leverage to less than 4x. After that, anything is possible. Thank you. Questions. Operator: [Operator Instructions] First question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: Congrats on a solid quarter and update, guys. Starting with the growth opportunities you're highlighting. As you guys know, [Technical Difficulty] we are focused in the Delaware water kind of backdrop, if you will. Having said that, I would love if you could maybe just offer some color to the macro, micro events that's leading to this increase in activity from a customer acquisition perspective since your last update? Is it fair to assume that you guys are picking up some opportunities now that Aris has been acquired by WES? H. Krimbill: Doug? Douglas White: I'll take that. Yes, this is Doug. Yes. Thanks, Derrick. Where we see a lot of our growth is in our base customer mix. As many of you know, the larger producers have really been segmented mostly between the few different larger water midstream groups. Some of us have split, some of the business between the super majors, but we also have large -- very large customers that are mostly dedicated to our system. We are really seeing from a macro perspective, the immense growth and commitment to growth from our larger customers. I think that speaks a lot to the maturation of the all infrastructure, including pipeline type takeaway, gas takeaway, but also infield processing, power availability, et cetera. The efficiencies that have been created within the basin have really shown to make them more economic. And we're just seeing a greater dependence on focus on economics that's creating lower econs on the cost side that really lend to more development. Derrick Whitfield: Perfect. And then maybe shifting over to pore space. To your point, 4 million barrels of pore space in Andrews County is a tremendous amount of growth opportunity for you guys and not suggesting you're going to spend all the capital at once. But if you were to think about the amount of capital required to access that pore space, can you help frame that? Douglas White: Sure. Much like the LEX system, we see continued growth on the pipeline side out of New Mexico to our pore space in Andrews County. Those projects -- those range in the $50 million to $150 million project, much of that includes infrastructure development on the power side, also anything around just the general development of disposal facilities and the injection wells themselves. So as we access that, we expect to pace that over several years' time, of course. I think the important item to note on that topic is we have secured the pore space and is excellent pore space, as I mentioned, unburdened by seismicity, existing injection, legacy vertical production. That's really important. And then as we continue to grow along with our customers, we'll layer in the capital side of things in order to respond to new deals. Derrick Whitfield: Perfect. And one last, if I could. Just with the increase in growth capital this year, is that largely just for drilling SWD wells? Douglas White: Brad, do you want to answer that? Brad Cooper: Go ahead, Doug. Douglas White: Okay. So with our growth projects that we mentioned, you'll notice that we increased the capital spend from $50 million to $150 million or $160 million. I'm not sure the exact number there. But that addition of the $100 million of capital is all growth related to the water side of the business. Derrick Whitfield: Doug, how many SWDs just give us -- because you have saved these permits for many years, which is why competitors don't necessarily see us applying for permits because we have so many. But is it 10, 15... Douglas White: We have 35 to 45 legacy permits. We're in the process of drilling 15 to 20 new drills this fiscal year. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Brad Cooper for closing remarks. Brad Cooper: Yes. Thank you, everyone, for joining us today. Have a safe end of the year, and we'll talk to you guys early next year. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Astronics Corporation Third Quarter Fiscal Year 2025 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Craig Mychajluk. Thank you. You may begin. Craig Mychajluk: Yes. Thank you, and good afternoon, everyone. We appreciate your time today and your interest in Astronics. Joining me here are Pete Gundermann, our Chairman, President and CEO; and Nancy Hedges, our Chief Financial Officer. Our third quarter results crossed the wires after the market closed today, and you can find that release on our website at astronics.com. As you are aware, we may make forward-looking statements during the formal discussion and the Q&A session of this conference call. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission. You can find those documents on our website or at sec.gov. During today's call, we'll also discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the table that accompany today's release. So with that, I'll turn it over to Pete to begin. Peter Gundermann: Thanks, Craig. Hello, everybody, and welcome to our third quarter call. We feel it was a very positive quarter, and we are pleased to share the results. As is our practice, I'll start off with a summary of the headlines for the quarter, then Nancy will go through the financial fine points, then we will discuss expectations for the future for both the fourth quarter and also we'll take an early look at 2026. Finally, we'll open up the lines for questions. The first headline for the quarter is that we had solid volume with revenue of $211.4 million. This is our second highest quarterly level ever and just marginally below our record. That sales level is a tick up from the first couple of quarters of 2025 and is the result of broad-based demand across our product lines, markets and customers as well as improved performance in our supply chain and better efficiencies in our production system. Our Aerospace segment led the way with sales of $192.7 million, a level consistent with recent periods. Our Test business had sales of $18.7 million, which is down from the third quarter of 2024, but higher than the earlier 2 quarters of this year. The second headline has to do with margins. As one would expect, higher revenue together with efficiency improvements have led to higher margins. Operating margin of 10.9% in the quarter was higher than last year's 4.1%. Adjusted operating margin, taking into account expenses related to restructuring, litigation and acquisitions was 12.3% for the quarter. Our Aerospace segment specifically had operating margin of 16.2%, generating all of our operating income for the quarter. Test operating margin was essentially breakeven at negative 0.1% while no one is happy with 0% operating margin, this actually represents progress and is a testament to the cost reduction initiatives we have put in place in recent periods. To break even on a modest revenue level of $19 million in the quarter promises good things in the future since we expect test sales to increase. Adjusted EBITDA was at 15.5% of sales, our highest since the pandemic struck in 2020. Our third headline has to do with bookings. Even though third quarter shipments were on the strong side, bookings kept right up. Total bookings of $210 million yielded a book-to-bill of 1.0. We ended the quarter with backlog of $647 million, a very high level by historical norms, which sets us up well for the coming periods. Our fourth headline has to do with acquisitions. We have made a couple of smaller acquisitions recently, one early in the third quarter and one just recently early in the fourth. The first one was Envoy Aerospace, which we previously discussed in our second quarter call in August. Envoy Aerospace is an ODA, which stands for Organizational Designation Authority. ODA is a program in which the FAA grants certification approval authority to outside organizations by which the FAA extends its capacity and reach. We believe having an ODA is a competitive differentiator as we are often involved in aircraft retrofit programs and FAA certification is becoming a more important capability in the eyes of our customers. Having certification authority lessens program and schedule risk, both for us and for our customers. Envoy has external sales of about $4 million annually. Prior to the acquisition, we were consistently one of their largest customers. The second acquisition is that of Bühler Motor Aviation or BMA. Located in Southern Germany, BMA is an established manufacturer of aircraft Seat Actuation Systems with a broad product portfolio that includes actuators, control electronics, pneumatics and lighting. BMA competed with our PGA operation in France in the seat actuation market, and now they will work cooperatively with each other to better serve the needs and opportunities of that market. We expect BMA to have sales of $20 million to $25 million in 2026, and we paid less than onetime sales for the acquisition. Much of the costs related to the acquisition, legal and diligence and the like were included in our third quarter expenses. The acquisition's operating contributions will be captured in the fourth quarter and onward. Finally, our last headline, we completed a couple of important refinancing actions in recent weeks, one in the third quarter and one just after its close. These financings lowered our cost of debt, improved our financial flexibility and importantly, reduced future dilution potential. Nancy will cover the accounting treatment, which is a little bit complex, but basically, in the third quarter, we issued a new $225 million 0% convertible bond to buy back a majority of an earlier convertible bond that was significantly in the money, meaning it was already fairly expensive to settle. And if our stock continued to rise as we expect it to do, it would get even more expensive. Using proceeds of the new convert plus some borrowings under our existing revolver and available cash, we successfully repurchased 80% of the previous 5.5% convertible note, effectively lowering our cost of debt while also eliminating 5.8 million shares of potential dilution. As part of the transaction, we also bought a capped call on the new 0% notes that effectively raises the equity conversion price to $83, meaning that there will be no dilution on the new bond unless and until the market price of our stock exceeds $83. So this transaction significantly reduced the potential dilution we would otherwise be facing. The earlier convert had a face value of $165 million. Since we bought in 80% of it, there is now 20% still outstanding or $33 million. We can pay the smaller bond off when it comes due in about 4 years in either cash or stock. We intend to use cash. But even if we use stock, the dilution will be a maximum of 1.4 million shares or about 4% based on our existing share count. This is a significant reduction in the potential dilution risk that existed before the buyback. We also benefit in terms of interest, obviously. The new bond has a 0% coupon, while the older bond is at 5.5%. So we replaced some more expensive debt with much cheaper debt. Our second refinancing step completed just a couple of weeks ago was a transition from the ABL facility we had in place to a cash flow revolver. The size of the ABL was $220 million and the cash flow revolver is sized at $300 million. The interest expense is comparable, but the new facility offers less administrative burden and increased financial liquidity for the future. The financial implications of the new convertible bond and the repurchase of the majority of the previous bond is fully reflected in our third quarter financials. The ABL to RCF transition will be reflected in our fourth quarter financials. Now I'll turn it over to Nancy. Nancy Hedges: Thanks Pete. I'll review profitability and various accounting and other events related to our Q3 2025 financials. We had gross profit of $64.5 million, up nearly 17% compared with the prior year period as the benefits of higher volume, pricing actions and productivity improvements helped to offset the $4 million impact of tariffs in the quarter. Last year's third quarter also had a $3.5 million impact from an atypical warranty reserve. Gross margin of 30.5% reflects the 31.4% gross margin realized by the Aerospace business, which was muted somewhat by the Test segment gross profit of 21.6%. R&D expense declined $2.3 million to $10.2 million or 4.8% of sales based on the timing of projects. We believe we're at a more normalized run rate currently at about 5% of sales. Of course, this can vary based on the timing and opportunity of new projects. The $3.1 million decline in SG&A expense was primarily the result of a $4.3 million decline in litigation expense. While it's been quite a while since we can claim any form of normalcy, historically, we've operated the business with SG&A at about 14% to 15% of sales. Operating income was up over 2.5x to $23 million. We recorded a loss on debt settlement of $32.6 million. I'll cover the details of the accounting treatment for the new 0% convertible bond in the cap call here in a bit. We had a $1.2 million tax benefit as we reversed the valuation allowance for R&D expenses that can now be deducted in the current year for tax purposes as a result of recent tax reform. Notably, we generated $34 million of cash in the quarter and had free cash flow of $21 million, driven by strong cash earnings combined with lower working capital requirements. I should point out that $3 million of the cash from operations was from a tenant improvement allowance reimbursement. This is offset by the CapEx investments in the build-out and consolidation for our new Redmond, Washington facility. We expect an additional approximately $5 million in reimbursement for the project in the fourth quarter. This project is what's driving our fourth quarter CapEx to be around $20 million to $30. Year-to-date, we've generated $47 million in cash from operations and have had $20 million in capital expenditures for free cash flow of $27 million. We would expect to be free cash flow positive for the year. Our fourth quarter cash flows will reflect the purchase of BMA, both in terms of the purchase price and the operating activity from the acquisition date forward. Turning to our balance sheet and refinancing actions. Let me talk a bit about the convoluted accounting treatment for the new 0% convertible notes that Pete discussed. First, I'll point the impact to the income statement. We recognized a noncash loss on the settlement of debt of $32.6 million, which represents the inducement charge for bondholders to redeem the $132 million in principal of the 5.5% convertible notes. Second, let me talk to the source and use of funds related to the new convertible note as well as the implications to the balance sheet. Proceeds from the new convertible bond were $217 million after payment of $8 million in fees and expenses. That $217 million, coupled with an $85 million draw on our ABL revolver plus $11 million in cash on hand were used to repurchase 80% of the old convertible note for approximately $286 million and to purchase the capped call for $27 million. Debt increased about $175 million from the end of the second quarter to $334 million. That's a function of 3 factors. First, we incurred new debt of that $217 million related to the new convertible bond, which is the $225 million netted down by $8 million in issuance fees and expenses, which are required under GAAP to be presented as an offset to the debt on the face of the balance sheet. Second, as I mentioned, we borrowed $85 million on our ABL to fund part of the repurchase transaction. And third, debt was reduced by $128 million, representing the $132 million in principal paid off on the previous convertible, net of $4 million in associated issuance fees that also needed to be written off. Shareholders' equity declined as a result of the transaction. The premium paid of $121 million plus the cost of the capped call of $27 million, plus $4 million write-off of the unamortized debt issuance costs related to the repurchased 5.5% notes resulted in a $152 million reduction in shareholders' equity. The net result is, as Pete discussed, lower cost debt, significantly reduced potential dilution and combined with the refinancing of our revolver to being cash flow based, meaningfully greater financial flexibility. I should point out that we currently have $95 million outstanding on the $300 million cash flow revolver and liquidity of $169 million. And let me hand it back to Pete. Peter Gundermann: Thank you, Nancy. I'll now turn the discussion to the future and what we expect for both the fourth quarter and our initial expectations for 2026. We expect the fourth quarter to be a step change for the company. We have generated average revenue of $207 million over the first 3 quarters of 2025. In the fourth quarter, however, we are expecting revenue to climb to a range of $225 million to $235 million, which is a significant step-up. The increase is due in part to our recent German acquisition, but mostly to the various market forces that are driving our business. The higher volume should mean good things for our income statement as we typically see 40% to 50% marginal contribution on incremental revenue dollars. Further, we think the higher volume expected in the fourth quarter will provide a baseline for 2026. We are not ready yet to issue formal revenue guidance for next year, but we are well along in our budgeting process, and it appears 2026 will be a year of solid growth. Our belief at this point is that we will see 10% growth or better. We are working to refine the range and expect to release initial revenue guidance closer to year-end 2025. You may ask what is driving the growth? Our company has been and continues to benefit from a wide range of industry trends. I'll cover the major ones briefly, and I'll try to be concise. First and most obviously, increasing OEM build rates are a big positive for us. Narrow-body and wide-body production rates are trending up at both Airbus and Boeing and to a lesser extent, across private aviation OEMs also. Our typical content for major aircraft programs is spelled out on our investor presentation, which is available on our website. And quite simply, when OEMs make more planes, we ship more product. Second, we are heavily involved, as you all surely know, in passenger connectivity and entertainment in aircraft, and it is a well-established secular trend in our world today that people want to be connected and entertained at all times, including when they are riding in airplanes. This reality, combined with the fact that the consumer electronics industry is characterized by high levels of innovation and short life cycles, means that adoption rates on new aircraft are increasing and retrofit and upgrade opportunities across the existing fleet are regularly present. We work with more than 200 airlines around the world, along with the broad set of in-flight entertainment and connectivity providers to help ensure that the expectations of airline passengers around the world are met. These expectations are high and getting higher, which provides an excellent field of opportunity for us. Third, we are specialists in developing technically advanced flight critical electrical power distribution systems for smaller aircraft in particular. And our electrical power franchise is gaining acceptance on a wide range of new and innovative aircraft types that are in development today. We started with business jets and turboprops, but today, we are also involved with a wide range of emerging types, including eVTOLs, electric vertical takeoff and landing aircraft, unmanned drones and smaller military aircraft, both rotary and fixed wing. A high-profile example, which is getting lots of attention these days is Bell's V-280 aircraft, now known as the MV-75, which is the U.S. Army's replacement for the Sikorsky Black Hawk. This program is in development currently, and Bell has chosen Astronics to supply the electrical power distribution system. There's a lot I could say about this program, but suffice it now to say it has the potential one day soon to be a very significant aircraft production program for our company and to run for a very long time. Finally, there are some other important new programs, which we expect to come online in short order, particularly for our Test business. One of the most significant is the radio test program that we've talked about before on this call for the U.S. Army called 4549/T. We have been in development on this one for some time and expect production turn on at year-end or shortly thereafter. It's a $215 million IDIQ contract to start that will run for the next 4 to 5 years. Our Test business with all the cost reductions that we've implemented is running at breakeven currently. But when the 4549/T program gets layered on top, the financial profile in that segment will be much improved. We believe these industry trends and opportunities have legs. We've been benefiting from some of them for a while, but others will only begin to positively impact our business in coming quarters. Collectively, we feel they provide an excellent opportunity set as we move into 2026 and beyond. So again, the growth from these drivers should have a positive impact on our earnings as we ramp. And as such, we expect to turn in a strong finish to 2025 and believe 2026 will be a very good year for Astronics. That ends our prepared remarks, so we can open up the lines now for questions. Operator: [Operator Instructions] First question comes from Greg Palm with Craig-Hallum. Greg Palm: Congrats on the results, the execution and probably most impressively, the profitability or operating leverage in the quarter. I wanted to maybe first maybe bridge Q3 to Q4 in terms of the expectation, what is built in for Test relative to the revenue that you achieved in Q3? Peter Gundermann: We expect Test to take a little step up. I don't have that in front of me. I guess it's in the $20 million, $21 million range. They were at $18 million in the third quarter. So that will be a little bit of a step-up, but it will be their strongest revenue quarter for 2025. So it hopefully lays a good foundation as we round the corner to 2026 also. Greg Palm: Okay. So that implies that aerospace should see a bigger step-up even excluding the impact of acquisitions. So I guess it begs the question, what are you seeing there, whether it's increased build rates, whether it's higher retrofit activity, anything in military with the FLRAA program? Just a little bit more color on maybe the step-up there expected in Q4. Peter Gundermann: Yes. I'd say a couple of things. First of all, we are expecting a general ramp between where we were in Q3 and where we will be in the first quarter. I'm getting a little bit ahead of myself because we're still in the budgeting process, but the early look at 2026 is that we'll run a sustained rate that's above what we're forecasting for the fourth quarter. So the fourth quarter we will see, to a large extent, a general ramp across the business, but there are a few kind of significant programs that are in play, hence, the wide range of the revenue forecast for the fourth quarter. We're not sure if a lot of them are going to fall in the fourth quarter and therefore, be 2025 revenue or you always run the risk at the end of the year that things can slip into the new year. So it's a little bit of a wider range than we prefer to have at this point. But basically, it's just scheduling of major point in time -- that's not true. The revenue overtime programs for the most part. Nancy Hedges: It's a mix. Peter Gundermann: It's a mix. Greg Palm: Yes. Understood. Okay. Well, and then I was going to maybe dovetails into my question on fiscal '26, just in terms of the confidence level at this time to provide not guidance, but expectations of that low double-digit growth. And specifically, what is baked in, in terms of the Army test program at this point? And just given the shutdown, I mean, I wouldn't have expected your visibility levels to be all that good. But what -- it still sounds like you expect that ramp-up to begin sort of end of this year, maybe early next. Peter Gundermann: Yes. It's a very good question, and we are guessing a little bit, and that's a little bit why we're hedging. But long story short, we were -- when the government shut down, hoping for production turn on towards the end of the year, it might be this year, it might slip into the next year, but basically either late fourth quarter or early first quarter. At this point, we don't have reason to think that, that's going to slide a whole lot. It's probably reasonable to think it's going to slide day per day with the shutdown. And obviously, the longer the shutdown goes on, the more at-risk year-end turn on becomes. But we've had some unofficial contact with program managers and executives who have reiterated that the funding is secure. The user community really wants to have the product get going. And so it's just not obvious at this point if there's going to be a big delay there or not. So we will have to make a decision there as to what we include or what we don't include. But in general, we're still on a track where we think it's going to be a pretty significant contributor over the course of 2026. Greg Palm: And just to be clear, in terms of that full year '26 expectation, there's some, I guess, presumably significant level of contribution that's baked in or not necessarily? Peter Gundermann: No, there will be, absolutely. It's a -- we expect that program to be an important contributor, both top line and bottom. Operator: Next question, John Tanwanteng with CJS Securities. Jeremy Routh: This is actually Jeremy on for John. Kind of working off of what we were just talking about, how should we think about the FLRAA program revenue and margin over the medium to longer term as it transitions out of development and into production? Peter Gundermann: Well, into production is a little bit early to say because we don't know the ramp, and we don't have pricing ready to go on that one. We don't have pricing agreement with the customer, I should say. And also, I don't know if you're aware, but there is an active debate going on in the industry about when production is actually going to start. The Army is interested in trying to accelerate that program, which would mean production -- the production ramp would start a couple of years earlier than it otherwise would. But closer to home and from what we can tell right now, we had revenue of about $28 million in 2025 we're planning. And we're thinking that 2026 will be closer to 38% to 40%, something in that range. From a margin standpoint, it's worth pointing out that we basically have been doing development work at 0 margin thus far because we're still negotiating a development program. Once that program is developed, we will catch up on margin that we would otherwise have recognized earlier. And so it should be a pretty significant contributor as we turn the corner and go through 2026. Would you say anything? Nancy Hedges: Okay. That's right. Jeremy Routh: Very helpful. And then switching gears a little. Could you just talk more about the Bühler and the capability it brings to the table and the accretion you're expecting over the next year? Peter Gundermann: Well, it's a smaller company. We expect revenue of $20 million to $25 million. At that level, we do expect it to be profitable. So I think it's a reasonable assumption that its margin profile will be consistent with the rest of our company. It's going to report through our PGA operations. So you're basically going to take 2 competitors and have them act as one. And there are certain efficiencies that you might expect there. There's market knowledge and reach that can be beneficial. Their products basically do what a lot of our products do. We're talking about seat motion here, high-end aircraft seats, first-class seats, business class seats where you have a lot of moving surfaces, think lie flat and things like that, reclining seats. So the product lines are complementary, but they are not really interchangeable. So their products are sold to seat companies that are designed around their type of system, and our products are designed into seats and seat customers that use our system. But we'll be able to get some efficiencies. We might have some -- the market concentration might yield some pricing efficiencies. Those are things that will play out over the next few years. It's a smaller market. We don't talk a whole lot about it. But combined, we should be somewhere in the $80 million a year range. Operator: [Operator Instructions]Next question comes from Alexandra Mandery with Truist. Alexandra Eleni Mandery: This is Alexandra Mandery on for Michael Ciarmoli, Truist Securities. Great results, guys. Can you talk about the integration of these 2 recent acquisitions and any additional capabilities you may look for in the future? Peter Gundermann: Sure. Well, the integration of BMA or Bühler will be reporting through our PGA operation in France. So that will -- that's already underway, and we intend to maintain both operations. We think moving and consolidating, it's often easier, in my opinion, to calculate savings than it is to actually achieve them. So that is not our objective. Our objective is to work efficiently from a 2 operation setup, both in Germany and in France. We're early on in that. This thing just closed 2 weeks ago, 3 weeks ago. So we've got a long ways to go, but it's a smaller operation, and so we should be able to get our hands around it pretty quickly. We don't think it represents any systemic risk necessarily whatsoever. Envoy, I think of Envoy as a consulting company. It's basically a bunch of engineers who are well versed in FAA rules and regulations. And we have it reporting through our CSC operation, which is where we do most of our connectivity and in-flight entertainment electronics out of Waukegan, Illinois. So Envoy is essentially part of CSC. The exercise that we're going to go through from an integration standpoint is figure out how we can take the Envoy expertise and apply it more broadly across our company to our other operations. And again, the real advantage of Envoy is it gives us the ability basically if we can maintain the ODA, which is our full intent to certify our own development programs, which is where we get into a competitive advantage with other companies because we can more realistically guarantee program and schedule success to our customers when they know that we can self-certify with the blessing of the FAA. That's the whole idea. And we'll report back on that as time goes by, but we do a fair amount of retrofit work. And to the extent that a company does retrofit work, having an ODA just makes it -- it's like reaching the wheels. It just makes everything go a little bit easier. Alexandra Eleni Mandery: Okay. Great. And then I just had one follow-up. I might have missed it, but can you add more color on 4Q guide for interest expense, CapEx and depreciation and amortization? Nancy Hedges: So in terms of interest expense, like Pete said, the interest rate on the ABL is -- and the RCF are very similar. We are going to have a pretty heavy CapEx quarter in the fourth quarter. So a tick up in the debt is not unexpected under the revolver. We're still carrying $33 million of debt on the convertible -- on the 5.5% convertible bond. So that will contribute as well. But then the remainder of the debt, that $225 million is at 0%. And then in terms of depreciation and amortization, that's -- I don't have those numbers, unfortunately, in front of me. I would expect a slight tick up there as well as the -- we're working through the valuation of the 2 acquisitions, but it's fair to assume that some portion of that is going to be allocated to intangibles, and there will be a life assigned to those as well, and those will start to amortize during the quarter as well. I mean I don't anticipate a material change from what our quarterly run rate has been. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2026 Financial Results Q&A Session. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin. Chelsea Heffernan: Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Jeff Woolard, our Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the second quarter of fiscal '26. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available at the company's Investor Relations website. This call will feature questions from the analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website. Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the company expressly disclaims any obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release and shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K as well as other corporate filings registered with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations. Now I'd like to turn the call over to John. John Forsyth: Thank you, Chelsea, and welcome to everyone joining today's call. As you've seen in the press release, Cirrus Logic delivered record September quarter revenue of $561 million, towards the top end of our guidance range driven by demand for components shipping into smartphones. In a few moments, I'll hand the call over to Jeff to discuss the financial results for the September quarter in detail, along with our outlook for the December quarter. Before we get to that, I'd like to make a few comments about the recent progress we have been making across key areas of our business. As we have outlined previously, our long-term strategy for growth at Cirrus is based around 3 principles. First, we seek to maintain a strong leadership position in our core flagship smartphone audio business. Second, we aim to expand the value and range of high-performance mixed-signal solutions with which we serve our customers in smartphones and similar products. And third, we aim to leverage our world-class expertise and IP in both audio and high-performance mixed signal to grow and broaden our business in new markets. I want to say a few words now about the progress we've made in the past quarter in each of these areas. In our flagship smartphone audio business, during the quarter, we experienced strong demand for our latest generation custom-boosted amplifier and first 22-nanometer smart codec. These products introduced in the fall last year, represent years of engineering effort and a deep and collaborative relationship with our customer. We are proud of the crucial role they play in enhancing the power efficiency and exceptional audio quality of our customers' latest products. I think it is also worth highlighting a characteristic of this area of our business that isn't always apparent to those outside of the company. While we ship custom products into many consumer end devices, much of our custom silicon business offers returns over a significantly longer period than is typical of consumer products. For example, these latest generation audio components that I've referred to superseded a codec and amplifiers that have been shipping in high-volume flagship phones for 5 and 6 years, respectively. We consider this longevity a significant strength of our business as it provides solid long-term visibility and sustained revenue contribution, along with the ability to leverage our R&D resources in new areas that can drive further innovation and growth. Outside of our custom audio solutions, we also continue to serve a number of customers in the Android ecosystem. This past quarter, a leading Android OEM introduced its latest flagship smartphone featuring 2 Cirrus Logic boosted amplifiers and a haptic driver. While the majority of our general market R&D investments are focused on developing products for new markets beyond smartphones, we continue to engage with customers on next-generation flagship smartphone products and expect additional designs from various customers to come to market in the future. Looking beyond audio, we continue to diversify our revenue and expand our smartphone content with high-performance mixed-signal solutions. Customer engagement around our camera controllers remains strong, and we were excited to see this technology stand out as a key differentiator in the latest generation of devices. Today, we are engaged on a number of projects that we believe will bring even more feature and performance enhancements to this area in the future. Moreover, we also have several R&D programs that are focused on battery performance and health, and we continue to believe these areas represent an excellent opportunity for our mixed-signal expertise to bring innovation and value to our customers. Our third strategic priority is to leverage our audio and high-performance mixed-signal expertise into new applications and markets outside of smartphones. We're making excellent progress here, especially in the PC market, where we are focused on continuing to grow our share across customers and product tiers. During the quarter, we saw strong design activity across our PC portfolio and expect a range of consumer and commercial laptops featuring our components to come to market over the next year as the adoption of SoundWire device class audio accelerates. After establishing early success in high-end laptops, we are now expanding into mainstream programs to reach higher volume opportunities and capture a larger share of the addressable market. Building on our recent wins in mainstream commercial laptops, this quarter, we were particularly excited to secure our first mainstream consumer design, which is expected to ship next year. This success demonstrates the excellent progress we are making in our long-term strategy to grow beyond smartphones and positions us well for the continued momentum in the broader PC space. Additionally, we are excited about the long-term opportunity that voice represents as a natural way to interact with AI-enabled PCs, and we increasingly see PC OEMs turning to voice as a means to enhance their products. In this area, we are able to leverage our audio and voice expertise, which has been developed and refined in the smartphone market over many years to develop PC-specific products that deliver enhanced voice capabilities and performance, enabling features such as voice wake for AI applications even while the device is in an ultra-low power standby state. Our first product featuring this technology is expected to sample to customers in the December quarter. Finally, in the PC space, we have in the last quarter, deepened and expanded our engagement across multiple PC platform vendors in order to accelerate our customers' time to market. We believe that our ability to provide consistent audio architectures and advanced features across multiple PC platforms is a great benefit to OEMs. Overall, we are very encouraged by the traction we are seeing in PCs and believe there is a meaningful opportunity ahead for us to grow in this market. Beyond PCs, we are also seeing strong interest in our general market products, which serve a wide range of customers across professional audio, automotive, industrial and imaging end markets. These products typically have long life cycles and gross margins well above our corporate average and moreover, can frequently leverage the world-class low-power IP that we have developed in other areas of our business. Our progress in this space was exemplified during the quarter in several areas. First, we gained design momentum with prosumer and automotive customers on all 14 variants of our latest generation ADCs, DACs and ultra-high performance audio codecs and expect new end products utilizing these components to come to market over the next 12 months. Second, we had increased engagement with automotive and professional audio customers on our latest timing product family, which began shipping last quarter. And third, we are now sampling a family of high-performance analog front-end components targeting imaging applications, and the initial response has been positive. We are proud of our execution to date in these areas, and we'll continue to expand our product portfolios in order to drive profitable growth opportunities in these segments. And that concludes the latest progress update on our long-term growth strategy. So let me now turn the call over to Jeff to provide an overview of our financial results as well as the outlook. Jeffrey Woolard: Thank you, John. Good afternoon, everyone. I'll now walk through our Q2 financial performance and provide guidance for Q3, including tax updates. In Q2 fiscal 2026, we delivered revenue of $561 million, which was toward the top end of our guidance range, driven by demand for components shipping into smartphones. On a sequential basis, revenue was up 38% due to higher smartphone unit volumes. On a year-over-year basis, sales were up 4%, primarily driven by higher smartphone unit volumes and sales associated with our latest generation products. Turning to gross profit and gross margin. Non-GAAP gross profit in the September quarter was $294.7 million and non-GAAP gross margin was 52.5%. On a year-over-year basis, the increase in gross margin was largely due to a more favorable product mix. This was partially offset by higher inventory reserves. Now I'll turn to operating expenses. Our non-GAAP operating expense for the second quarter was $127.7 million, coming in below the low end of our guidance range. This was due to lower product development costs, mostly driven by shifts in project time lines. Employee-related expenses were also lower than expected. On a sequential basis, OpEx was up $8.2 million, primarily due to higher variable compensation, product development costs, mostly due to tape-outs and facilities-related costs. This was partially offset by a reduction in employee-related expenses. On a year-over-year basis, operating expense was up $0.9 million, primarily due to an increase in employee-related expenses, which are mostly related to annual merit increases. This was partially offset by lower product development costs. Non-GAAP operating income for the quarter was $167 million or 29.8% of revenue. Turning now to taxes. During Q2, we recorded the favorable tax impact of the One Big Beautiful Bill Act, which reinstated immediate expensing of domestic R&D. This change was retroactive to the start of fiscal year '26 and contributed to our lower non-GAAP tax rate of 14.6% for the quarter. And lastly, on the P&L, non-GAAP net income was $150 million, resulting in an earnings per share for the September quarter of $2.83. Let me now turn to the balance sheet. Our balance sheet continues to be strong, and we ended the September quarter with $896 million in cash and investments. Our ending cash and investments balance was up $48.3 million from the prior quarter as cash generated from operations was partially offset by share repurchases. We continue to have no debt outstanding. Inventory at the end of the second quarter was $236.4 million, down from $279 million in the prior quarter. Days of inventory were down sequentially, and we ended the quarter with approximately 81 days of inventory. Looking ahead, in Q3 fiscal 2026, we expect inventory to decrease slightly quarter-over-quarter. Turning to cash flow. Cash flow from operations was $92.2 million in the September quarter and CapEx was $4.5 million, resulting in non-GAAP free cash flow margin of 16%. For the trailing 12-month period, cash flow from operations was $557.3 million and CapEx was $23.1 million. This resulted in a non-GAAP free cash flow margin of 27%. On the share buybacks, in Q2, we utilized $40 million to repurchase approximately 362,000 shares of our common stock at an average price of $110.55. At the end of Q2 fiscal 2026, the company had $414.1 million remaining on its share repurchase authorization. Now on to guidance. For Q3 fiscal 2026, we expect revenue in the range of $500 million to $560 million. Gross margin is expected to range from 51% to 53%. Non-GAAP operating expense is expected to range from $128 million to $134 million. The fiscal year non-GAAP effective tax rate is expected to range from approximately 16% to 18%. In closing, we delivered strong results for the September quarter. We remain focused on executing to our strategy and delivering long-term value to shareholders. Before we begin Q&A, I would like to note that while we understand there is intense interest related to our largest customer in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship. With that, let me turn the call to Chelsea to start the Q&A session. Chelsea Heffernan: Thanks, Jeff. We will now start the Q&A portion of the call. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the results. I know you can't obviously talk specifically about your largest customers' business. But this year has been quite unusual from a seasonality perspective. So I was just wondering if you could share any thoughts with us on seasonality going forward. I mean, 2026 potentially be sort of back to normal? Again, anything you could share with us would be really helpful. Jeffrey Woolard: Yes, Tore, this is Jeff. I think if you recall, we talked about last quarter, a change in the seasonality shape of our business, primarily driven by the camera content becoming a bigger portion of the total revenue, which shifts a little earlier as well as, as we talked about some pull-ins at the last quarter call. I think if you look at our results this quarter and our guidance for next quarter, that story remains the same that the shape is a little bit pushed into the first half versus what has been traditionally, and that's driven by just camera content being a greater piece. While we did give some insight last quarter, our view for the year because we thought it was important for everyone to understand that change. That has played out between our results and our guidance. And at this point, we are only giving guidance for the next quarter, but we don't see anything from here out that would change historically what that seasonality looks like for the rest of the fiscal year. Tore Svanberg: Great. That's very helpful. And as my follow-up for you, John, in the shareholder letter, you stated again, there's potential opportunities on the power/battery side in the smartphone market. Any updates there? Again, I know you can't talk about specific design wins, but clearly, battery management is becoming quite crucial for next-generation smartphones. So any updates there would be helpful. John Forsyth: Yes, that continues to be an area that we're excited about. And as you know, we've been investing in for some time. We do think that we have some really compelling IP in that space. And I think we've seen some validation of that from the comments reflected back to us from customers when we've been sharing silicon with them and details on what we've been developing. We've got a number of irons in the fire there. And as you alluded to, the majority of those are related to those areas around the battery where we think we can make a difference to power efficiency as a whole to system performance as batteries go through their life cycle, both on a daily basis and a long-term basis and to battery health, long term as well. So we don't have anything to say today concretely about design wins and how that's going to get commercialized, but we continue to believe that we've got some very valuable IP, and we are obviously itching to get that out into the market. Operator: The next question comes from David Williams with The Benchmark Company. David Williams: Maybe first just on the OpEx side, you kind of mentioned that it was lower in this quarter for some pushouts. And it looks like some of that's kind of coming into the third quarter. Is it fair to assume that all of the OpEx expected in the second quarter is pushed into that third quarter? Or is there anything else maybe funny going on that we should be thinking about there? Jeffrey Woolard: No, I think that's a reasonable take. We are pretty disciplined in our OpEx. And what we saw, we did obviously come in below the guide and some of that was just delays in our spending, not necessarily delays in execution. So that product development cost can be a little lumpy. It's not a miss because it wasn't low because of execution. Some expenses that we had planned, we were just actually able to avoid. And so that came also drove our results, OpEx results being below guide. So a lot of that is just a timing issue. So we will continue to stay disciplined on that. But that being said, it was a push. But if we see other opportunities that we think have. We have high confidence in to create value, we will be comfortable increasing that in the future. David Williams: Okay. Good. And then maybe just on the non-flagship customer, your largest customer revenue, that contribution in the quarter was maybe a little bit lower than we had anticipated. But just trying to get a sense of the progress in the general markets and in that computing space, how we should think about that revenue trending maybe through this year? And just generally, what that growth trajectory should look like outside of your largest customer? John Forsyth: Yes. I think on the picture for this quarter, in particular, there are a number of things going on there. And I think the softness in the Android space is certainly part of it, and that's been widely reported. We don't invest a huge amount in Android as a strategic business area for us, but it still remains a valuable contributor. So to some extent, we saw some impact from that. And then when we look to the rest of our general market business, certainly, the biggest kind of growth area that we see there right now is the PC, as you alluded to. And we're continuing to track the way we expected there or broadly in line with that. We're still kind of early in the ramp for that as regards the business it can become for us in the future. But we've passed a number of really, really excellent milestones this year and then in this past quarter as well, which kind of indicate the great progress we're making there, and we continue to be very excited about what's going on in the PC space. I think one of the things we called out in the shareholder letter that's a particular highlight is the win in mainstream consumer laptop because those mainstream devices, as I've highlighted previously, they really deliver so many more units than the devices in the flagship and premium tiers. And so a big part of our objective is to penetrate down through the tiers and be well penetrated in both the commercial and the consumer mainstream segment and then obviously expand to as much content in those devices as we can get. This year, earlier in the year, we reported that we won our first mainstream commercial laptop and then we've now added to that with success in the consumer space. So I think that proves we can do it, and that's going to be one of multiple drivers that help us continue to accelerate in the PC space. Operator: Your next question comes from Christopher Rolland with Susquehanna. Dylan Ollivier: This is Dylan Ollivier on for Chris Rolland. So for my first question, so last quarter, you said that you didn't have any material changes to your smartphone unit outlook for the year despite your better results. Would you now have any changes to your unit outlook? Or are units still tracking in line? Jeffrey Woolard: Yes. I'm going to stick with sort of that previous answer of -- we obviously had a good quarter here driven by smartphone units, and we explained the shape between the last quarter -- last 2 quarters. And we're only guiding for the next quarter, but we see -- at this point, we think seasonality looks like it historically has. We don't see anything to change our view on the upcoming seasonality. Dylan Ollivier: Great. So secondly, I'd love to hear more about these new products that you talked about that you're developing for AI PCs. So does this expand your SAM? And when can we expect revenue here? Are you getting a lot of initial interest from customers? John Forsyth: Yes. Actually, that's an area which I think has become much more significant in our modeling of our PC SAM more recently rather than -- or at least compared to when we set off down the road of getting into the PC market. The interest across our customer base in voice-related features is really pretty significant as a major enabler for AI. So I mean, I think if you step back just for a second to look at all the drivers, which are currently kind of accelerating our momentum in the PC space. There's one I alluded to in the previous answer, which is just our penetration down through product tiers to get into higher volume segments. There's another factor which we alluded to in the shareholder letter, which is the propagation of the SoundWire device class audio interface and standard. So we're seeing that increasingly propagate across designs that generally is something that's favorable to us, and that's something that we've designed to and that we can deliver a lot of features around. Then as we also mentioned in the prepared remarks, we've also been expanding our support across multiple PC platform vendors. So again, that's kind of expanding our reach and the number of devices that our products can get into and the number of reference designs that enable our customers to pick up our silicon and create products around very rapidly. And then the fourth of these drivers would really be the voice features that we see coming over the horizon. And that's been a more recent topic of conversation with OEMs, but it's a significant one, and it's one where our IP is really best-in-class. We're able to provide significantly better voice and audio capture, noise reduction, voice cleanup, voice detection, speaker detection and so on. And then you combine that with our low-power codec technologies, we can enable features like waking up the entire system, being able to speak to the system even when it's in an ultra-low power standby state and so on. So this is -- I mean, this is all part of the SAM that we model out in the investor presentation out into the future that we think can continue to be really significant for us in the PC space. But I think given where we're at and the IP we have in the voice area, in particular, I would expect us to really benefit from that. Specifically in the last quarter, we started sampling the first device specifically focused on enabling those features to customers. So it will be a while before those start showing up in end products, but we have a great road map around those features in particular. Chelsea Heffernan: Thanks, Dylan. And with that, we will end the Q&A session. I will now turn the call back to John for his final remarks. John Forsyth: Thank you, Chelsea. In summary, Cirrus Logic delivered record revenue for the September quarter while also continuing to make excellent progress on each pillar of our long-term strategy. I'd like to extend my appreciation to all of our employees worldwide for the hard work and commitment to excellence that has delivered these results. And I'd like to thank our customers for their trust and support. We're excited about the opportunities ahead for Cirrus, and we thank you for your continued interest in the company. Before we close, I'd also like to note that we will be participating in the Barclays Global Technology Conference on December 11. Please check our investor website for the details. Thank you, everyone, for participating in our call today. Goodbye. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Coterra Energy Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Dan Guffey, Vice President of Finance, Investor Relations and Treasurer. Dan? Daniel Guffey: Thank you, Greg. Good morning, and thank you for joining Coterra Energy's Third Quarter 2025 Earnings Conference Call. Today's prepared remarks will include an overview from Tom Jorden, Chairman, CEO and President; Shane Young, Executive Vice President and CFO; and Michael Deshazer, Executive Vice President of Operations. Blake Sirgo, Executive Vice President of Business Units, is also in the room to answer questions. Following our prepared remarks, we will take your questions during our Q&A session. As a reminder, on today's call, we will make forward-looking statements based on our current expectations. Additionally, some of our comments will reference non-GAAP financial measures. Forward-looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release and updated investor presentation, both of which can be found on our website. With that, I'll turn the call over to Tom. Thomas Jorden: Thank you, Dan, and thank you to all who are listening this morning. Coterra had a strong third quarter and is on track to deliver on the ambitious annual goals that we set for ourselves for the full year 2025. Furthermore, we released a soft guide to our coming 3-year plan update that shows that we remain committed to a long-term path of consistency, profitable growth and value creation for shareholders. I want to give a shout out to our field and office personnel who have worked valiantly to deliver results as promised and to do so safely with environmental integrity and with a relentless focus on maximizing full-cycle returns. We could not be prouder of our organization and their commitment to excellence. We delivered on all fronts during the third quarter. Our volumes on gas, oil and barrel of oil equivalent came in above the midpoint of our guidance. We delivered outstanding returns on invested capital with great capital efficiency. The integration of the Lea County assets that we acquired early in the year has gone well, and we are realizing significant uplifts in asset performance, cost reductions and future inventory. Michael Deshazer will provide further details here. We plan to deliver a comprehensive updated 3-year outlook with our fourth quarter release in February. Last night, however, we provided an early look into 2026, which demonstrates our multiyear commitment to growing revenue, cash flow, free cash flow and profitability. As we see it today, we expect capital to be modestly down year-over-year while still achieving consistent profitable growth. Our low breakevens and deep inventory, coupled with our balanced revenue between gas and oil assets provides the opportunity to deliver through the cycles and maintain a degree of consistency that differentiates us. We view our future entirely through a lens of increasing shareholder value, and we best achieve this by consistently making smart full-cycle investments through the commodity swings. I do want to emphasize that we are providing a soft guide for 2026, and final decisions are a work in progress. We are watching markets carefully. Oil markets have a lot of moving pieces. These include the timing and impact of Russian sanctions, the situation in Venezuela, Chinese and Indian behavior and global economic robustness. While we have the projects and wherewithal to further increase our oil growth, if warranted, we are remaining disciplined and not chasing growth in the current environment. Although capital may modestly flex up or down each year, our sole goal is to consistently grow our profitability and maximize our free cash flow. We are living in rapidly changing times. The increase in LNG exports and growing electricity demand is constructive for the medium- and long-term outlook for natural gas. We are prepared to be patient and not front-run demand increases. Our marketing group is heavily engaged in discussions with counterparties seeking new natural gas supply arrangements to further diversify our portfolio, which already has committed 200 million cubic feet a day to recently announced LNG deals, 350 million cubic feet per day to Cove Point LNG, 50 million cubic feet per day power -- Permian power deal with CPV and our 320 million cubic feet per day of natural gas supply deals to local power plants within the Marcellus. While these deals total approximately 30% of Coterra's gas production, the team continues to bring fresh ideas to the table to further improve and diversify our portfolio. Our marketing team has a mandate to generate value, not press releases. We are confident that patience is prudent and that the future of natural gas will provide tremendous opportunities for Coterra. There is a lot happening under the hood. We are also watching all markets carefully, as I said, the swing between optimism and pessimism here is remarkable. A tiny change in facts can drive huge swings in emotion. Coterra has a deep inventory of oil assets with one of the lowest breakeven portfolios in our sector. Our bias is steady as she goes without wild reactive swings. Before I turn the call over to Shane, you will note that Michael Deshazer will be delivering the operational summary today. Blake Sirgo is with us and will undoubtedly have the opportunity for comments. We recently switched the portfolios of Blake and Michael, with Blake assuming oversight over our business units and Michael taking on our operational and marketing portfolios. This change was entirely driven by a desire to build redundancy in our skill sets and build broader depth of expertise on the executive team. We have a highly collaborative executive team that, by design, is broadly familiar with all aspects of our business. This change will further increase our flexibility, bring fresh eyes on critical issues and provide an ability for both Michael and Blake to enlarge their impact. Every now and then, it is good to repot the plant. Finally, we know that many of you have seen the letter that Kimmeridge released this morning. Although we think that it contains some factual errors, we have great respect for many of the thought pieces that the Kimmeridge team has produced over the years and have had constructive engagement with them in the past. We are disappointed that they have chosen to release a public letter without reaching out to us. Nonetheless, we are open to suggestions that can improve Coterra. And as always, we will listen, carefully consider ideas and be thoughtful in our response. With that, I will turn the call over to Shane for a financial summary. Shannon Young: Thank you, Tom, and thank you, everyone, for joining us on this morning's call. Today, I'd like to cover 3 topics. First, I will quickly summarize a few key takeaways from our strong third quarter financial results. Then I'll provide our fourth quarter guidance and update to our full year 2025 guidance. Finally, I'll provide comments on our balance sheet and cash flow priorities for the remainder of the year. Turning to our performance during the quarter. Performance in all 3 business units exceeded expectations during the third quarter. Coterra's oil, natural gas and BOE production each came in approximately 2.5% above the midpoint of our guidance. Additionally, NGL production was strong, posting an all-time high for Coterra at around 136 MBoe per day. In the Permian, we had 38 net turn-in-lines during the quarter, just below the low end of our guidance range, while the Anadarko and Marcellus had net turn-in-lines of 6 and 4, respectively, in line with expectations. We continue to expect TILs in all areas to be within our annual guidance ranges with the Permian being near the high end of the range. Pre-hedge oil and gas revenues came in at $1.7 billion with 57% of revenues coming from oil production. This is up sequentially from 52% in the prior quarter and was driven by a substantial uptick in oil volumes of 11,300 barrels per day, an increase of above 7% above our second quarter levels. The Permian team continues to drive outstanding incremental production results. Cash operating costs totaled $9.81 per BOE, up 5% quarter-over-quarter due to production mix and higher workover activity, which we expect to moderate during the fourth quarter. Incurred capital in the third quarter were near the midpoint at $658 million. Discretionary cash flow for the quarter was $1.15 billion and free cash flow was $533 million after cash capital expenditures. Both of these figures benefited from negative current taxes for the quarter related to recent changes in U.S. tax law. In summary, our strong third quarter results show continued improvement in capital efficiency as production exceeded expectations and capital remains on track. We continue to run a consistent and highly efficient activity cadence, which we expect will continue to generate strong full-cycle returns in the current price environment. Looking ahead to the fourth quarter and the full year 2025. During the fourth quarter of 2025, oil production is expected to be 175 MBoe per day at the midpoint, an increase of over 8,000 barrels per day or another 5% increase quarter-over-quarter. We expect total production to average between 770 and 810 MBoe per day and natural gas to be between 2.78 and 2.93 Bcf per day. We expect capital for the quarter to be around $530 million, significantly below the third quarter results as we wrapped up frac activity in the Anadarko late in the third quarter. For full year 2025, we are increasing annual MBoe per day production guidance to 777 at the midpoint, a 5% increase from our initial guidance in February. We are maintaining the oil guidance midpoint at 160 MBoe per day while tightening the guidance range. Oil volumes from our acquired assets have been in line to slightly better than expected. Our legacy assets oil volumes are expected to deliver a high single-digit percentage growth rate year-over-year. This is similar to the rate of growth we have delivered during the prior 3 years. On natural gas, we are increasing the midpoint of our volume range to 2.95 Bcf per day, an increase of over 6% from our initial full year guidance in February. As previously indicated, we expect capital for the year to be approximately $2.3 billion, just above the midpoint of our initial guidance range in February as we have maintained the second Marcellus rig into the second half of the year. Our annual expense guidance ranges remain unchanged, and we expect to be near the midpoint of the aggregate expense range for the full year. With regard to our 3-year outlook provided in February, we remain highly confident in our ability to deliver results within those ranges from 2025 through 2027. This outlook is underpinned with a low reinvestment rate and improving capital efficiency and delivers attractive long-term value creation for our shareholders. While we are not prepared to provide specific 2026 guidance, a current snapshot suggests that capital should be down modestly year-over-year while still maintaining production parameters laid out in our 3-year guide we released in February. At the same time, our low breakevens, low leverage and operational flexibility, coupled with our hedge book, have Coterra well positioned in the event of high commodity price volatility in 2026. Turning to shareholder returns and the balance sheet. For the third quarter, we announced a dividend of $0.22 per share. This is one of the highest-yielding dividends in the industry at over 3.5% and demonstrates our confidence in the long-term durability, depth and quality of our future inventory and free cash flow. Additionally, during the third quarter, we repaid $250 million of outstanding term loans that were used as part of the financing of our acquisitions earlier this year, bringing our total term loan pay down to $600 million through the third quarter of 2025. In October, based on the progress we have made in retiring our term loans and the trading levels of our shares, we reinitiated our share buyback program. While we continue to make progress on our debt retirement goals during the fourth quarter, we'll be opportunistic in purchasing our shares. We ended the quarter with an undrawn $2 billion credit facility and a cash balance of $98 million for total liquidity of $2.1 billion. As of September 30, we had total debt outstanding of $3.9 billion, down from $4.5 billion at the closing of the acquisitions in January. We're making meaningful progress in executing on our priority of getting our leverage back to around 0.5x net debt to EBITDA. Coterra remains committed to maintaining a top-tier fortress balance sheet that is strong in all phases of the commodity cycle. We believe this enables us to take advantage of market opportunities while protecting our shareholder return goals. In summary, Coterra's team delivered another quarter of high-quality results across all 3 business units. We continue to enhance capital efficiency through higher productivity and lower cost per foot completed. Our consistent activity has continued to deliver meaningful oil production growth throughout the year while raising the bar on both natural gas and BOE production. In 2025, we expect to generate substantial free cash flow of around $2 billion, an approximately 60% increase over 2024, benefiting from both higher natural gas realizations and higher oil volumes from our acquired assets. While we continue to prioritize deleveraging, we see significant value in Coterra at current share prices and are approaching buybacks opportunistically. In summary, Coterra has never been stronger or better positioned. With that, I will hand the call over to Michael to provide additional color and detail on our operations. Michael Deshazer: Thank you, Shane. Today, I will talk about our third quarter operational results and outlook. We'll provide a business unit update, including the successful integration and upside to our Franklin Mountain and Avant acquisitions, and I will briefly touch on our marketing efforts. The third quarter was another well-executed quarter, and we carried this operational momentum into the fourth quarter. On the activity front, we have a consistent 9-rig, 3-crew program working in the Permian, 1 rig and 1 crew in the Marcellus and 1 rig in the Anadarko. We expect to maintain this activity level during the fourth quarter. To reiterate what Shane touched on earlier, looking ahead to 2026, we expect 2026 capital to be down modestly year-over-year, while still achieving the production ranges laid out in our 2025 through 2027 3-year outlook. While we are focused on consistent operations through the commodity cycles, we are maintaining maximum operational flexibility with no rigs or frac crews on long-term contracts. We expect to provide a comprehensive 2026 guidance and an updated 3-year outlook in February. The integration of our Franklin Mountain and Avant assets is complete, and our teams continue to outperform our expectations for synergies on these assets. I would like to spend a few minutes discussing our progress. When we announced the acquisition, there were many wells that were in various stages of development, and we made estimates of their productivity for our evaluation and for our full year production guidance. In November 2024, we announced a 2025 production estimate for the assets of 40,000 to 50,000 barrels of oil per day, assuming a full year contribution. When we updated our production guidance on our February call after the actual close dates in late January of the assets were known, we maintained our annual production guidance because we liked how the assets were performing. I am pleased to report that we continue to perform in line to above our production expectation for the acquired assets, giving us further confidence that there is upside relative to what was underpinned -- what underpinned the acquisition. On the capital side of the acquisition, we have realized a 10% reduction in our total well costs as measured in dollars per foot by applying our Coterra best practices at scale across the assets. A few of the efficiencies I would like to point out are our optimized and standardized hole size and casing designs, which have reduced our drilling times from 15 to 13 days for a standard 2-mile lateral. And on the completion front, we have seen that implementing our proven stimulation designs that have been evaluated across the basin and tailored for each landing zone as well as our scale in the Permian has allowed us to reduce service costs. In addition to capital savings, we now have line of sight to significant operating cost synergies. We have already reduced the inherited lease operating expense by approximately 5% or $8 million per year. These savings have been seen across most services, but the biggest savings are related to on-pad sour gas treating and electric generation. For example, at our Eagle central tank battery, we acquired a facility that treated sour gas to then be burned in gas turbines to generate power for our field. Working with our marketing team, we accelerated a residue gas connection to the site that allowed us to remove the gas-treating equipment and allow the turbines to burn clean low Btu gas, increasing reliability and saving over $2.5 million per year in expenses. There are many more projects like this one, and we are currently projecting an additional $20 million per year in net operating cost savings related to on-pad sour treatment, taking our projected total LOE savings on the acquired assets to 15% as a go-forward run rate. In addition, we believe that the biggest future savings could come from using microgrids instead of well-site generators to power our assets. We are in the final stages of planning for up to 3 microgrids across our Northern Delaware Basin assets. We think that these projects will have the potential to reduce our current power costs by 50%, saving an additional $25 million a year. But as the asset and our power demand in the area grows, the projected savings will grow as well to nearly $50 million per year. This is all while we continue to work with our utility power providers to bring more grid power into the Permian Basin. Now that we have integrated the assets, we expect not only to demonstrate capital and expense reduction, but also productivity enhancements as we pursue a development plan focused on maximizing capital efficiency. Our subsurface teams have continued to delineate multiple landing zones, and this work has given us confidence that we have 10% more inventory as measured by net lateral footage than we estimated when acquiring the assets. Furthermore, our increased scale in the Northern Delaware Basin has enabled us to make many value-added trades and small-scale acquisitions. We expect our team to prudently add valuable inventory as we continue to develop our highly profitable and low-cost resources in the Permian Basin. Moving on to the Marcellus business unit. This quarter, we drilled a new 4-mile lateral from spud to rig release in under 9 days, averaging 2,400 feet per day. This sets a new high watermark for Coterra. In fact, it's becoming common for many of our recent wells to eclipse 2,000 feet per day. This type of performance and longer laterals reaching over 20,000 feet have driven drilling costs down 24% year-over-year. With these efficiencies, we no longer need 2 rigs to maintain production in our Marcellus asset. Our maintenance activity level over the next few years would require 1 to 2 rigs, so we will manage our rig count to not build excessive DUC backlog. While we hold the option to grow our Marcellus natural gas volumes, we are committed to being patient and expect to hold our production volumes relatively flat until additional demand materializes and the strip solidifies. Should we have a cold winter and prices increased into '26, we will fully participate from our approximately 2 Bcf a day of production in the Northeast and expect to generate substantial free cash flow from our Marcellus region. In the Anadarko business unit, we brought online our last project of the year during the third quarter, the 5 3-mile Hufnagel wells. These new wells, combined with our Roberts project from Q2, continue to drive strong region performance that has exceeded our expectations. Turning to marketing. Our team continues to be active in the hunt for more deals and partnerships that can deliver flow assurance and price uplift for our products across our diverse portfolio. As Blake mentioned last quarter, the long-term gas sales to CPV's new Basin Ranch power plant in Reeves County, Texas was the latest in a line of deals that our company has a history of delivering. As Tom mentioned, our Moxie and Lackawanna power deals in the Marcellus were put in place 10 years ago and have provided value well and above an in-basin price. We will continue to find opportunities to improve the netback of our product and increase the value to our shareholders. A strength of our sales portfolio is a significant diversification, but we are not satisfied and we'll continue to optimize. The teams in all 3 of our regions are firing on all cylinders and have remained focused on solid execution, making decisions to maximize full-cycle returns and creating value for shareholders. With that, I'll turn the call back over to the operator for Q&A. Operator: [Operator Instructions] It looks like our first question today comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Tom, as always, you're very gracious to hit the 800-pound gorilla right in the head with the comments around the Kimmeridge letter. So I wonder if I could just ask you to elaborate on your perspective this morning. The -- I guess the way I would phrase it is that when you look at the gas-levered E&Ps, particularly your larger peers, EQT and Expand and compare your relative performance, it almost seems like you've been kind of orphaned by the mix of your portfolio. And I guess the basis of the Kimmeridge letter is you're better as a stand-alone pure play in the Delaware and let someone else take care of the gas. That would go 180 degrees against what you tried to build. How would you respond to that? Thomas Jorden: Well, first off, Doug, I don't want to get into a lot of discussion about the Kimmeridge letter. That's for another time. But we've spoken openly. We really believe Coterra is a premier outfit, and we like to see us trade at a premium multiple. But if you look at the trading over the last year, you'll find [ we're ] at the top of the stack of oil companies and at lower level of gas companies. And we think we're seeing benefits of it being a multi-basin, multi-commodity company. But I just think it would be inappropriate for me to get into any more than that, Doug. Douglas George Blyth Leggate: Okay. I understand, and I appreciate you taking a stab at it. My follow-up is an operational question, and it's really related to what you saw in your LOE this quarter. Obviously, it's still elevated, but you also beat on your oil guidance. So my question is, is this related to the workovers in the Harkey? Should we continue to expect your oil production to move up and then ultimately your LOE to move down as those workovers flow through the system? Michael Deshazer: Yes, Doug, this is Michael. Yes, the LOE for the quarter was up a little bit. We have transitioned out of the Harkey remediation program that we talked about last quarter, and we have moved workover rigs into Lea County, where we do have some higher working interest. But overall, we do expect our LOE costs, especially the workover costs to decrease as we head into Q4. Shannon Young: Yes. And Doug, Shane here. Just -- we do expect that number to settle for the year within range on the LOE and expect to be probably in the middle in terms of total cash cost of where we are as well. But Michael hit on really well sort of the reason why it looked a [ touch up ] in the third quarter. Operator: And our next questions come from the line of Betty Jiang with Barclays. Wei Jiang: I want to ask about the cash return strategy just because we would agree that the stock, it does look discounted in our view as well. Shane, last quarter, you talked about really focusing on debt reduction. And then this quarter, Coterra is starting the buyback program again. How do you think about the allocation of your excess free cash flow between debt reduction and buyback going forward? Is there a reason not to think we can get back to that 100% return level into next year? Shannon Young: Yes, Betty, Shane here. Thanks for the question. And as you noted, year-to-date, we prioritized deleveraging or paying off the term loans. And so that's why we leaned in really hard in the third quarter on that. It's interesting. When you're at sort of the last bit of the repayment, your feeling is a little different than when you're at the first bit of the repayment and the ability to sort of feather in both some buyback activity and continued deleveraging is just much more palatable at these states. So as we talked about, we reinitiated the program in this month and -- sorry, last month and expect that we'll continue to be opportunistic, particularly where prices have been over the course of the last 4 to 6 weeks. In terms of the future levels that we get to, look, I would only say, look at our past. And in 2024, we returned roughly 94% of free cash flow through the mix of dividend and buybacks. And the year before that, I think we're around 75% in 2023. And look, that's a place we strive to get back to and think we're well on our way to being there. Is that exactly what it looks like in 2026? We're not going to pin ourselves in. But I think we'll have a robust return of capital program in 2026. Wei Jiang: That's great. And my follow-up is on the overall activity in the Permian. If we look at the Delaware versus your initial expectations, production is -- the guidance is unchanged, while you are now completing wells toward the upper end of the guidance range. I'm just wondering relative to your internal expectations, how is the production profile on the wells tracked versus your initial guide. And with activity now towards the high end, does that change your views on how the shape of 2026 shake out? Shannon Young: Betty, Shane here. I'll take a stab at that. I mean we don't comment specifically on TIL timing within quarters, but we do give how many TILs we expect for the quarters. And you'll note the third quarter and second quarter, we were below -- kind of at the low end of where we thought we'd be to maybe slightly below there. And so that pushed some activity into the fourth quarter. But yes, I think productivity from the TILs that have come online have been as expected or in some cases, maybe a touch better. But yes, as we get into next year, I think Tom was -- noted on the last call that, look, we'll exit the year at 175 MBoe in the fourth quarter. And the expectation shouldn't be that we sort of maintain at that level throughout. That's quite possible, as you've seen in the past, based on the timing of TILs that we end up with a little leg lower and then begin to build from there. Thomas Jorden: Yes, Betty, I would just add to that, that so much of this is timing, as Shane said, and working interest changes. So there's just a lot of moving parts. But we're seeing very, very solid really returns and performance out of all of our assets and particularly in the new assets we acquired earlier this year, they're coming on strong. There's just no question in our mind as we reflect back on the last year, we'll exit the year a much stronger company than we entered the year. And we were able to do that because of our balanced portfolio, our multi-revenue contribution to that balance and our strong and fortress balance sheet. So we're absolutely exiting the year a stronger, better company. Operator: And our next question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Yes. Team, I wanted to see if you could provide any kind of overall commentary on your thoughts on CapEx reduction next year. You mentioned that you think it will be down moderately, but maybe help us fill in the pieces of the drivers of that, perhaps relative to your soft guide of delivering 5% year-over-year oil growth. Thomas Jorden: Yes, Arun, I'll start that, and somebody else may want to comment. We're seeing good asset performance. And as we look ahead to the oil markets, we're kind of watching what happens. I mean I think that one can make a constructive observation about the strip, but some of that is underpinned by cartel discipline, if you will, and geopolitical factors. I think in balance, if you lean back, you say the world is fairly oversupplied if everybody supplied at their full capacity. And so we want to be prudent. I mean part of our ability to lower our capital is driven by our asset performance. We can deliver on our 3-year plan guide handily. We do have the option to increase capital, as I said in my opening remarks, and step that oil growth up. But we really do think about it in terms of cash flow and profitability rather than volumes. And one of the best ways -- if you have price support in your commodity, the best way to grow your cash flow and free cash flow is to see some volume growth. But we're watching the markets thoughtfully. Shannon Young: Yes. Arun, I mean the only thing I would say is, in addition to that is, look, nothing's set in 2026 yet. We've got a lot of flexibility as we see it today. We'd be modestly down. But I think you're going to see us when we come out in February, deliver a highly capital-efficient plan that generates a substantial amount of free cash flow. As I noted in my earlier comments, cash flow this year was up 60% over 2023 on the back of higher oil volumes from the acquired assets as well as higher natural gas price realizations. The 2 of those contributed, and it's a really powerful combination. Arun Jayaram: Got it. And then maybe my follow-up, you highlighted some parts of the Franklin, Avant acquisitions that closed in 1Q, maybe exceeding your expectations. Can you talk about some of the things that you're seeing post your review of those acquisition economics and maybe a little bit more insights on the ground game that you've done. I think you're investing about $86 million in leasehold, which is driving a little bit more of an inventory improvement there. Blake Sirgo: Yes, Arun, this is Blake. Happy to take that one. Frankly, our teams have done what we hope they do. They've taken this asset, and they've made it a lot better. Our subsurface teams are delineating. So we're finding new zones that we didn't account for when we underwrote it, and we're adding net footage across the asset base. Our D&C teams are attacking the program with all of our large efficiencies we built over the years. We're driving down dollar per foot and our production and midstream teams are attacking OpEx, and they're dropping that as well. So we're really just seeing those efficiencies across the board. They're really starting to add up, and this is a great add to our portfolio. Operator: And our next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: I have a couple of gas questions here, Tom. But first, just to expand on your initial comments. I guess one of the questions we get from investors even beyond the letter this morning is what's the value of operating as a multi-basin portfolio versus being a pure play? And so just maybe you could spend some time now that's been a couple of years you've had Cabot under your portfolio. What are some examples of the tangible upsides or synergies that you get from diversification? Obviously, the commodity is one of it -- but -- one of them, but I'm sure there's others. Thomas Jorden: Yes. We're going to need a longer call for that question. One of the advantages, odd as it may seem, even though we're a broad industry, there tend to be regional pockets. And a lot of companies are single basin. And so techniques and operational efficiencies tend to be clustered until they get understood and widely spread. And you saw that in our history over and over. One example is the industry had gone to plug-and-perf completions, while there were still basins that were doing slotted liners way after other areas had abandoned that. You saw that with many completion techniques. And we're actually -- I'll just say, speaking for Coterra, there's a reason why we're recognized as a great operator in every basin we're in. And that's because we're a multi-basin company. We can take best practices from play to play and make our programs better. A particular example I'll give you, and you'll see this, hopefully, in this upcoming winter because we always light a candle and hope for a bitter cold winter, we have made massive advances in winterization in the Permian Basin. We get insights to a lot of our competitors because we have interest in their wells. So when these winter storms pass through, we see the degree to which our competitor's production is knocked offline and decreased, while Coterra tends to sail through with only a wobble. And that's because of the collaboration we've had with our Marcellus team for whom cold, bitter winters are a regular event and our Permian team, and it has made us such a better operator and really strengthened our ability to sell product into winter pricing. The list goes on and on, but I will just tell you that having collaboration among different play types really enlarges technical thinking around problem solving and has made this a better company. Neil Mehta: And then the follow-up is just on scale. I mean, I think in the Permian, Franklin Mountain continued to give you the scale that you need to be competitive against the largest players in places like the Permian. In the Marcellus, we've seen a lot of consolidation here. Do you feel like you have sufficient scale to be first quartile in the Northeast? Shannon Young: Yes. I'll make a quick comment on that. Look, I do think we have the scale there. We produce about 2 Bs a day in a market up in the Northeast itself that's probably closer to 11. But -- and really, one of the things, just kind of building on what Tom said up there, when we negotiate with service providers when Blake and Michael sit down with them, it's not like we're just negotiating a frac crew for that area. So we have one active crew. We're having a one-off negotiation because we have a broader portfolio, we're actually able to drive down costs, get better equipment and better focus from the service providers. And so in a lot of ways, we have plenty of scale up in the Northeast. But frankly, the Northeast benefits from the larger scale of Coterra. Operator: And our next question comes from the line of Scott Gruber at Citigroup. Scott Gruber: I want to come back to your active ground game here. Can you talk about your thoughts around running room to block up your positions in Lea and Eddy counties and the timing of doing so in a competitive market? And just how important is that in terms of compressing your cost structure in the Northern Delaware down towards Culberson? Or do you think you have kind of a good running room to further compress costs on your current acreage position? Blake Sirgo: Yes, Scott, this is Blake. I'll take that. The Franklin Mountain, Avant assets really gave us a great footprint in the Northern Delaware. And what that's allowed us to do is now have a foothold in certain areas where we can start doing trades and additional small acquisitions. And really, what we're just chasing are the biggest DSUs we can get our hands on, more wells per section, longer lateral lengths, that's how we drive efficiencies. And so really just building that footprint up there has kind of turbocharged our land efforts. And I couldn't be happier with the deals the team has brought in over the year. They're very, very busy. We look at all those with a firm economic lens. But like I said, those capital efficiencies we can bring to bear, they make a lot of them really attractive to us. Scott Gruber: And what is your color on the '26 budget reflects the trend in well costs in the Northern Delaware as you gain more experience on the acreage and expand the position? Does that continue to step down? Would that be incremental benefit to the spend in '26? And does the well mix in the Delaware stay broadly the same in '26 kind of as you see it today? Michael Deshazer: Scott, this is Michael. Yes, we -- as I mentioned in my prepared remarks, we continue to drive down the capital costs of all the wells in the Northern Delaware Basin. And so we expect our teams to continue to work hard every day to try to drive that cost down. We don't have a projection that we're ready to discuss here, but I did mention a lot of the same efficiencies that we see across our assets around consistent drilling rigs and frac fleets and being able to drill longer laterals. All of those benefits would be available to us in that Northern Delaware Basin and all the trades and blocking of acreage that Blake talked about really helps. The bigger these pads are and our ability to put more wells into the same facilities really helps us drive down costs on both the production side, the capital side and on our midstream side. Operator: And our next question comes from the line of David Deckelbaum with TD Bank. David Deckelbaum: I wanted to ask perhaps for a little bit more color just on the '26 high-level guide of spending kind of sub $2.3 billion. How the sort of large projects impact that going into next year? Or as we think about this, is it being driven more by reallocation between basins or the inclusion of more Wolfcamp relative to what we saw in '25? Could you add a little bit more color there just on what's contributing to that trajectory the most? Or is it just general optimization? Michael Deshazer: Thanks, David. This is Michael. Yes, as I -- as we discussed earlier, we currently have our operations very steady across the business units, and we expect that to extend into 2026. We don't see a lot of dramatic changes from where we're at right now in Q4 in terms of the way we see the program into '26. I did mention that our Marcellus would be between 1 and 2 rigs. So we'll be making those decisions as we look at frac efficiency and drilling efficiency. And we're really excited to see the recent results of drilling these longer laterals in the Marcellus has allowed us to reduce that rig count. So we're not exactly focused on the resources around rig and frac as much as we are a consistent program within each of these business units from a capital perspective. Thomas Jorden: Yes, David, I want to just add there that I'll be a broken record, but it is a soft guide, not an announced plan. We're still looking at some of our options. I think depending on what happens with commodity markets, though, as we look at that soft guide, probably our bias would be to maybe slightly increase over what we're telegraphing than decrease. But we have the wherewithal, we have the projects, and we have the willingness to step in. We're just watching carefully, and we want to be prudent in how we approach 2026. David Deckelbaum: I appreciate that color, Tom. And maybe just following up a bit on just the cadence of the program into the '26. You talked about sort of this 5% oil growth next year. And maybe, Michael, this one is for you, but the -- can you just kind of refresh us on how you kind of see the shape of the Delaware progressing throughout the year after some pretty aggressive growth what we've seen in the back half of '25? Michael Deshazer: Yes, we're not prepared to discuss any kind of TIL timing or that kind of granularity at this point in time. Operator: And our next question comes from the line of Matt Portillo with TPH. Matthew Portillo: I wanted to start out on the power opportunity in the Permian. You mentioned the microgrids. That seems like a great opportunity for you all to cut costs moving forward. I was curious if you might be able to provide a little bit more color around the timing of when those microgrids might come into service and how many megawatts you're planning on deploying. Michael Deshazer: Yes, Matt, this is Michael. We currently have some smaller scale microgrids that we inherited with the Franklin Mountain, Avant acquisition. I discussed in the prepared remarks that Eagle's central tank battery has turbines located on it that are powering adjacent leaseholds. So we're already in this business, and we're really just looking for opportunities to expand it. As you know, the Northern Delaware Basin and really the Permian on the New Mexico side has been very constrained for power for some time. And many operators are using small reciprocal engines to generate power on a well site-by-well site basis. And where we see value is when we can connect multiple leases to a single permanent station that's run off turbines, we see a dramatic decrease in that electrical cost. So we're going to continue to expand the current microgrids that we have. And like I mentioned in the remarks, we see opportunities for about 3 expanded microgrids across our asset. Matthew Portillo: Great. And then maybe a follow-up on the Northeast. It sounds like the soft guide as it stands today at strip is for relatively flat volumes around that 2 Bcf a day. I just want to make sure I heard that correctly. But maybe over the medium term, I was hoping you might be able to comment on your updated thoughts around power demand growth regionally for Northeast PA? And then any updated thoughts on maybe some of the longer-haul infrastructure opportunities such as Constitution that had been discussed earlier in the year. Shannon Young: Yes. So I'll start with the second one first, which is Constitution and some of the other projects that are up there. And look, that project historically has originated out of our acreage and heads up towards the Iroquois line about 124, 125 miles. And so were something to happen there, obviously, we would be a logical partner in some regard in that. But frankly, until we have better clarity on the other end of that line in terms of markets and buyers and commitments, that's probably one that is going to remain a little bit challenged. Obviously, there's other projects in that part of the world, [ NeSSIE ], for example, that appear to have a little bit more momentum at this point. And we -- while we wouldn't have the same direct linkage to it, we would expect that we would benefit from development in that area as well. I'm sorry, the first question -- the second question [ is something about ] the first part of... Matthew Portillo: Just around the regional power demand growth opportunity specific to Northeast PA, just how you see that market emerging and what that might mean maybe for the opportunity to add some volumes at some point in the future from a production standpoint? Shannon Young: Yes. That's great. So a lot of activity in PA, a lot of announced activity, that's preliminary, not necessarily all with definitive agreements, but with intention, which is a good first step. I think as well, there's a lot of unannounced activity that is up there right now in terms of dialogues that are going on. I think Michael and Tom sort of alluded to our team and being a part of those conversations. And so we're very excited about the potential up there, and we'll continue to work it hard. Some of these projects, whether we're involved or not, take a long period of time to develop and get announced. For example, again, not in the PA, but in West Texas, those are discussions that we have been in with CPV for the better part of 2 years. And so these are just long lead time discussions and negotiations that are ongoing, and we have a history of involvement in all of our business units, frankly, and I would expect we'll continue to be active in those dialogues. Thomas Jorden: Matt, we have a lot of flexibility in our marketing in the Northeast. We're watching carefully the development of these markets. We've talked about a couple of these pipelines that may offer opportunity for us. But our marketing team has done a really nice job of developing a weighted average sales price through a whole host of different arrangements. As we've discussed, some of that's LNG, some of that's direct power and some of it's direct to industrial users. But what we really look at when we ask ourselves about growth is that incremental molecule against the incremental price. And although we study hard what some of our competitors have done, we just don't see that now is the right time to bring on a lot of incremental volumes on that incremental price. We're going to be patient. We think opportunities will come, and we'll be prepared to strike, and we have the opportunity to grow those volumes, both through increased activity, but through some of our existing commitments that roll off give us more marketing flexibility as we go forward. So we're in a pretty nice position. And we're -- as I said in my opening remarks, we think patience and prudence is the right position right now. Operator: And our next question comes from the line of Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: I want to start on the Marcellus. The deal with Cabot closed about 4 years ago, and you've made that position better through your operating efficiencies. So maybe you can start by calling out some key operating wins. And then when you look at the Marcellus landscape, do you think that the application of your best practices could create value through M&A? Blake Sirgo: Yes, Kalei, I'll take that -- the first part. I'll let Shane talk M&A. Really, how we have attacked the Marcellus, it was really fun when we got our hands around the asset because we kind of had a greenfield Upper Marcellus bench to go prosecute. And we had over a decade of developing shale basins in Oklahoma, Texas, New Mexico, and we just brought those same skills to bear. And so one of my favorite maps to look at is the inventory at the time of the acquisition and the inventory now. It is dramatically in lateral length across the asset. We've optimized well spacing to increase productivity. And then we've just attacked the entire cost value chain. When we started that asset 4 years ago, we were still trucking the majority of our frac water. I'm really happy to say we pipe all our frac water now. And we've just been able to crush cost across the board. And so it's really a lot of those best practices Tom talked about earlier. We learn all these things through a lot of grit. And once we learn them, they become institutionalized, and we spread them like wildfire. Kaleinoheaokealaula Akamine: The follow-up question just on Marcellus inventory. I think you guys are still calling out 12 years of drilling in the slide deck. And this year, you're doing about 11 wells. Is the inventory math as simple as [ A times B ]? And would that include any of the delineation work that you guys have done in the... Michael Deshazer: So no, the math isn't just the current 2025 TIL count versus that multiple of years. What we're looking at is our 3-year average for how many wells we've drilled and then using that as the main proxy. We're also converting this into dollars and trying to keep the capital spend that we've had over the last 3 years as the metric. As we drive down costs, we are able to drill more wells in a given period of time and keep that production at a given level, so -- for the same amount of capital. So 2 things that are not as simple as what you described. One is we're looking at 3-year average. Two, we are looking at the capital spend and adjusting for our new go-forward costs. Operator: And our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: With respect to the shareholder letter, Tom, I'd like to go a different direction with it and ask for your perspective on how your PVIs compare across the basins, while we all have inverse incremental assessments, our data quality and look-back assessments are less accurate than yours, particularly on a leading-edge basis. Thomas Jorden: Well, I think we've said publicly that in 2025, the highest PVIs in our portfolio coming from our Marcellus project, and we're very happy to say that. And I just want to kind of reinforce comment Blake made in one of the earlier questions. We have made that project. Our team in Pittsburgh has made that project so much better. We've lowered our costs dramatically. We've gone to longer and longer laterals. And in many cases, that's 4-mile laterals that involve fewer pads, fewer intrusion into the community there. And we're seeing historically high well performance. So very pleased to say that the highest return in our portfolio this year is the Marcellus. Derrick Whitfield: Great. And then maybe for my follow-up, I wanted to focus on gas marketing in the Permian. In light of all the recent pipeline announcements that have achieved FID and the flurry of power announcements we're seeing, how are you guys thinking about managing your Waha exposure? And could this amount of incremental egress lead to favorable in-basin exposure if oil prices remain depressed? Michael Deshazer: This is Michael. I'll take that question. We have struggled in the third quarter with low Waha gas prices. I think everyone sees that. And so the long-haul pipes are important to reduce the basis between Waha and NYMEX. And we're a part of all the conversations with the new pipes that are being announced. So we're looking at opportunities to put some of our gas that we can take in kind on those pipes and provide ourselves not only the flow assurance that we want, but also that increase in price at that NYMEX market. Operator: And our next question comes from the line of Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: I wanted to come back to some of the major projects in Culberson this year, the Barba-Row Phase 1 and the Bowler Row, see if you had any updates or takeaways as far as cost efficiencies, early time productivity. I think Barba-Row is expecting second half wells online. And I know it's early, but Bowler starting up in the fourth quarter. Blake Sirgo: Yes, Phillip, this is Blake. I'll take that. Everything is coming on as expected, performing well, contributing [ mightily ] to the oil beat we just announced for Q3. Those projects are ramping up throughout the year. And we continue to enjoy the wonderful cost efficiencies in Culberson County, all the things we've highlighted in many previous decks. It is still the crown jewel of capital efficiency. So performing very well. Phillip Jungwirth: Okay. Great. And then we always think of Coterra's kind of cutting edge, willing to implement new technologies. Curious if you've looked at lightweight proppant, something -- is this something you'd consider implementing within your Delaware development? I understand you won't be producing this in your own refineries, but using it more -- buying it more through third parties. Michael Deshazer: Yes. We have a trial ongoing, as a matter of fact, on new lightweight proppant. So we don't have any results to share today, but that's a technology that we're investigating, and we have a lot of hope to see improved productivity as other operators have discussed. Operator: And that concludes our Q&A session. So I will now turn the call back over to Tom Jorden for closing remarks. Tom? Thomas Jorden: Yes. I just want to again thank everybody for joining us. We had a great quarter. We've got a bright future, and we really intend to demonstrate the marketplace that the Coterra model is resilient through the commodity price swings, and we're going to continue to deliver excellence as I hope we're known for. So thank you all very much. Operator: Thanks, Tom. And this concludes today's conference call. You may now disconnect. Have a great day, everyone.