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Vincent Clerc: Welcome, everyone, and thank you for joining us on this earnings call today as we present our third quarter results for 2025. My name is Vincent Clerc. I'm the CEO of A.P. Møller - Maersk. And with me in the room today is our CFO, Patrick Jany. As usual, we start with the highlights of the quarter just passed. We are pleased with the strong execution shown during the quarter in all businesses. We improved our performance across the board and delivered on an EBITDA of $2.7 billion and an EBIT of $1.3 billion, up from the previous quarter. All segments showed strong sequential volume progression, while costs were kept under tight control. These efforts paved the way for the strong results, notwithstanding the external environment. Specifically, in Logistics & Services, we are staying the course, focusing on operational margin improvements on both prior year and quarter to maintain the streak of good progress in 2025. We also registered good underlying and seasonal volume growth, which more than offset the softening observed in North America. For Ocean, this third quarter was the first full and clean quarter of the Gemini cooperation. While we kept delivering reliability at 90-plus percent, we also generated cost benefits well above the target we had communicated. This excellent performance was supported by strong volumes and high asset utilization as well as asset turns. As expected, rates softened during the period as new capacity continued to be inflated ahead of demand. Finally, our Terminal business delivered again record high revenues and profitability, driven by strong volumes, not least the ones delivered as a consequence of the Gemini implementation and the highest ever utilization across our portfolio of gateway terminals. With another quarter of sustained high demand, especially out of China, we expect a market growth around 4% for the full year. This strong demand, combined with the successful implementation of Gemini and progress across all segments allows us to narrow the full year 2025 guidance to an underlying EBIT of between $3 billion and $3.5 billion. As usual, more details will follow on this later in the call. Now taking a closer look at each of our business segments. First, Logistics & Services continued to track positively. We achieved an EBIT margin of 5.5%, up from 5.1% last year and 4.8% last quarter. The key levers of progress remain asset utilization, productivity improvement and stringent cost management. Aside from these efforts, the top line also grew 2% year-on-year and 9% sequentially, the latter reflecting both seasonal strength and new win implementation, which offset the softening of demand in North America. In Ocean, as mentioned, we had our first full and clean quarter of Gemini -- after the Gemini implementation. From already the first month since the implementation in February, we have seen the network deliver reliability above 90% and show resilience against disruptions such as weather, which we have seen recently in the Far East with the worst typhoon season in 10 years. Meanwhile, we continue to deliver 90-plus percent reliability in the third quarter, and we also achieved significant cost savings even compared to the ambitious target we had communicated to you earlier this year. I will go into more details on this very shortly. What Gemini has allowed us to do with these savings is to use our fleet more efficiently and capture more volumes. Our volumes are up 7% year-on-year and 5% sequentially for this quarter, while the average loaded freight rate was more or less in line with the prior quarter. Good volume development has also driven high utilization of 94% for the quarter, up 0.5 percentage points sequentially. All of this happened against the backdrop of decreasing rates as expected. In Terminals, we delivered another excellent quarter, driven by record on volumes, revenue, EBITDA and EBIT. What we have not talked about so much until recently is the volume uplift in our gateway terminals from Gemini, which has been a key contributor to our performance this quarter. Return on invested capital has delivered a further uptick to 17.2%. Here, we note that with utilization close to 90%, we are approaching the full potential at which operations in some of our locations become less efficient and volume growth opportunities become more limited in the short term. We continue to invest to debottleneck our existing terminals as well as grow with new locations as exemplified by the inauguration of Rijeka Terminal in Croatia less than 2 weeks ago and several other projects in the pipeline. Turning to our midterm target. As you can see, we have shown almost full delivery on our 2021 commitment. As mentioned, we continue to stay the course of regular progress in Logistics & Services, which is tracking positively with EBIT margin up both year-on-year and sequentially, although more needs to be done on that field. We continue to make good operational progress with our challenged products of Air, Middle Mile and Last Mile, while seeing good revenue growth in our other products, more in line with our organic revenue growth targets. Our priority is to continue to improve in the fourth quarter as we round off the relevant period of these targets. Taking a step back from this quarter, I want to just take a couple of minutes to get into more detail as to what has been driving such a robust demand growth in Ocean and some of the consequences of this phenomenon, which we do not think are sufficiently well understood. Despite talks of deglobalization, nearshoring, trade wars, container demand has shown a remarkable resilience over the past few years that has confounded many observers and models. During this period, China's export growth into all regions of the world, except for North America, has not only been resilient, it had gathered pace. China's share of global export has increased significantly and never as fast as it has over the past 2 years. Specifically, its global export share has increased steadily from 33% only 2 years ago to about 37% this year. This growth is part of a longer trend as reflected from the chart to the left, but has accelerated recently. It affects all regions with the Far East, excluding China being the biggest market and growing at 12% per annum, and Europe the second biggest market and growing at 10% per annum. North America, which, in this case, is including Mexico, which is the third biggest market, has been weaker, but still has seen growth at 5% per annum despite the known trade tensions in 2025. Given the widely available production capacity in China and the very competitive products that are being exported, we do not expect this trend of accelerated export growth from China to stop. The momentum is strong. The consequence for us are not only the resilience of demand growth, which will contribute to absorbing some of the new capacity coming online, but also the increased trade imbalance that it is causing, which over time will lead to higher production cost and lower asset intensity for the industry. On both fronts, Gemini offered us a much needed flexibility so that we can capitalize on the growth opportunity while minimizing the cost impact. Moving back to Q3 and to Gemini specifically, this is the first quarter where we can see the full effect of the new network, and we are pleased that the savings are higher than our original guidance. To give you a sense of the benefits, we separate the Ocean cost savings, which were the ones we had communicated into 2 buckets, namely Bunker Savings and Asset Turn increase. Aside from these, we can also present an upside that we have seen in Terminal as a direct result of this new cooperation. Now taking each of this in turn and starting with Bunker. We can see that the advantages of Gemini stemming from a more efficient use of our vessels, for instance, through lower speed, shorter sailing distances and shorter dwell time are allowing us to reduce the bunker consumption. This quarter, we saw a 6% higher capacity, but about -- but about 3% lower total bunker consumption. And this translates in an approximately 8% bunker consumption reduction corrected for the changes in capacity. Then on our Asset Turn side. From the most efficient use of our vessels, Gemini allows us to transport more volumes at the same capacity. This quarter, we saw the capacity growth of about 6% against the volume growth of 7%. The delta of about 1% point represent the improvement in asset turns. Both these buckets are driven by improvements we have been able to do under Gemini. First, we have been able to deploy our largest vessels in most effective routes and on shorter loops. Secondly, the shorter loops have had fewer port calls and more efficient ones. Thirdly, locations outside the shorter main liner loops have been serviced by fit-for-purpose shuttles rather than underutilized mainliners. We can quantify the bunker consumptions improvement to about 8% at fixed bunker into cost benefits of about $135 million for the quarter, which annualized is about $450 million to $550 million based on the full year implementation and normal seasonality. Likewise, we can quantify the asset turn improvement of about 1 percentage point, which against our total network cost translates into about $50 million of cost benefit in the quarter, which annualized is about another $150 million to $200 million benefit. The cost benefits on the Ocean side alone, therefore, sum up to around $600 million to $750 million on an annualized basis. Another advantage of Gemini has been to increase volumes in some of our gateway terminals, allowing us to significantly increase the throughput. These additional moves have improved port moves per hour and expanded operating terminal capacity. The additional uplift has generated about $40 million in benefits, which annualized is about $120 million to $200 million based on full year implementation and seasonality. Overall, across Ocean and Terminal, therefore, we have generated about $225 million in cost benefits in the third quarter or $720 million to $950 million in annual savings compared to our previously announced targets of about $500 million. As mentioned earlier, we now expect container volume growth to be around 4% for 2025, given the strong demand that we continue to see outside of North America. There is no change to our assumptions on the Red Sea disruptions, which we still expect will not reopen in the near term, absorbing net supply in the industry as long as it remains closed. Against the backdrop of these factors as well as a strong year-to-date performance, we refine our financial guidance to the full year 2025 to an underlying EBITDA of $9 billion to $9.5 billion from previously $8 billion to $9.5 billion, and an EBIT of $3 billion to $3.5 billion, previously $2 billion to $3.5 billion. And finally, free cash flow of positive $1 billion or higher, previously negative $1 billion or higher. Our CapEx guidance for '24 and '25 combined is revised down to about $10 billion, down from $10 billion to $11 billion, while the guidance for '25 and '26 remains unchanged. And I will now hand out to Patrick, who will walk you through the detailed financials at segment level for our performance. Patrick Jany: Thank you, Vincent, and welcome to everyone on the call. Q3 '25 was a quarter with strong financial performance across the group, significantly up sequentially. Overall, we generated an EBITDA of $2.7 billion and an EBIT of $1.3 billion, implying a margin of 18.9% and 9%, respectively. As expected, the delta to the previous year is driven largely by the shift in rates we have seen in Ocean since the peak levels in mid-'24, which was at the height of the Red Sea disruption, while the progress on the previous quarter is driven by higher volumes and operational improvements across all 3 businesses. Net profit after tax was $1.1 billion, generating a solid return on invested capital of 9.6%, still at a good level, but decreasing as strong 2024 quarters progressively fall out of the yearly calculation. Solid free cash flow supported a strong balance sheet with cash and deposits standing at $20.9 billion at quarter's end. Our net cash position is down from $5.6 billion last year to $2.6 billion, driven mostly by the strong returns to shareholders, which totaled $4 billion in the first 9 months. Let's take a closer look at cash flow on Slide 12, where we see that cash flow from operations increased sequentially to $2.6 billion in the third quarter, driven by higher EBITDA of $2.7 billion, while the movements in net working capital was largely flat. Overall, we had a strong cash conversion of 97% up from 89% last year and 81% last quarter. Further, across the chart, gross CapEx for the quarter was $1.2 billion, in line with our multiyear CapEx guidance, driven by our Ocean fleet renewal program. Meanwhile, capitalized losses -- capitalized leases stood at $868 million, also in line with expectations and down from the previous quarter, which was impacted by the Port Elizabeth concession extension and free cash flow was therefore at $771 million. Capital return via share buyback was $578 million this quarter. And finally, most of the $850 million you see in movements in borrowings relates to our 9-year EUR 500 million green bond issuance in September, extending our maturity profile early in light of extending bonds maturing in March next year. Taking all together, cash generation was strong in the third quarter and supported an already strong balance sheet alongside the continuation of our share buyback. Turning to our Ocean segment on Slide 13. Ocean delivered a strong operational performance in the third quarter, which marked the first full quarter of Gemini implementation. From a financial standpoint, Ocean generated an EBIT of $567 million, implying a margin of 6.2%. This is down on last year, driven by the expected rate decline, but significantly up sequentially, driven by the strong volume growth of 7% in Gemini. Specifically on Gemini, as Vincent mentioned earlier, the new network generated cost benefits in the form of bunker savings and higher asset turns, without which we would have expected our third quarter Ocean costs and therefore, EBIT to be impacted negatively by about $185 million. Meanwhile, freight rates were significantly down year-on-year, driven by the ongoing market pressure on rates since 2024, but broadly in line sequentially. CapEx was in line with guidance and comprised mainly installments on vessel orders announced last year as well as a broader equipment renewal and vessel deliveries that are part of our Ocean fleet renewal program. As usual, the chart on Slide 14 illustrates the main elements of the year-on-year EBITDA development in our Ocean business. On the left, you can see the large impact on profitability from the 31% lower freight rates, cushioned by the tailwind of the 7% increase in volumes year-on-year. Ocean also saw a positive impact of $211 million from lower bunker prices compared to last year, while container handling and network costs increased driven by higher empty repositioning and terminal costs. Also note that EBITDA was further supported by higher detention and demurrage revenue and a positive delta in revenue recognition, the latter of which accounts for the vast majority of the net $551 million in the final bucket. All in all, these offsetting factors allowed EBITDA in the third quarter to settle at $1.8 billion, down from the previous year, but up on the previous quarter. Let's now have a look on the Ocean KPIs on Slide 15. Ocean's operational performance in the third quarter is highlighted in these metrics with strong volume performance and Gemini helping to offset headwinds in cost and rates. Loaded volumes increased by 7% year-on-year, reaching 3.4 million FFEs as demand was strong on key trade lanes. Sequentially, volumes grew by 5.2%. As mentioned earlier, our average loaded freight rates declined by 31% year-on-year, reflecting market fundamentals that we have seen since 2024 from growing excess capacity. Nevertheless, as reflected in the flat sequential development, the lower levels in the third quarter at quarter end were actually offset by the high levels at the start of the quarter, therefore, providing a fairly benign rate environment in the quarter. On the cost side, unit cost at fixed bunker decreased both year-on-year and sequentially by 0.8% and 2.2%, respectively, as strong volume performance, high utilization as well as cost benefits from Gemini offset the general cost pressure. Bunker costs were down 14% year-on-year due to both lower fuel prices by 13% and increased efficiency from Gemini, leading to lower bunker consumption of 3.2%. This is despite us carrying more volumes and managing a larger fleet. Specifically on the fleet, the average operating fleet grew 5.5% year-on-year, reaching 4.6 million TEUs, all while capacity utilisation remained high at 94%. Let's now turn to our Logistics & Services business on Slide 16. In the third quarter, Logistics & Services delivered revenue of $4 billion, up 2.3% year-on-year and 8.6% sequentially, the latter reflecting seasonal strength. The year-on-year growth was driven by growth across most products. On the bottom line, EBIT showed a significant increase to $218 million, which also implied a continued EBIT margin improvement of 0.4 percentage points year-on-year and 0.7 percentage points sequentially to 5.5%. The margin improvement is primarily driven by the continued operational progress that the team has made in fulfilled by Maersk, all while continuing to exercise stringent cost control across all service models. CapEx is down on last year, but remains at a stable level sequentially to support growth with particular focus on Depot and Warehousing this quarter. Now let's have a look at the breakdown by service model within Logistics & Services on Slide 17. Starting with our supply chain management offering. Revenue here decreased by 4.8% year-on-year to $594 million, with the EBITDA margin decreasing to 22.6%, down from 24.2% last year. This decline was driven by weakness in Lead Logistics, our 4PL business, volumes primarily from China to the U.S. on the back of the stop-and-go volatility we have seen in the external environment. In Fulfillment Services, operational progress in Middle Mile North America and Warehousing led to significant improvements in profitability with an EBIT margin of negative 0.9%, up from minus 4.5%. Revenue increased by 2.9%, reaching $1.5 billion. Finally, revenue increased in Transported Services to $1.9 billion, equal to a 4.3% increase year-on-year. This was supported by higher volumes in Landside Transportation in the peak season. However, the EBITDA margin was impacted by weakness in Air, landing lower on the previous quarter at 7.3%. We round off with our Terminals business on Slide 18. Terminals delivered another excellent quarter, continuing the positive trend. Revenue grew by 22% year-on-year to $1.4 billion, driven by 8.7% higher volumes supported by Gemini and improved rates. Specifically on the Gemini impact, volumes from Maersk Ocean increased 26% year-on-year. The higher volumes brought a further uptick in utilization, which stands at 89%. As mentioned earlier, while this is supportive of higher margins, it also highlights the necessity to invest in capacity extension in the coming years to cater for the long-term growth of our port operations. Revenue per move increased by 7.8%, reflecting improved rates and mix. Meanwhile, cost per move increased by 6.7%, largely due to labor inflation and higher SG&A costs, but mitigated by higher utilization. Overall, EBIT increased by 69% year-on-year to $571 million with a margin of 39.4%, up 11 percentage points from last year and 4.1% higher sequentially. This underlying good margin was supported by a net $139 million positive impact from one-offs, including the reversal of impairments due to the successful extension of a concession. ROIC rose to a record 17.2%, underlining the intrinsic strong return profile of this business, although levels will taper down progressively with increased renewals and investments. CapEx for the quarter came in at $154 million, more or less in line with previous year and reflect the continued investment in our gateways portfolio. Turning to the breakdown of Terminals EBITDA on Slide 19. Terminals delivered an increased EBITDA from $424 million last year to $501 million. The increase in cost per move of $56 million was more than offset by higher revenue per move and volume impact. Currency exits and other movements brought a further positive impact of $29 million, bringing the EBITDA to a record level for the quarter. And with that, we finished the review of our business segments and are ready for the Q&A. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Patrick Creuset from Goldman Sachs. Patrick Creuset: Just 2 questions. First on the outlook. If we look at your Q4 EBITDA, you're implicitly guiding based on the full year range of somewhere between $1.3 billion and $1.8 billion. Can you provide a little bit of color on what sort of volume and rate assumptions are embedded or would be embedded at the top and the bottom? And also based on what you see so far going to Q4, do you see a skew more likely at the top or low end? And then just on the buyback, you've got a cash position of around $15 billion or so. In the past, you've sometimes given the market a sense on how comfortable you felt on buybacks in the year ahead. Can you again give us a bit of sense today, assuming, for instance, stable trading environment at these levels, would you see a reason to discontinue the buyback next year or keep it? Patrick Jany: Thanks very much, Patrick. So indeed, when you look at the guidance for Q4, it implies a continuity of the pace that we have currently. We have seen rates stabilize by September and early October. And that is, I would say, the pace that we have continued to forecast for the Q4. And the volume development actually seems still to be pretty strong as we can see it. So I would rather mentally see, let's say, the revision of the guidance towards indicating the higher end of the guidance, which is what we are doing by narrowing the range, and that's what we intend to signify here, which at group level is more or less a breakeven. It will depend on the last few weeks for the Q4. When you look at the cash position and balance sheet, it is strong. And as we have indicated as well when we restarted the share buyback back in February this year, the intent is to certainly see this as another 1-year event. And in your assumption of a stability of externalities, I think there's nothing that speaks against the continuation of the share buyback indeed. Operator: Our next question comes from Muneeba Kayani, Bank of America. Muneeba Kayani: Firstly, just on the logistics EBIT improving at the margin to 5.5%, can you remind us what seasonality in this business? And if there was any benefit on that and kind of how much of this is kind of the improvement which can continue? And then secondly, we've seen in container shipping, the order book-to-fleet ratio for the industry is around 32% now, which I believe is the highest since the global financial crisis. So what do you think is driving that? And how do you see it playing out? Vincent Clerc: Muneeba, so if I start with your first question on Logistics, I think most of the improvement that we're seeing are due to the cost containment and productivity improvement that we are putting in place. In general, the business will have a seasonality a bit tilted towards the second half year versus the first half year. But -- and mostly, I would say, towards the very end of the year, depending on your product exposure. But I think when we look at it, and you can see that in the volumes and the top line, we see some seasonal improvements that are helping. We also see some of the wins that we have taken in that are helping, but I think most of it is actually coming from the work that we're doing on margin. From the order book, I think you're correct that at 32%, the order book is quite high. I want you to -- I just need you to remember 2 things. I think the first one is that the time to order, so the number of years over which this is going to phase in is more than it was during the -- before the financial crisis. So if you -- we're going to -- there's a longer installment, if you will, that is being ordered. So that's one thing. And the second thing is the story that we had about China. The market is growing at about 4%. But on the head haul, it's growing at about 7% and what we're seeing is as long as it grows at 7% on the head haul, you need 7% more capacity to be able to carry this. So I think there is -- this dichotomy that there is between head haul growth and average growth is absorbing a lot more capacity. The longer order books is -- it means that it's not phasing as brutally as one would expect. And then the last point that there is, is not a single ship has been scrapped for the last 6 years, but the ships all got 6 years older in that period. So there is pent-up demand for that. And so I think over time, we will see that some of the levers that so far have come at us, whether it was higher demand from China or selling around the Cape of Good Hope or COVID, this will fade away, and we'll be back to having to use the tools that we normally use in the industry, which is scrapping, idling, slow steaming and so on. And there, there are still significant levers that we can lift to actually balance the outlook. Operator: The next question comes from Ulrik Bak, Danske Bank. Ulrik Bak: So on the volume side, Ocean volumes, you obviously have very strong growth, 7% in the quarter. I'm just curious to hear what if there is a split between the feeder legs and the main haul legs? And if there is any issue with double counting, anything because it just looks so extraordinary, your volume growth. And then if I can sneak in a second one. So this overperformance versus the market, how long do you expect this to be sustained? Vincent Clerc: All right. So I can guarantee you that there is no double counting of volume like we count the containers and the bills of ladings only once. It's much better. You would see it in the revenue development very different if we were double counting. So I think that we're pretty -- we can be quite categorical around. I think when I look at what we're able to do right now as a result of Gemini from a cost perspective, I think it's a pretty significant lever that we have unlocked here. And this has, I think, legs to continue into the coming quarters. I cannot give you how many quarters this advantage will last. I think it's going to last quite a while, but it depends also on what we do next and what competition does next. And I'm not in control of all of that. But I think that what we have shown on the slide with Gemini is there are a few levers where we have broken some efficiency frontier that we had under the previous deployment and that we have moved them now to being higher. And this is what allows us to actually lift the cost impact of Gemini quite significantly. Operator: The next question comes from Omar Nokta, Jefferies. Omar Nokta: Just wanted to follow up on the share buyback discussion. You mentioned last quarter, you continue to view that as a focal point of the capital allocation strategy. It sounds like that's going to continue for '26 as well. But just in terms of how you're thinking about the size, $2 billion this year, how can we think about how that looks for '26 as you set the budget? Does it become a portion or a function of how much free cash flow was generated this year? Or what's it based on? Is it based off of earnings next year? Any color you can give would be helpful. Patrick Jany: Yes. Thanks very much for your question, Omar. No, as we said, clearly, share buyback is a fundamental piece of our capital allocation and will continue to be as well for next year. I think when you look at the dimensioning, you know that we actually maxed out this year, right, just from the free float and the rules on the daily volumes. So I would expect this to be, say, a maximum amount. But then the exact dimensioning will be done, obviously, in February and when we come out with our guidance for full year. I think it will be premature now to guide. But I think certainly, the willingness to continue a sizable share buyback is certainly there. Operator: Our next question comes from Cedar Ekblom from Morgan Stanley. Cedar Ekblom: I have a question on the Gemini cost savings. I'm looking at that slide that you put together, and it looks like the bulk of the benefits come on the bunker side of things, which I think makes sense. What I am surprised about is why the asset turn benefit is not higher? Maybe you could just talk through like what I'm missing there. Maybe I've just thought that the asset turn would be better. You could optimize the network more, long voyage, big vessels, feeder vessels, et cetera. I'm just trying to understand that split that the bunker number and the asset turn number are not sort of closer to each other? Vincent Clerc: Yes. Thank you, Cedar. I think let me try to explain that I think the asset turn, it depends also on what is your base. We had an extremely high utilization last year. So we've been able to lift this with 0.5%. We're continuing to look at whether we can actually increase that number in the coming quarter. The bunker, we can very much control because that -- as soon as you're into the deployment, since we measure it against the capacity, we get the full saving calculated there. And we've tried to disaggregate that because we could have just done this in terms of total unit cost per container, and I would have mixed the bunker and the efficiency on the fleet or on the utilization. So I think the bunker, we see 100% of the saving right away. As long as we deliver on the reliability, this will be pretty steady. I think on the asset turns, this is where I think we have some opportunity to continue to fine-tune and improve the network. So this one, I would look at as still having a bit of leg that we need to exploit in the coming quarters. Cedar Ekblom: Okay. And then, yes, just a follow-up there. So obviously, container handling unit cost at a fixed banker hasn't really come down year-over-year. It obviously has come down sequentially, which is helpful. Could you give any sort of guide around how to think about that sort of container handling cost on a unit basis or maybe network costs on a unit basis? Like are we talking about a 5% decline from here unit-wise? Or I don't know if you could help us quantify how to think about that run rate into '26? Vincent Clerc: Yes. So the issue with container handling is the fact that, as I mentioned, with an average market growth at 4% and a head haul growth at 7%, trades become more imbalanced. And then under container handling, the amount of empty containers we're moving around increases because there is just more containers going one way and fewer containers going the other way. And that means more empty repositioning. And that's what I mentioned in the slide for China. I think as we see this imbalance continue to grow, it's important that we understand that we're going to need more and more capacity to cater for growth because it's more and more asymmetrical because between the head haul and the backhaul, but it will also increase our cost per FFE above that because of the increasing balance and more empty containers being moved around. Operator: Our next question comes from Kristian Godiksen, SEB. Kristian Godiksen: Yes. Also a couple of questions on the Gemini part. So just a house of question to start out with the improvement in Terminals, is that in the -- is that for the hubs and hence, included in the Ocean part of the business? Or is that for the Terminals business? And then if you could maybe comment a bit on the unit cost advantage you see compared to the peers that are not using the hub and spoke model? And then maybe just finally sneak in a question on whether you've had any preliminary discussions with the clients on a potential price premium for your higher schedule reliability? Vincent Clerc: Yes. Thank you, Kristian. So I think the -- what is important with Gemini from the gateway perspective is the fact that before when we were in 2M, we were paired with probably the other line that has the most comprehensive terminal portfolio. And it means that in a lot of locations, we have to split volumes between the different parties. Here, we are with a partner that has less -- much less of a terminal portfolio. And it means that net, we're getting more locations where 100% of the throughput is not split between 2 different facilities, but it's all going to our facilities. So for the gateways, this is very, very positive because they get the full 100% of the support from Gemini. And that is something that is an uplift for this, and it will last for as long as Gemini lasts. So it's quite positive. On the unit cost, I think we're going to need 1 or 2 quarters more of data from also the competition to know because we can see how much we have saved sequentially and how much we have saved year-on-year. Obviously, the world doesn't stand completely still. They will also do certain things. What we can see with the numbers that have been released so far is that we're making more progress on unit cost than what they're making, and we attribute this to Gemini, which is the big thing that we did to lower our unit costs. So we're quite positive on the fact that we are opening up a gap now with Gemini that is going to be -- that is going quite handy, especially in the current rate environment, and we will continue to work at making it as big as possible. Then finally, on customer discussion, I want to say that the customers' reaction is really very, very positive. Obviously, for the premium, this is a conversation that we have started, but it's a bit too early to talk because we need to be certain also that we have a long enough track record that it unlocks value for them that we -- where we can then capture some of that value for us. So for instance, concretely, today, every customer has a buffer stock and that reliability needs to unlock a reduction of that buffer stock. They need to trust that this has weathered sufficient ups and downs and be steady that they can take out some of that buffer stock. And if they do, they pocket that saving and then we can capture some of it in form of a premium. I think that process is starting. It's a long-haul process to take place, but certainly something that where we see some potential at least to capture some value, but we need to -- it's just a few months. It's the first quarter we're going with it today, where we have the full Gemini. Some of them have been in transition with -- not everything is yet fully in a place where value has been unlocked yet, but we're very positive with the discussion so far. Operator: Our next question comes from Jacob Lacks, Wolfe Research. Jacob Lacks: So you've discussed in the past maybe a bit of a shift in how quickly contracts get repriced when the market is tightening up. Have you seen customers actively work to reprice contracts again with rates moving lower now? And to that end, do you think the current rate environment will largely be reflected in Q4? Or could there be some incremental pressure in '26 when new contracts are signed? Vincent Clerc: So we've not -- thank you, Jacob. We've not seen any big movements on contract being open now, which since the contracts have been trending down during Q3, and it was not very timely for people to do it until they -- when they know they have the negotiation coming soon and as long as things are moving their way. So I think that from that perspective, that's one of the things that also holds the contract good. So those have not moved. You will have noticed that over the past few weeks, the rates have actually come up again a little bit. It's too early to call anything on the contracting season. I think we'll have certainly a discussion around this in February when we come with the full year guidance for 2026, and we have some of the early negotiations under wrap. But I think for now, what we have seen in terms of behavior from customers is that whatever the price did during Q3 did not lead to customers actually reopening contracts or wanting to have commercial discussions on price. And contract adherence has been quite strong as well. So it's not like the volumes just disappeared. I mean they were living up to their commitment. Operator: The next question comes from James Hollins, BNP Paribas. James Hollins: Obviously, you discussed buybacks a lot pretty important to the market. I was just wondering, I mean, clearly, another way you might not do buybacks is aggressively pursuing M&A. I was wondering how you're looking at M&A if we are indeed looking quite extensively and globally at potential deals? And secondly, a bit of a sort of generic question, but as I look at consensus for 2026 Ocean, Bloomberg consensus has a loss of $2.8 billion. I mean that would be a business scenario like 2009, you'll come to deposit [ $1.7 billion ], apart from showing how on that forecasting. Maybe just get sort of your view on how you would see, I guess, particularly that Bloomberg consensus against the reality of what you might see in this industry based on someone that's been in it a long time, your work on cost, your work on the alliance and basically whether that's way too pessimistic. Vincent Clerc: James, I think let me start with the 2026 and give you the standard answer that I look really forward to talking about it in February. But before that, I think we'll have to pause on giving any type of views. With respect to the M&A I think what we need to remember is that all 3 segments that we operate in are actually over time, segments with -- that are quite competitive and very low margin. So when I hear something like aggressive pursuit of M&A, I hear a premiums that will be difficult to justify through synergies afterwards and a lot of risk to destroy shareholder value. So whereas we've said it and we continue to say that M&A will be a part of the continued repositioning of Maersk. And whenever we see opportunities, we have both the wherewithal and the interest to pursue them, but maybe an aggressive thing right now, given some of the outlook is not necessarily something we will pursue. Operator: Our next question comes from Parash Jain, HSBC. Parash Jain: I mean just first with respect to Red Sea, I know nobody has a crystal ball, but given the recent developments, is it first half of next year looks more likely than ever before? And my second question is, we heard a lot about front-loading by the U.S. retailers, in particular, now that we are well into the peak season, are there any signs of front-loading, which has been reflected into the fourth quarter's volume run rate? Vincent Clerc: Yes. So for the Red Sea, let me start by saying that, obviously, the ceasefire in Gaza is a significant -- first, it's a great thing for people in Gaza and for the world in general. But it is also a significant step towards being able to reopen the Suez Canal since the -- the situation in Bab al-Mandab and in Gaza have been linked since the beginning. I think the way we think about this is that we need now to make sure that this moves into a process where it becomes clear that the ceasefire is entrenched and doesn't risk going backward at some point and then we fall back into a new phase of a conflict. And that's the situation we're monitoring quite closely. And we're also figuring out what is the posture of the Houthis specifically to see if we can start to have a safe passage. So I would whether it's more likely now to be early at some point or whatever, I think if the ceasefire holds, then I think we've crossed a gate and made a big step towards returning through the Red Sea. But I think we need to see that get entrenched, and we need to see the process move ahead. And once that happens, then we'll have a better view of what that means for a return to the Red Sea. Then in respect of front-loading, I think there was a lot of discussion on front loading, especially end of '24, beginning of '25 before the tariffs in April. We certainly saw following the implementation of tariff that things softened in North America. And we certainly still have seen this still into the third quarter and even, I would say, during the month of October, I will say that what we're seeing now is there is somewhat of a push also into the U.S. for some of the seasonal goods to get there. So I think from a demand perspective, very resilient demand across all geographies and the U.S. that is picking up a bit of pace following this month between April and October that have been a bit more soft. Operator: Our next question comes from Alexia Dogani, JPMorgan. Alexia Dogani: Just firstly, could you explain a little bit the unit revenue development because we're struggling to reconcile with the trade lane numbers you report on the group level. If you can just explain how it normally developed as per the 6-week lag, the spot versus the contract, has it performed versus expectations, whether it's underperformed or overperformed because, yes, struggling to reconcile a little bit the outcome. And secondly, on the unit cost, again on Ocean, I mean, clearly, you talked positively about the Gemini contributions. But overall, your unit cost at constant bunker is only down 1% despite you growing 7% capacity and 5.5% volumes -- sorry, the other way, 5.5% capacity, 7% volume. So when we look at into next year, what further cost savings can you deliver if there is less volume growth because I imagine the capacity benefits annualized. And then finally, obviously, the IMO has now delayed its kind of net zero initiatives. How should we think about the implications for industry capacity discipline? And I guess, more importantly, for yourselves that have invested in green CapEx, which comes at a higher cost. And so it kind of takes you in a relative disadvantage? Vincent Clerc: Yes. There's quite a few questions. So let me try to cover that to the best possible. I think, first of all, when you look at the cost, there is one element that we're missing. And it is that the net position that we have on our different VSAs, whether it's a plus or a minus is reported under other revenue. And the fact is that our position in 2M was balanced and our position in Gemini is that of a net seller of capacity. And that means that out of the 11% that you see in growth in the network cost, half of that is due to that net position. And once you take that out, then the growth of our network cost is actually 5.5% for 7% volume increase. So I think that's just important to position this. We see the unit cost being decreased. The biggest efficiency is because we've chose to slow steam and be reliable is going to be seen on bunker. So that was always -- it doesn't matter so much which line item it shows, but we've made choices. We could have gone a bit faster and save a few ships and also generate some cost savings that you would have seen more on the network cost. We've chosen to really focus on bunker. So I think for the unit cost, there is this -- when we look forward, I think we have 3 levers for cost savings, for further cost savings. One is the expansion of Gemini. Two is actually some of our other costs here under organizational cost that we're looking into. And then finally, I think as the rates soften, we will see also a softening in the time charter market, and that will generate further savings in the unit cost that we have by basically being able to lease ships at a cheaper price. So those are, I think, the 3 key things. I will say that we anticipate -- you mentioned like less volume growth. We don't expect necessarily less volume growth, but we'll talk about this in February. But I think that's not an assumption we should have. So that's both for the unit cost and the growth. The IMO, I would say, from a CapEx perspective, it's -- what happened at the IMO is a nonevent. Seen from that, that today, every single ship that is on order more or less is a -- has a dual fuel engine. It's either dual fuel LNG bunker or it's dual fuel methanol bunker. And I think everybody understands that it makes sense when you take a bet on the next 30 years by ordering a ship that you cannot just base yourself on what the IMO is doing now, but you need to understand what optionality you have for the next 30 years. And I don't expect that people will start to order only bunker ships because they will think that for the next 30 years, this is not -- green transition is not going to be an issue at all. So I think from that perspective, I don't think operationally, IMO is a problem. I don't think CapEx-wise, IMO is a problem. It's a problem to execute the energy transition because definitely, it's a loss of momentum. But from an operational perspective, we are not at disadvantage, and I don't think it's going to change order behaviors or supply and demand. Patrick Jany: And let me come back on your rate on your first part of your question. So what you have to consider is that we have increased the share of short-term rates in our mix, as you can see as well in our disclosure to 53% compared to 47% long term in the quarter, and which was positive during Q2, Q3. As short-term rates decreased during Q3, you see that our full year estimate for '25 sees an increase of the long term. So we are pushing the contract fulfillment and the long-term rates, which are more resilient to the erosion of the rates in the short term. So you have a progressive change of mix constantly to optimize the revenue there. Another factor when you try to reconcile is also the very different geographical evolution of the rates. So the North -- the East-West rates are the ones which we always follow very publicly and those ones came down. However, you do have much more resilient rates development in North-South and then the interregional rates as well. So that's a bit of a mix that you see always in our total figure. I hope that helps. Operator: Our next question comes from Marco Limite, Barclays. Marco Limite: So my first question is on demand because you are talking about a fairly strong demand, while some of your competitors in other subsectors are talking about soft demand. You have also mentioned that you expect U.S. demand being sort of strong over the next 6 months. And then also, you have mentioned that China outbound has grown 7% and expect a similar rate going forward. Do you -- what kind of visibility have you got on basically these assumptions? And especially the fact that China has been very strong this year is not that a risk for growth next year on a very high comps, is the first question? And the second on capital allocation. We have been discussing about potential for M&A and share buyback and so on. But when we think about terminal expansion, I mean, this week, you announced a $2 billion investment in the terminals. But first question is that on your balance sheet or off balance sheet as you have got a minority stake. But more in general, is it a problem for you to have, let's say, the terminal business in the overall Maersk umbrella, where, of course, you cannot take a lot of leverage, but terminal business needs big CapEx investments and also a larger balance sheet buffer? Vincent Clerc: Yes. So on -- let me start with the demand. First of all, the strength of the demand, if I look at year-to-date, both last year and year-to-date, I mean, this is -- I hope this is undisputed by anybody, at least when it comes to container traffic because you can verify it in the CTS statistics, [ GOC ] statistics and any other widely available port statistics that you can find. So is the fact that China makes up a large part of this and that this shows no signs of abating. So personally, I don't see any reasonable argument or data source that would go against the fact that demand has been above 5% last year and will be around 4% this year, which is actually quite significant. The demand from China and the growth from China, at least so far shows no sign of abating. And unless at some point, somebody can point to a reason for why this would abate, then I think it's a reasonable assumption to say that if there is no reason for it to slow down or stop, then why would it? And then you can discuss whether given -- as you mentioned, given the comps, whether it's going to continue to be 11% or that the base becomes so big that it becomes 10% or 9%. But the fact is that it's still quite significant. And at least so far, as we show in the graph, the last 2 years has been accelerating, not decelerating. So I think from a demand perspective, we feel quite confident that demand growth is very strong. There's a lot of cargo out there to move, and that has a lot to do with China. And I think that there is ample data to back that up. You want to? Patrick Jany: Yes. On your question on the capital allocation and terminals. I think -- so first of all, on the capital allocation, I think our first priority is organic growth, and we have always said that we would dedicate the sufficient funds to grow in Logistics, grow in Terminals and renew our fleet for Ocean. That is part of our guidance of the $10 billion to $11 billion CapEx over 2 years. So that's factored in. I think what you have to see is actually Terminals is a brilliant business that complements Ocean. We capture a lot of the value as we actually just showed on Gemini of the value of the Ocean leg into the port, right? And the margins there are actually higher than in Ocean. So it is good to have. It comes with, I would say, a high CapEx profile when you have new terminals, but a lot of the CapEx is actually expansion of existing, right? Of existing capacity where you can grow. And then you have a few new ones which are planned. We just announced the -- we just opened one recently and there are others in the pipeline, which, again, are absolutely included in our guidance and do make absolute good sense. Overall, I would say it is still an asset-lighter business than Ocean is. So it's absolutely fine with our balance sheet, and we have the balance sheet structure and financing to fund that development as well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks. Vincent Clerc: Thank you again for joining us today. And to summarize the discussions, we have demonstrated strong execution in this quarter in which uncertainties did persist in the external environment, but where we carried to deliver strong results across the whole business portfolio. We've made good progress across the portfolio and continue to see supportive demand, and this has allowed us to narrow the full year guidance. We look forward to seeing many of you on our upcoming roadshows and investor conference. Thank you for your attention again, and see you soon. Bye-bye.
Operator: Thank you for standing by. Welcome to the DraftKings Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Michael DeLalio, Senior Director of Investor Relations. Please go ahead, sir. Michael DeLalio: Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, slide presentation and business update, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC. Hosting the call today, we have Jason Robins, Co-Founder and Chief Executive Officer of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a brief review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins. Jason Robins: Thank you, Mike. Good morning, everyone, and thank you all for joining. This is the most bullish I've ever felt about the future of DraftKings. This may sound surprising given we are revising our fiscal year 2025 guidance ranges today. However, underlying growth in the business is accelerating. We are also increasingly advantaged through new exclusive marketing agreements with ESPN and NBCUniversal as well as our leading product offerings continuing to improve. Finally, we are launching DraftKings predictions in the coming months, which we view as a significant incremental opportunity. Overall, I believe that our long-term financial potential has never been brighter. The progress we made over the last few years has been outstanding. In 2022, we reported a little more than $2 billion of revenue and nearly $1 billion of negative adjusted EBITDA. In 2025, only 3 years later, we expect to generate $5.9 billion to $6.1 billion of revenue and $450 million to $550 million of positive adjusted EBITDA. Our Sportsbook net revenue margin is on track to increase by more than 400 basis points over the last 4 years, which is more than 100 basis points per year on average as our parlay handle mix and efficiency of promotions all continue to improve. We are achieving this expansion while also maintaining very high customer retention rates. In fact, retention of NFL week 1 customers is up over 300 basis points in the last 4 NFL weeks compared to the same weeks a year ago. Recent product enhancements are also driving strong customer engagement. NFL handle has grown 13% season to date, and NBA handle has grown 19% season to date, an acceleration compared to the growth we were seeing in recent quarters. That acceleration has continued to build in the first month of the fourth quarter as our total sportsbook handle increased 17% year-over-year in October. Parlay handle mix continues to surge with year-over-year gains of 800 bps for NFL season to date and 1,000 bps for NBA season to date. iGaming has been similarly strong with third quarter net revenue growth accelerating to 25% year-over-year, the fastest growth we've experienced since the first quarter of 2024. We are even more excited about the future. Our new exclusive marketing agreements with ESPN and NBCUniversal will provide us deeper brand affinity and broader reach, including unmatched NBA access. In fact, early indicators suggest our NBA share is significantly higher than it was at this point last year. Our top-rated sportsbook experience continues to set the standard for speed, depth and breadth, and we will soon launch Spanish language functionality that will meet the demands for a growing audience ahead of the World Cup in 2026. In iGaming, we're developing innovative slot and jackpot content and recently brought in a new leader to solidify and grow our position. The next point I would like to touch on is sport outcomes. We have made significant progress growing our Sportsbook hold percentage and net revenue margin in recent years, primarily due to parlay handle mix increasing while also experiencing short-term positive and negative sport outcome variances. It is important to understand that over the course of most sports seasons, this variance typically evens out and should not be overly significant. However, because sports seasons do not align with fiscal quarters, there will be certain periods when outcomes positively and negatively impact reported financial results. For example, in the second quarter of 2025, sportsbook-friendly outcomes positively impacted our revenue by roughly $100 million, driving record performance for revenue, adjusted EBITDA and adjusted EBITDA margin. Conversely, in September and October, customer-friendly sport outcomes impacted our revenue by more than $300 million as just a handful of NFL games had a pronounced effect. Over the long term, however, sport outcomes do not affect the underlying earnings power of our business, but there will be periods where we can meaningly overperform or underperform our expectations based on these variances. I'd also like to touch on the recent rise of predictions. We have experienced numerous waves of competition in recent years, mostly from well-capitalized companies that have built or acquired strong sports betting product offerings, and those have had minimal impact on DraftKings revenue trajectory. By comparison, predictions are structurally limited, lacking the depth and breadth of a sports betting offering. There are also numerous data points from around the globe that validate the predictions in sports is relatively small and largely incremental relative to traditional sports betting. In actuality, we see predictions as a significant incremental opportunity. We are excited about our pending launch of DraftKings predictions and its potential to expand our total addressable market. In the coming months, we expect DraftKings predictions to enter many new states with sport event contracts, unlocking a new customer base and revenue stream. Nearly half the country's population remains without access to legal online sports betting, but there are several other companies offering federally regulated predictions in all 50 states. As growth in predictions continues, this may also motivate more states to legalize online sports betting and iGaming with reasonable regulation and taxation. To close out my thoughts on predictions, I would leave you all with 3 key takeaways. First, we will pursue this opportunity, we will compete and we will win. For the same reasons that we have been successful competing in the sports betting industry, we expect to succeed here. Second, we will be thoughtful on how we launch DraftKings predictions and do so in a way that is respectful of other stakeholders. As such, we plan to focus on the states where we do not offer Sportsbook, which is also where we believe the vast majority of the financial opportunity exists. Third, we will be measured in our investment level, understanding that gross profit payback periods need to be shorter relative to our more established product lines, where we have more predictability around what customers we acquire will be worth over time. Finally, I want to touch on our share repurchase program. We have bought back 9.3 million shares since the inception of this program, and we are pleased to announce that our Board has authorized increasing our repurchase program from $1 billion to $2 billion. We anticipate being active with share repurchases over the next quarter and expect to continue returning capital to our shareholders as free cash flow ramps up over the coming years. Thank you all for your support. We promise to continue working relentlessly to create meaningful value for you in 2026 and beyond. Alan Ellingson: Thank you, Jason. Before I cover our fiscal year guidance, I'd like to discuss our third quarter 2025 financial performance. Please note that all income statement measures discussed except for revenue, are on a non-GAAP adjusted EBITDA basis. In the third quarter, we generated $1.144 billion of revenue, representing 4% year-over-year growth. We also generated negative $127 million of adjusted EBITDA. First off, we do recognize our third quarter financial results were below our expectations due to the pronounced impact of customer-friendly sports outcomes. In the last 2 months, these outcomes impacted our revenue by more than $300 million, with just a handful of NFL games having an outsized effect. But as Jason highlighted, there is a lot to be excited about in our business. Our underlying customer metrics are as strong as they've ever been. Our MUPs growth was healthy, increasing 6% year-over-year when excluding the impact of Jackpocket from all periods. Customer acquisition was also a bright spot, increasing year-over-year across the entire enterprise and also for direct to Sportsbook despite not having any new state launches. In Sportsbook, we continue to drive strong engagement. Sportsbook handle increased 10% year-over-year to $11.4 billion. As we see strong returns on our promotions, we will adjust our investment levels based on deliberate and calculated return observations. The results of our promotions around the start of the NFL season has been outstanding. As Jason mentioned, our October handle accelerated meaningfully year-over-year. That mix improvements are also exceeding what we've been estimating, providing us even more confidence in our long-term Sportsbook hold percentage. Shifting to iGaming. Our third quarter net revenue reflected a solid acceleration compared to the first half of 2025, driven by strong year-over-year growth in both active customers and net revenue per customer. On a per customer basis, we made strong progress growing gross gaming revenue while also optimizing our promotions for more advanced cohort modeling. Now I'll touch on our fiscal year 2025 guidance. In August, we guided fiscal year 2025 revenue of $6.2 billion to $6.4 billion and adjusted EBITDA of $800 million to $900 million. Based on all of the aforementioned, today, we are providing fiscal year 2025 revenue guidance of $5.9 billion to $6.1 billion and fiscal year 2025 adjusted EBITDA guidance of $450 million to $550 million. Our revenue guidance range implies growth of 24% to 28% compared to what we achieved in fiscal year 2024. Notably, our fiscal year 2025 guidance ranges now include the expected launch of a predictions market offering which we're excited about as we begin to look ahead to 2026. That concludes our remarks, and we will now open the line for questions. Operator: Certainly. And our first question for today comes from the line of David Katz from Jefferies. David Katz: I wanted to ask about OSB hold percentage. Obviously, many of us are struggling with getting our models in the right place. We talk about customer unfriendly that has been more the pattern than the exception of late. How do you get confidence or help us get confidence that it will and should swing back around? And just talk about the journey of the past year in that regard. Jason Robins: Yes. I know it definitely is frustrating when you're seeing it happen, and it feels like it's the pattern. I will say probably push back a little bit on that. Last quarter, meaning Q2, we actually had positive outcomes. And I think you see the strength of the business model. We generated over $300 million of adjusted EBITDA in Q2 on positive outcomes. So I think it can swing either way, certainly. And this quarter, it unfortunately didn't go our way. October also wasn't a great month for us. But over the course of time, it normalizes. So I think as you're thinking about modeling out years or multiyear period, certainly, I think that can definitely be something where you can assume a smooth sort of curve. But I think if you look at short periods, you're going to have times when sport outcomes impact results, and there are going to be times where it allows us to overachieve our expectations and times where we fall a little short. David Katz: Understood. And if I can ask one very quick follow-up. I noticed that you added an individual to the Board, Greg Wendt, who many of us sort of know is a well-regarded person. I'd love to just get a quick comment on how you see him adding value for DraftKings. Jason Robins: Well, first of all, Greg is a great addition. We're really excited to have him on the Board. I've known Greg for many years. He is obviously an expert as it comes to investing. He's been a long-time gaming investor. So -- and also very recently left that position. So I think what's nice is he's somebody that we can talk to that has a really strong perspective on what investors are thinking and understands capital markets really, really well. He has tremendous connections on the public affairs side. [indiscernible] all around smart guy and really I think is going to contribute to the strategy and direction of the company. So we're really excited to have Greg. And just had him in our first Board meeting this week and looking forward to his contributions. Operator: And our next question comes from the line of Stephen Grambling from Morgan Stanley. Stephen Grambling: As a quick follow-up to David's question on hold, aside from just hitting structural hold, I think one of the concerns is whether parlays also increase the overall volatility of hold. So what do you think are the biggest opportunities to dampen the volatility over time? Or how do you think about balancing pushing higher structural hold versus potentially higher volatility? Jason Robins: Well, I think we always view it as we should maximize long-term value. And obviously, in some cases, that may come with some increased beta. But I think that over the course of time, maximizing long-term expected value is the right strategy as long as you're managing risk in a way that's appropriate. Really, where this occurs most acutely is when you have sports or individual events that are very concentrated. So something like baseball or basketball where there's long seasons with many, many games, you're going to see less of that. Something like an NFL weekend or Super Bowl or March Madness or a big fight, you could see bigger swings because those are individual events where a single outcome affects a large volume of betting. And there aren't other events to offset it and to normalize over time. So I think that's just the nature of the business. And what we do is we certainly make sure we're managing risk. If you look at the overall negative outcome impact we've experienced this year, it's only around 5% of our total revenue. So obviously, in a given quarter when a lot of that hits, that can be meaningful. But from a risk management and from a cash flow and making sure that we're still generating profit and liquidity, I think that's something that we always keep in mind. And so we won't take liabilities above a certain level. And if we ever did need to, we would find ways to hedge off or we wouldn't take them at all. But I think within that constraint, being able to know that you're maximizing EV is important. And obviously, if that comes with some ups and downs, so be it. But as long as you can manage the business in a way that you're managing that risk, I think maximizing long-term value is the way to go. Stephen Grambling: Fair enough. And if I can sneak one on the prediction markets. I think similar to the start of online sports betting, there's a lot of concern about what profitability looks like here. I think you mentioned the shorter payback window potentially or what you hope. Can you elaborate on how you think about the profitability of a prediction market product? And any initial thoughts on what investment could look like if the market plays out the way you hope? Jason Robins: Well, I think what we're going to do is the same thing we do with everything, which is we're going to be very data-driven, very analytical here. Starting off with very conservative views on LTV and very conservative approach to payback periods, I think, is smart because, one, we don't have any data. So in absence of that being conservative, it's always best. And two, we don't really know what the future of this product will ultimately look like. As we've noted, I think, as this continues, states will legalize OSB. Now that might be helpful because those customers may convert. But the actual predictions product is unknown at this point in terms of what the longevity of customers will look like, what the spend will look like. The products themselves are super nascent. So I imagine retention initially is going to be a challenge. And over time, I think it will get better, same with monetization, but they're very bare bones at this point. So I think while certainly an exciting area and one that we really are excited and bullish about, it is still so early and a lot of unknowns, and we have 0 data. We haven't launched a product and don't know anything yet. Once we start to gather data, we're going to make different decisions. We're going to look at what the data says, and we're going to adjust. I don't see us dramatically extending the payback period. So I think we'll kind of keep conservative on that, but we'll have much more precise data with which to make those decisions. It won't be as much of an estimate. So we'll be able to be a little bit more of a lean in there. And as far as total investment, because we don't have that data yet, I really don't know. It could be anything, but we're not going to spend foolishly. If we find that we're not able to get the kinds of returns that we want, then we won't do it. The other thing I will say is that because we have so many -- we have such a great presence across the sports and media landscape already, we don't think there needs to be a ton of incremental spend, at least on the national level here. There might be some incremental local spend in key states. But I think on the national level, we feel like a lot of what we already have can be used to effectively get this message across as well. Michael DeLalio: I'm going to jump in here, too. This is Mike. Analysts, as a reminder, please stick to one question. We have a lot of participants in the queue. Operator: And our next question comes from the line of Dan Politzer from JPMorgan. Daniel Politzer: On prediction markets, Jason, maybe can you talk about the conversations that you've had with regulators and shed light on why you feel comfortable proceeding here when certainly some of your larger peers have not. And along those lines, how you see the prediction market product evolving in the coming years, just given this is where a lot of attention from investors is right now? Jason Robins: Well, first, obviously, we really value and treat as with the utmost importance our relationships with the regulators and policymakers in the states where we are licensed and operate. So we have had numerous conversations with them and wanted to make sure that when we were acquiring Railbird and other things like that, they were hearing from us and understood what the rationale behind it was and how we are thinking about it. So I think through the strength of those relationships and conversations, we got comfort in the approach that we're taking. And as I said in our note on the call, we aren't going to be in every state with sports. So we won't even be in every state with nonsports. And I think we have a good sense of where the sensitivity areas are. And the good news is, as I've said in the past, I think it aligns also with the opportunity. I think the states that already have legal regulated online sports betting, there isn't going to be as much opportunity in the prediction space, at least in the sports prediction space. So to me, that also is kind of makes it a no-brainer to focus on the states that don't have online sports betting already. Daniel Politzer: And then -- sorry, and how you see this product evolving? Do you think it's just limited to sports or it evolves into a broader subset of prediction offerings over time, gaming, all the other stuff kind of under the hood? Jason Robins: I think if you look overseas, sports is really where most of the concentration and volume is. Even here in the U.S., sports is what's driving all the growth. So I mean, not to say there won't be other things. I know elections are popular, too. In certain places, we'll be able to offer that as well. But I think that for the most part, the volume and opportunity is going to be in the sports space. Not to say there couldn't be other innovations and things that create opportunities over the long term, but that's less proven, and I think something that at this point, we don't have as much certainty. Operator: And our next question comes from the line of Clark Lampen from BTIG. William Lampen: I'll keep the, I guess, sort of theme going here with prediction. Jason, I'd like to, I guess, just get a little bit more sort of specificity around the significance comment in the letter. Is that largely going to be just sort of customer access in new states? Or is there -- as you guys think about winning, as you put it in this market, where can you guys, I guess, bring something unique here to the extension to extract some value that maybe others can't? Jason Robins: Yes. I mean to the extent that everyone is viewing this as competitive, I think it's the same way we compete with anyone. We would go out and out execute across all the key things that matter, product, customer experience, marketing, all those things are things that we have an extraordinary amount of data and expertise around and systems and processes that we've built that at scale are able to perform at the highest of levels and compete with the toughest of competition. So I view that as a huge advantage that we're going to have along with our brand and the fact that people already associate us with sports. Add in some of the media assets that we have and the partnerships that we have, I think it's going to be really tough for anyone to compete with us. And I expect for the same reason that we've been able to do well against other new competitive entrants in the market, and there have been many, many of them over the years, as you all know. We've continued to chug along. We've continued to perform. So it's really the same reasons as those things. And I think in this case, we're actually starting from an even more advantageous position because we know more and have more scale and more expertise than we did a few years ago. So I think it's going to be tough to beat us. It's not that I'm taking anything for granted. Obviously, we're going to go out and we're going to compete hard. But I do feel very good about where we're going to be able to find our place in this space. Operator: And our next question comes from the line of Robert Fishman from MoffettNathanson. Robert Fishman: On the ESPN deal, there's a long history between your companies. I'm just wondering if you can discuss how this deal came together and why you think today, it makes sense for DraftKings. And how important do you expect the integration in their apps to be as a future growth driver for DraftKings going forward? Jason Robins: Thanks, Robert. So first, very excited about this. I mean, as you noted, we've had a long relationship with ESPN back a decade plus ago in fantasy sports through the early days of sports betting and really happy to be reunited with them again in a long-term strategic deal. So one, as you know, they're the premier sports brand in property. And between them and some of the others like NBCUniversal and Amazon that we have, we just have an unbelievable presence across sports media. I think with ESPN, though, as you said, they have an app. They have a fantasy database and app that is as big as anything in the world in that category. They just have so many different channels and brands and also great talent. Really, it's going to be something that we leverage across all elements of what we do from the product to our marketing. And I think having somebody that can not only help advertise as a partner and help bring in new customers, but can truly help you engage your existing customers, too, with things, yes, in their content, but also things that potentially can be integrated, like you mentioned the app on the digital side with product. I think that can just take this to a whole new level. So I'm thrilled. And if you look also at their trajectory, it's unbelievable. Some of the deals that they've been rumored to be doing and some of the new apps and things that they're launching. I think that being with a company that's also aggressive and wants to grow and wants to really increase their presence in the sports landscape, that's somebody that you can grow alongside with. So very excited and really happy to be working alongside them. Again, Jimmy Pitaro has been a long-time friend, a great guy and somebody that I know passionately cares about sports betting and knows how important it is for engaging their fans and their consumers, too. So I'm just thrilled and really excited about this partnership. Operator: And our next question comes from the line of Robin Farley from UBS. Robin Farley: Great. I would love to ask about the -- how we should think about that split of the $300 million, how much of that was in Q3 versus falling in Q4, just so we could kind of quantify for ourselves a little bit what the structural hold increase was. But if I only get one question, maybe I would ask that the -- going back to prediction markets for a moment and your ability -- in terms of your competitive offering and your ability to offer parlays, can you talk a little bit about, I assume, your access to the official sports data or there are other things that will enable you to offer a parlay product that is significantly different than maybe what other prediction markets are able to offer? Or any thoughts on that? Jason Robins: So I'll let Mike follow up offline with you on the first question. But on the second one, I think parlays are just challenging with predictions because it's liquidity based. So you can do some prepackaged stuff, and I think that could work. But to be able to really have a parlay offering that looks anything like what you'd find in an online sportsbook just isn't possible. The reason being that on the online sportsbook, we can say, what do you want to do? And then as the market maker, we could say, okay, we will make you a market for that. Here you go, here are the odds. And we can do that knowing exactly what the requested amount of the bet is and who's making it. In this case, you have to, as a market maker, create liquidity pools around these things. And you don't always have control over who's on the other side and who's taking how much of your order volume and things like that. And also just having to have individual liquidity pools makes it hard because then you spread out your liquidity. So I just think it's going to be very challenging to do all the kinds of combinability that you can do in a traditional sports book. We will, I think, because of our pricing models and because of some of the other IP that we have, be able to put out, I feel, a better version of that than others in the industry. But I still think it will be very limited compared to what you would find in our traditional sports betting product. Operator: And our next question comes from the line of Brandt Montour from Barclays. Brandt Montour: So if we look at the luck impact to the full year guide of $300 million, and I know you didn't quantify that versus third quarter versus fourth quarter. But more on the full year, I mean, if you look at that -- if you just sort of assume a flow-through and then look at the full year guide down to EBITDA, there's obviously a pretty decent gap there between those 2. And so what is that gap broken out between higher promo than expected spend at this maybe early spend with the ESPN partnership, NBC spend and obviously, any sort of early prediction spend? Jason Robins: Yes, it's a good question. So most of it is outcomes. There are a few other little things in there. Probably most notably, as you said, there is some assumption in Q4 for prediction spend, which, as we noted, will be very analytically driven, at least with any marketing portion. So I don't know if that will be -- I think we made sure we had enough, but I don't know that we would need to spend it all. And then there is some also investment on the product and technology side, getting ramped up for customer service, everything else in order to launch the product. I don't know exactly when we'll launch it, but we want to make sure we had enough budget in there to be able to develop and launch it in Q4 if it were ready. So that's something that we're certainly pushing towards. But I do expect it will be at some point in the next couple of months. Operator: And our next question comes from the line of Jed Kelly from Oppenheimer. Jed Kelly: Great. As we think about next year, obviously, prediction markets are going to be a decent level of incremental investments. But can you sort of highlight or help us bridge where else you're looking to invest? I mean, the OSB product is very good. I'm sure you want to invest in that. And then you recently hired a new iGaming person, too. So can you just help us understand how you're thinking about investments for next year outside of prediction markets? Jason Robins: Yes. I think in terms of the, what we call, kind of core business, meaning the OSB and iGaming products and the states that we have been in for at least a few years, I don't think you're going to see much, if any, incremental investment. In fact, we might actually see a little bit of reduction in things like promotion and marketing. I do think in the newer states, Missouri being obviously one that's launching at the end of this year, we'll continue to invest next year if any other states launch. And I am hopeful that we get some iGaming and sports betting bills done next year. Obviously, predictions, as you noted, is somewhere we will be making an investment, although we, as noted earlier, are going to be appropriately conservative and seek faster paybacks on that than we do on the other products. The other area I'd mention is AI. I think AI is somewhere that there will be -- it will be a kind of 2-way thing. There will be some places where we're actually able to reduce costs next year, but there will also be some incremental investment, which has a longer tail on where we see the efficiency and revenue generation impacts. And so some of that, but maybe not all of it would pay back in 2026. But I think that's an area that we need to be investing in and could have potentially a very significant impact on both our cost structure and revenue trajectory in '26 and beyond. Operator: And our next question comes from the line of Shaun Kelley from BofA. Shaun Kelley: Jason, maybe just to connect the 2 topics of the morning, prediction and pricing. Wondering if you could just talk a little bit about -- there's a fairly large narrative from the prediction market side of the world about sort of longer-term pressure on hold rates for the industry. And I'm really talking about straight bets and pricing to the customer. So just wondering if we could get your thoughts on that. And then just how price-sensitive or price aware, do you actually think customers really are in the Sportsbook ecosystem relative to products? And does that give you some flex to be able to manage long tail events and other things like that? Appreciate it. Jason Robins: Yes. So we'll obviously -- we'll have to see how it plays out. But if you look at pricing now, it's actually a little bit worse on predictions. And I think it's going to be hard to get to a point where it's better, right? If you remember, for us, the reason we have higher margins is -- meaning higher hold rate, sorry, is because we have a very strong bet mix. Our singles hold is actually nowhere near what our actual hold rate is. Our singles hold is in the mid-single digits. So that's sort of the comparison point if you're thinking about predictions. Now on predictions, you have both the fees that the exchange is taking as well as the other fees that are collected from the FCM or anyone else in the ecosystem as well as the spreads that the market makers are taking. So there's a lot more mouth to feed in the ecosystem versus, in our case, we are the market maker solely on our online sportsbook and -- well, at least for about 99% or 95-plus percent of our stuff. So really, it makes it that we have more margin to play with there. The other thing is even if there are cases where there's better pricing, promotions don't really work in the same way in predictions as they do in OSB. So we can give back money and help create cool profit boost and other kinds of promotions for customers that engage them, which really isn't something that predictions is doing. In fact, predictions is really using rebates to incentivize the market makers to create liquidity. So it's almost kind of the opposite. They're giving the promos, so to speak, to the people who are actually trying to make money on the platform and the retail customer is not getting that. So for a variety of reasons, I think the value prop is going to be better. And maybe that gap closes a little bit. But right now, it's not even close. Right now, it's a much better value prop in terms of the overall pricing and promotions that you get using an online sportsbook. Operator: And our next question comes from the line of Bernie McTernan from Needham & Company. Bernard McTernan: Jason, historically, the online sports betting industry has competed on a variety of different metrics like daily fantasy, capital mattered a lot and marketing budgets mattered along with liquidity. Online sports betting promotion mattered a lot early days and now more various aspects of the product. What do you think the battle will be on in prediction markets? And maybe a follow-up to the last question, what is the risk that it does evolve into promo over time? Jason Robins: Well, I think the first battle is going to be for customers, but it depends on who you're talking about and what parts of the ecosystem. For the exchanges, the battle is going to be for liquidity. And so that's the key thing, much like it was in daily fantasy sports. I think if you look at the FCMs or the IBs that are plugged into them, it's going to be much more about customer acquisition cost versus LTV generation. So that will be about how well you market and engage and monetize the customer. Now in our case, because we bought Railbird, we're going to have both pieces of the ecosystem. So we have to be thinking about both. But at least in today's world, most of it it's not connected in that way. There's separation between those. So it will really depend on kind of how things vertically integrate over time. But that's the best way to explain. I think for the exchanges, it's about liquidity and for the front end, the FCMs, the IBs, it's much more about the CAC to LTV equation and being able to engage, retain and monetize customers as well as acquire them efficiently. Operator: And our next question comes from the line of Joe Stauff from Susquehanna. Joseph Stauff: Okay Jason, I wanted to ask, it's always difficult to reconcile from a regulatory and a legislature perspective for the states. We know -- obviously, we're well aware that the regulators know in the various states and obviously talking about predictions. But just wondering if, to the extent you could help us kind of fill in whether or not the legislators are aware of this as we kind of go into a newer session in early '26 and the implications on the competitive landscape? Jason Robins: I think they are absolutely aware of it. And this is one of the things that we noted in our letter. I think as states see this continue to grow, it's going to put increased pressure on policymakers to strongly consider whether they should follow the path of the other half or so of the country and just pass sports betting legislation. I also think it's going to help really make policymakers think twice about tax increases because they understand that there is another thing out there that they have to compete with and that operators ultimately, if the taxes get too high, might decide to just pivot. So I think that it's -- this is one of the many reasons I think it's a huge positive for us. I think it's an opportunity for us to obviously go into the industry and compete and win. But I also think it's a powerful lever in terms of what policymakers are going to be thinking and legislators are very aware of it, like anything. It's still early, and so they're still kind of developing their views on it. But I think in the same way, regulators are concerned about it, so are policymakers, legislators as well. Operator: And our next question comes from the line of Ben Chaiken from Mizuho. Benjamin Chaiken: On predictions, you have 50% of the country that are non-OSB states. As you think about the -- this is a 2-parter. As you think about the launch, how do you think about CAC maybe in absolute dollars in the context or compared to an OSB launch? And then maybe you could compare and contrast versus state launches in terms of targeting customers and how you think about determining the appropriate aperture, if that makes sense? Jason Robins: So I mean, I think really, it's the same type of approach that we would take with OSB simply with much shorter payback periods. And also, we don't have data yet to know exactly what those payback periods would even need to be -- or what those numbers would even need to be to hit that payback period. So we're going to be even more conservative with that in mind. We do have some external data that we can gather from looking at how some of the others in the prediction space have been generating volume and doing some estimations of what we think we can get. So we're not completely coming in blind. We have a model. But like anything, you want your own real data to be able to validate that model before you really lean in. So I think we're going to test enough that we have data and understand if you test too slowly, then it takes forever to get there. But we're also going to be measured and really conservative in how we do it. As far as an absolute number, I can't tell you that at the moment because we're still trying to figure it out, but also, I don't think we would share it anyway to be honest. But we did mention that we're going to be looking for shorter payback periods. So in the past, we've said we look at 3-year payback periods for OSB and iGaming. So it's going to be something materially less than that. Operator: And our next question comes from the line of Jason Tilchen from Canaccord Genuity. Jason Tilchen: Wondering if you could share a little bit more on the upcoming rollout of the Spanish language app, how incremental of an opportunity do you see that as a customer acquisition and engagement driver going forward? Jason Robins: Yes, I'm excited about it. That's something we've been actually working on for a little while. What sparked it was really 2 things. Well, first, the thing that sparked it was saying, look, we have the World Cup coming up in 2026. How big an audience do we think there's going to be for that, that is Spanish language first and what kind of opportunity could that create? And then we -- that led us to do further research on just, hey, not just for World Cup, what are we thinking in terms of people betting on NFL, NBA, other sports. We've also done some testing into Spanish language media, obviously, directing into the English language product, but more just to see is there incremental customer acquisition opportunity there. So between all those data points, we had a pretty good idea of how -- what kind of opportunity this could represent as well as obviously other data on just how many people in the U.S. are Hispanic first -- Spanish-speaking first and how many live in different states and really understanding based on the states we're operating and what to expect. So that was sort of the thinking behind it. In terms of the opportunity, I think the big question is how many people who are Spanish-speaking are going to -- I'm sure some of them are already betting, but how many of them are going to make their choice of where they go based on the experience in Spanish language. And I have to imagine that there's a lot of people who would prefer Spanish language app, maybe even some that just won't even use an English language app, but even amongst those that would, that would certainly prefer a Spanish language app. And so if we can create the best experience there, we can get there first and early, especially with a big event like World Cup coming up, it gives us an opportunity to really build outsized share in that demographic. And I'm really excited about it. It's obviously a very fast-growing demographic in the United States as well and one where some of the biggest states where those Spanish-speaking folks live haven't even come online yet, like Texas and California. So much more incremental opportunity in the future as well. Operator: And our final question for today comes from the line of Ian Moore from Bernstein. Ian Moore: The 800 to 1,000 basis point surge you guys had in NFL and NBA parlay mix is a really massive number. The share gains you called out are great to hear, too. You guys credited like product innovation and promo strategy in the release, but maybe you could help us with like attribution, more product, more promo? And does that inform the strategy on the prediction markets launch at all, like balancing the front end with Railbird and the back end? Jason Robins: I think it was a combination of everything. I mean, our product has never been better, features like stacks and other sorts of things that help you more easily build and figure out what kind of parlays you want are, I think, at the best stage they've ever been at. I think our Ghost Leg promotion, in particular, was really effective at driving parlay mix. It's -- I mean, the promotion is designed around parlays. So I think it really helped there, too. So I mean, it was a combination of multiple things, but it's been such a focus area for us. It's just really great to see that it's actually accelerating. I think each season that goes by, can it be even better next year? And so far, it has. So this is why we're so bullish on the bet mix side and why we think there's so much long-term margin headroom because we see this acceleration. It doesn't seem like it's slowing down. And then you look at some more mature markets overseas where they have 60-plus percent of handle coming from parlays. And so between that and live betting, we think those are the 2 areas that have the most upside and the most growth in the U.S. in the coming years. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jason for any further remarks. Jason Robins: Well, thank you all for joining us on today's call. We are really excited and feel we're really well positioned for continued success in the future. Thank you all for your continued support, and we look forward to seeing you next quarter. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Hello, everyone, and welcome to GrowGeneration's Third Quarter 2025 Earnings Conference Call. My name is Joanna, and I will be your operator for today's call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of GrowGeneration's website. I will now hand the call over to Phil Carlson with KCSA for introductions and the reading of the safe harbor statement. Please go ahead. Phil Carlson: Thank you, and welcome, everyone, to GrowGeneration's Thrid Quarter 2025 Earnings Results Conference Call. With us today are Darren Lampert, Co-Founder and Chief Executive Officer; and Greg Sanders, Chief Financial Officer of GrowGeneration. The company's third quarter 2025 earnings press release was issued after the market close today. A copy of this press release is available on the Investor Relations section of the GrowGeneration website at ir.growgeneration.com. I would like to remind everyone that certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following prepared remarks, management will be happy to take your questions. [Operator Instructions] Now I will hand the call over to GrowGeneration's Co-Founder and CEO, Darren Lampert. Darren, please go ahead. Darren Lampert: Thanks, Phil, and good afternoon, everyone. Thank you for joining us to review our third quarter 2025 results. Our third quarter marked an inflection point for GrowGeneration. We delivered net sales of $47.3 million, up 15.4% sequentially, expanded gross margins to 27.2% and returned to positive adjusted EBITDA of $1.3 million, a $3.7 million improvement from the same quarter last year. This performance reflects the successful execution of our restructuring plan, lowering operating expenses, improving gross margins and shifting our revenue mix towards higher-margin proprietary brands. What's even more encouraging is that this momentum is being driven by the quality of our revenue, not just volume. Proprietary brands grew to 31.6% of cultivation and gardening revenue compared to 23.8% a year ago. Our leading brands, Char Coir, Drip Hydro, The Harvest Company, Dialed In and Power Si, all demonstrated strong performance. Char Coir grew more than 30% year-over-year, while Drip Hydro increased over 20%. These brands remain in the early stages of adoption, and we're expanding into new revenue channels and product extensions to position proprietary brands to achieve approximately 40% of cultivation and gardening revenue in 2026. On the cost side, we reduced store operating expenses by 27.8% and total operating expenses by 31.5% year-over-year. This operating discipline, combined with a stronger revenue mix resulted in our first positive adjusted EBITDA quarter in several years. We also continue to optimize our retail footprint. During the quarter, we closed 5 stores, bringing our total to 24 locations. We expect to complete a small number of additional closures in the fourth quarter to focus on higher volume, higher-margin markets, consistent with our goal of becoming a leaner, more efficient, brand-led organization positioned for profitable growth. At the same time, we completed over $7 million in cultivation infrastructure projects. These projects include lighting, benching, fertigation, HVAC, irrigation and automation systems, helping commercial and craft operators modernize existing facilities or build new ones. Demand will remain strong across both multistate operators and craft cultivators, and we expect this business to remain a meaningful contributor to revenue going forward. Our MMI Storage Solutions segment also delivered a second consecutive quarter of sequential growth with $8.9 million in revenue. MMI continues to benefit from diversification into industrial, agriculture and specialty end markets, and we expect steady growth from this segment in 2026. Strategically, we are broadening our reach beyond cannabis into larger specialty agriculture and controlled environmental markets. During the quarter, we began selling our brand into the independent garden center channel and relaunched theharvestco.com to serve greenhouse and specialty crop growers. In addition, we announced a distribution partnership with Arett Sales, expanding our wholesale and B2B reach into thousands of new retail stores across 32 states. This is a major step in our transition from a cannabis-focused retailer to a national controlled environment agricultural supplier. Furthermore, we're taking additional steps to increase our growth trajectory, including our recent entry into the home gardening market through our second quarter acquisition of Viagrow, a domestic brand with distribution across retailers such as Amazon, The Home Depot, Walmart, Lowe's and Tractor Supply. More importantly, it supplies us with a scalable platform to serve home gardeners and hobbyists cultivators across multiple retail channels nationwide. We're also seeing strong adoption of our B2B Pro portal by commercial and wholesale customers. Increasingly, these customers are moving their purchasing online where they have access to automated ordering, customer catalogs and real-time inventory visibility. This improves order accuracy, reduces transaction costs and drives recurring revenue. Another growth area for GrowGen involves further international expansion by entering new high-growth cultivation markets with growing numbers of hemp and cannabis licenses. We are working to accomplish this through the distribution partnerships, such as our distribution agreement with V1 Solutions to support commercial sales across the European Union. We also recently launched our proprietary products in Costa Rica, one of Central America's most promising cultivation markets. By leveraging these strategic distribution partnerships, we can quickly scale with minimal capital investments to grow our brand presence in these new markets. With $48.3 million in cash and no debt, we have a strong balance sheet to support our inventory needs, infrastructure projects and proprietary brand expansion. This financial strength positions us for sustainable and profitable growth. Looking ahead, we expect fourth quarter revenue of approximately $40 million. And as we move into 2026, we anticipate positive revenue growth as well as positive adjusted EBITDA. Our focus will be on driving proprietary brand mix towards 40% of cultivation and gardening sales, scaling B2B portal automation and reoccurring commercial orders, expanding revenue across independent garden centers, greenhouse agriculture, specialty crops and cannabis and continuing cultivation infrastructure projects, an offering we are now branding as GrowGeneration Build. The controlled environmental agriculture industry remains in the early stages of its growth cycle. We believe GrowGeneration has substantial runway ahead and is well positioned to lead this evolution with proprietary brands, infrastructure builds and system integration, long-standing customer partnerships, a proven management team, supported by a strong balance sheet and track record of execution. With that, I'll turn the call over to our CFO, Greg Sanders. Greg Sanders: Thank you, Darren, and good afternoon, everyone. Starting with our third quarter 2025 results, GrowGeneration reported net sales of $47.3 million, exceeding our guidance of $41 million and representing 15.4% sequential growth from our second quarter of 2025. As expected, net sales were lower versus $50 million in the third quarter of 2024, primarily reflecting 19 fewer retail locations since July of 2024 as part of our ongoing footprint optimization strategy. This was partially offset by continued growth in our business-to-business and commercial channels. Net sales in our Cultivation and Gardening segment were $38.4 million for the quarter compared to $41.4 million in the same period last year. Proprietary brand sales represented 31.6% of cultivation and gardening revenue, up from 23.8% in the prior year, driven by strong demand for Drip Hydro and Char Coir. This mix shift continues to expand gross margins and enhance profitability. In our Storage Solutions segment, net sales were $8.9 million, up from $8.6 million in the third quarter of 2024, reflecting steady demand across product lines and the success of our diversification efforts into new end markets. Gross profit increased to $12.9 million, up approximately $2 million from $10.8 million in the prior year period. Gross margin expanded to 27.2% compared to 21.6% in the third quarter of 2024, primarily due to higher proprietary brand penetration and the absence of restructuring-related costs that impacted the prior year. On the expense side, store and other operating expenses declined 27.8% year-over-year to $7.2 million compared to $10 million in 2024. Total operating expenses decreased 31.5% to $15.7 million, reflecting the continued benefit of our cost reduction initiatives. Selling, general and administrative expenses were $5.7 million compared to $7.4 million last year, a 22.9% improvement. Depreciation and amortization totaled $2.6 million, down from $5 million in the same period last year, and we expect this level to remain stable throughout year-end. GAAP net loss narrowed to $2.4 million or negative $0.04 per share compared to a net loss of $11.4 million or negative $0.19 per share in the prior year period. The improvement was primarily driven by higher gross margins, lower operating expenses and the absence of restructuring-related charges incurred in 2024. Non-GAAP adjusted EBITDA turned positive to $1.3 million compared to a loss of $2.4 million in the prior year, reflecting improved sales mix from our proprietary brands and the continued realization of cost reduction initiatives. This represents a $3.7 million year-over-year improvement and a clear indicator that our operating leverage has strengthened. Turning to the balance sheet. We ended the quarter with $48.3 million of cash, cash equivalents and marketable securities and no debt. Our balance sheet remains one of the strongest in our industry, and we do not anticipate any near-term financing needs. In summary, the third quarter demonstrated that our transformation strategy is delivering tangible results. We achieved our strongest adjusted EBITDA performance in 4 years, delivered double-digit sequential sales growth, expanded gross margins and significantly reduced operating expenses, all while maintaining a debt-free balance sheet and ample liquidity to support continued investment in initiatives that drive sustained profitability. With that, I will turn the call back over to Darren for closing remarks. Darren Lampert: Thanks, Greg, and thank you, everyone, for joining us today. In closing, restructuring actions we've executed over the past few years are clearly working. In the third quarter, we delivered $47.3 million in revenue, 15.4% sequential revenue growth, exceeded our own forecast and returned to profitability with $1.3 million in adjusted EBITDA. Proprietary brands grew to 32% of cultivation and gardening sales, a meaningful year-over-year increase. And this continues to be a key driver of our margin expansion and long-term growth strategy. At the same time, we are becoming a more efficient company. We're reducing operating expenses, closing underperforming stores, exiting leases and shifting more transactions to our B2B e-commerce portal, where adoption continues to exceed expectations. These efforts are helping us build a leaner, more scalable platform. With no debt, $48.3 million in cash and growing demand across commercial, specialty agriculture and retail channels, we are well positioned to continue investing in our proprietary brands. While we're proud of what we've accomplished this quarter, we know we're still early in this transformation, and there's more progress ahead. We appreciate your continued support and look forward to updating you on our execution and growth in the quarters to come. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] First question comes from Aaron Grey at Alliance Global Partners. Aaron Grey: Nice job on the inflection back to profitability there. Quick question for me. Just as we think about the mix of sales going forward, I appreciate the color, expecting proprietary brands 40% for next year. Just wanted to take a step back and think -- as we think about the channels you're going to, obviously, you've done a good job of diversifying. How do you think about the mix of sales for cannabis today versus where it might be 12 to 18 months from now? And how much of that is the driver in terms of the increased overall proprietary brand mix? Darren Lampert: I think what you're seeing right now, Aaron, is our forecasted 40% still take a large percentage of that into cannabis. So anything else as we transition into lawn and garden specialty ads, we certainly believe that proprietary brands will drive 50% to 60%. So right now, the 40% that you're seeing from us next year, I'd say probably around that 35% minimum will be into the cannabis space. Aaron Grey: Okay. Great. That's helpful color. Second question for me, just how best to think about the puts and takes specifically for the gross margin? I know you guys had some expectations earlier this year, some changes that occurred when you took away the guidance. But any color specifically on the gross margin, how we should think about that over the next upcoming quarters? I imagine some lift from the higher proprietary brand mix, but also some offsets given continued pricing pressure and discounting? Greg Sanders: Aaron, thank you for the question. I think when you look at our third quarter results, we're still seeing some impact from tariffs, maybe in the range of 1% of sales. We're working through expanding those costs throughout the supply chain, renegotiating with vendors where applicable, passing on costs to our end customers where appropriate as well, while still maintaining competitiveness in the market. When you look at the concentration of revenue in the third quarter, we had about $8.9 million coming from MMI at that low to mid-40s range. But what drove down margins slightly was the amount of durable sales that we had in the period. We ran from $7 million durable sales in the second quarter up to $13 million in the third quarter. We are seeing our pipeline of CapEx or durable sales continue to expand into the fourth and first quarter of next year. So we're excited about that. We think that's going to help our revenue growth quite a bit, but we are tempering some expectations around gross margin in the fourth quarter just relative to the amount of durable activity that we're seeing. With a margin ratio of 27.2% in the third quarter, we felt pretty good about just the blend of different activities that fell into the period. We're expecting some compression in the fourth quarter. We also execute all of our full end of year inventory accounts in December. So there's some risk associated with that, although we have sufficient reserves in our minds for that activity. So I would expect probably slightly down in the fourth quarter just relative to CapEx and a lower total sales volume. I think MMI, you'll see go from a number close to $9 million down to $6 million. So less contribution on the margin side from them as well. But we're still excited about the business in the quarter we just had. Darren Lampert: Aaron, on the fourth quarter, we are looking for our first sequential year-over-year revenue growth since 2021. As you may recall, again, last year, fourth quarter, we were in that $37 million range. So this will be -- so we do believe that this fourth quarter will be our first sequential revenue growth year-over-year since 2021. Operator: This concludes the Q&A session. I will turn the call back over to Darren Lampert for closing comments. Darren Lampert: I'd like to thank our shareholders and all our supporters. We look forward to updating you in March for the year-end and look forward to a strong 2026. Thank you.
Operator: Welcome to TTEC's Third Quarter 2021 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TTEC. I would now like to turn the call over to Bob Belknapp, TTEC's Group Vice President, Corporate Finance. Thank you, sir, and you may begin. Bob Belknapp: Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its third quarter results for the period ended September 30, 2025. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC; and Kenny Wagers, Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed in that document. For complete information about our financial performance, we also encourage you to read our quarterly report on Form 10-Q for the period ended on September 30, 2025. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the dates call and we undertake no obligation to update this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our 2024 annual report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Ken. Kenneth Tuchman: Thanks, Bob. Good morning, and thank you for joining us today. This quarter, we continued to strengthen our foundation while also making investments to seed our future growth. In the third quarter of 2025, revenue was $519 million. Adjusted EBITDA was $43 million, and we reduced our net debt by $119 million from the prior year period. . Across both business segments, we continue to expand our AI-enabled CX Solutions with a hybrid strategy that blends the best of technology and human cognition and empathy while also attracting new clients in new industries where seamless and personalized CX is driving brand differentiation and growth. We also nurtured our relationships with our existing clients with vertical-specific solutions enabled by data analytics and AI. And lastly, we deepened our unique collaborative relationships with the leading hyperscalers who partner with us to drive innovation forward with their massive investments in AI and the related infrastructure. Clearly, a significant transformation is underway in the CX industry, fueled by the remarkable conversational ability of Gen AI, new use cases are emerging every day that have the potential to revolutionize the quality and efficiency of customer interactions. As a company dedicated to simplifying the complex world of CX and AI by providing every capability of business needs to transform we couldn't be more excited. However, if you open any major business publication today, it's hard to avoid the news stories about early adopters. We're seeing a significant gap between our AI investments and measurable CX business outcomes. In addition to delivering disappointing returns, these initiatives are creating customer experiences that are clumsy, inflexible and impersonal. In many cases, it feels like Groundhog Day, recreating the decades agony inflicted by the static interactive voice response systems of the past, also known as voice jail. Recent data validates this discouraging and costly trend. According to the CX Industry Trade Association, CTW, currently 82% of consumers feel CX experiences are inconvenient and inconsistent. 60% of them report that the quality of interactions has deteriorated, and almost 75% believe AI is making it worse. It goes without saying that these negative experiences are costing businesses, customer loyalty and hurting their bottom line. Our decades of frontline CX experience and fluency across all hyperscalers and CX technology platforms reveal a simple truth. While technology mastery is table stakes, AI's toughest challenges aren't technical succeeding in the AI age requires an agile, consultative mindset, a willingness to take thoughtful risk and the ability to embrace change. Here's why. To start, AI isn't simply a new technology to plug into an old stack, it's a fundamental pivot in how organizations operate. Companies that don't shift their mindset will struggle to build AI native workflows and teams. To achieve sustainable and scalable results, companies must have a solid foundation in place, and most are just getting started. Change of this magnitude is a heavy lift and requires a modern data state, processes to clean and curate data reengineered processes and documented best practices, seamless front to back office technology integration and an inspired and rigorous change management protocol. While this shift won't happen overnight, every initiative needs to be part of a thoughtful, flexible and interconnected strategy. This comprehensive approach mirrors the successful client-focused engagements we're currently implementing with some of our clients. In addition, to make this dramatic pivot and avoid costly mistakes, companies need to work with partners who have deep CX domain expertise, partners like us who have been operating in the CX trenches for decades and know how to limit risk. While generalists may be proficient in installing features and functions, they don't have the specialized knowledge of how the entire CX ecosystem works together. Without big picture and practical understanding of all the specific value levers, they aren't able to optimize associate workflows efficiently or architect seamless journeys that support customers where, when and how they want to interact. Everyday, we're enabling clients to work and think differently. We're helping them use data, AI and integrated systems to create journeys that effortlessly harmonize automation and human interaction. Is this hybrid balance that underpins every piece of software we write, every journey we orchestrate, every associate we train and most importantly, every client we serve? While early days, let me share how this philosophy beginning to play out across our business. We'll start with TTEC Engage. This quarter, we continued to attract new clients, grow our business with our embedded base and introduce new AI-enabled solutions. Year-to-date, we've added 11 new significant clients to our roster, including 4 this quarter, with an encouraging pipeline moving forward. We continue to expand our vertical expertise, attracting premium customer-focused brands across all our verticals. Over the last 7 quarters, we've signed 19 new large enterprise clients that are expected to add over $50 million of in-year revenue with substantial growth potential into 2026 and beyond. Our embedded base growth continues to accelerate as many of our key accounts begin to take advantage of the full range of our capabilities, including revenue generation, tech support, back office, trust and safety, to name a few. Year-to-date, contracted revenues in these areas exceed 150% of what was awarded all of last year. This growth is a result of healthy strategic relationships better performance, innovation, industry thought leadership and reduced client churn. Across TTEC Engage, we continue to evolve using AI tools across every business function. For our associates, this focus translates into desktop automation, knowledge retrieval, simulated learning and AI-assisted coaching to name a few. We've deployed AI in over 110 programs, with more than 65 clients and almost 100% of our new client pitches include our core AI associate augmentation tools. We're seeing impressive results on the front line with scalable performance improvements and we expect to see even more upside in the future. As expected, our engaged third quarter profitability was down compared to the prior year. This short-term dip was the result of significant investment this quarter to continue to set ourselves up for success in 2026. In addition to investing ahead of our fourth quarter seasonal ramp, we've made meaningful investments expanding our executive leadership team, growing our prioritized offshore delivery locations and boosting funding for several key innovations and technology initiatives. When we combine these investments, with our ongoing operational improvement programs, we're confident that we'll deliver year-over-year growth in the fourth quarter and for the year overall. Now let's turn to TTEC Digital, where we continue to remix our professional and managed services to meet the evolving needs and priorities of our clients. Our deep collaborative partnerships with the hyperscalers continue to position us squarely on the front lines of innovation. These industry giants are partnering with us to codevelop the essential features for a modern contact center, turning our shared vision into tomorrow's market reality. While I mentioned before that AI's toughest challenges aren't technical, an agile, integrated technology stack is nonnegotiable requirement. To that end, this quarter, the TTEC Digital team signed 20 new meaningful clients and expanded our portfolio of services with many of our existing clients. Clients are tapping into our expertise to help them optimize their current technology infrastructure and design their road map for the future. Instead of replacing core systems, we're helping clients optimize what they have by layering AI capabilities onto existing environments to drive targeted outcomes. Although these initial engagements in some cases are often smaller at the beginning than our traditional CCaaS implementations, they're highly strategic and play to our strengths in consulting, journey orchestration, analytics and systems integration. These programs frequently expand into multiphase engagements and generate recurring managed service opportunities. Now let me highlight some of the exciting deals from the quarter. For an existing client, a leading multinational bank, we're using AI to optimize both their front and back office operations. We completed their CCaaS migration last year. We're now layering in AI capabilities to transform voice and chat experiences into conversational agents with targeted handoffs to live associates for more complex interactions. This hybrid AI-powered solution improves the experience for both the customer and the associate with real-time transcription and analytics, allowing for direct customer interaction without a traditional IDR. In addition, the platform provides seamless automation of back-office tasks such as client research, fraud analysis and data entry, thus proving efficiency and accuracy. Our next example, is one of the world's largest airlines. We were selected to partner with their chosen hyperscaler to improve CX and reduce our case handle time by almost 1/3. When complete, we will have redesigned client's customer interaction platform and activated the full suite of AI capabilities. The result will be a dramatically improved customer and associate experience that will also drive increased profitability and operational efficiency for this world-class airline. . Now I'd like to turn to our progress implementing outcome-based solutions for our clients. For more than a decade, CX technology and service firms have been seeking ways to redefine the commercial delivery model away from FTE and production hours to outcome-based metrics like containment, handle time, first contact resolution and customer satisfaction to name a few. This approach has been appealing to visionary clients who understand the true value of total costs delivered and are willing to build a strategic partnership required to bring it to life. This quarter, through a unified methodology that knits fstrategy, technology, implementation and frontline operations together, we've come closer than ever before to an approach that can deliver guaranteed outcomes for certain qualified clients. For example, we're currently working with a financial services client who is seeking an end-to-end customer experience platform that combines technology and highly trained CX professionals. The holistic solution will blend AI agents and human associates with an integrated management and support model. Because we'll be teaming with the client on all facets of the solution, we're able to model improvements in operating efficiency and customer engagement metrics. The team is actively calling the plan based on initial data, and we're confident that working closely with our clients, we will achieve dependable, mutually beneficial results. In closing, I'd like to take a moment to reflect on our journey over the past few years. Our company has been going through a transition. Over the past 18 months, we've brought in several experienced leaders to help us rebuild our foundation and executed course corrections to set up and take advantage of all that AI has to offer today and into the future. Some might say that it's been a messy process. But today, we're in a materially better position than we were back in early 2024. While the numbers don't reflect the growing momentum in the business, we're confident that we're well on our way to returning to our historic growth rates and margins. We've developed a valuable portfolio of digital first CX capabilities, pioneered enviable collaborative relationships with the leading CX technology players, nurtured trusted partnerships with marquee brands across the globe and built a workforce made up of some of the most talented and passionate CX technologists, strategists and operators in the world. With a strategic approach that is purpose-built for each individual client, we're putting all these assets to work with a clear focus on delivering the outcomes our clients need most. Every organization today faces an immediate mandate to transform and we're well positioned and ready to provide the expertise necessary to lead our clients towards their goals. On behalf of the Board of Directors and our dedicated and talented teams across the globe, thank you for your continued support. And now I'll hand the call over to Kenny. Kenneth Wagers: Thank you, Ken, and good morning. I will start with a review of our third quarter 2025 financial results before discussing our full year 2025 financial outlook. In my discussion of the third quarter financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income and earnings per share are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. Turning to our results. On a consolidated basis for the third quarter of 2025 compared to the prior year period, revenue was $519 million compared to $529 million, a decrease of 1.9%. Adjusted EBITDA was $43 million or 8.4% of revenue compared to $50 million or 9.5%. Operating income was $29 million or 5.6% of revenue compared to $34 million or 6.4%, and EPS was $0.12 compared to $0.11. Foreign exchange had a positive $2 million impact on revenue in the third quarter over the prior year period, primarily in our Engage segment, while having a nominal impact on adjusted EBITDA and operating income. Turning to our third quarter 2025 segment results. In our Engage segment, third quarter revenue decreased 4% over the prior year period to $397 million. Operating income was $17 million or 4.3% of revenue compared to $20 million or 4.8% of revenue in the prior year. The Engage segment's third quarter financial results were in line with our expectations. As discussed in my second quarter earnings comments, we forecasted lower third quarter Engage profitability compared to the prior year due to upfront expenses related to ramping certain key clients and fourth quarter seasonal health care volumes. These expenses included recruiting and training costs, license fees and technology that are delivering higher revenue and profitability in the fourth quarter and into the first quarter of next year. Overall, the 2025 Engage revenue continues to track to the high end of our full year guidance due to further expansion into new lines of business within our embedded base and the extension of a large public sector program through the first 3 quarters of 2025. We also continue to focus on profit optimization, including actions taken to further align our cost structure and improved operating efficiencies, driving increased profitability despite the year-over-year revenue decline. Although this quarter was impacted by the incremental spend that I mentioned, we are confident that the fourth quarter will reflect EBITDA and operating income growth for both the quarter and second half of 2025 compared to the prior year. Over the past year, we have meaningfully repositioned our Engage segment to better serve our new and existing global clientele, while also advancing our operational effectiveness. We have enhanced our AI and analytics capabilities, expanded our geographic delivery footprint and improved our leadership talent. Our embedded base is growing well above the prior year, as Ken mentioned. And our enterprise new logo signings continue to expand with material revenue contributions this year, both of which are anticipated to return the segment to top line growth in 2026. As a result, we remain confident in our ability to further improve our profitability in both absolute and relative terms. We will prudently continue to focus on our strategic initiatives and investments in the areas mentioned to return the company to its historical revenue growth and margins. The Engage backlog is $1.66 billion or 102% of our 2025 revenue guidance at the midpoint of the range, up from 99% for the same period of 2024. The Engage last 12-month revenue retention rate is 89%, flat to prior year but reflects a 95% retention rate when adjusted for the revenue related to the financial services and public sector clients discussed in our quarters. While the last 12-month retention rate continues to improve, the third quarter on a stand-alone basis reflects an adjusted revenue retention rate of 98% on top of the 97% for the second quarter, further supporting the return to historical levels of Engage top line growth. Moving on to our Digital segment. Third quarter revenue was $122 million, an increase of 5.4% over the prior year. Operating income was $12 million or 9.5% of revenue compared to $14 million or 12.5% of revenue for the same period last year. Digital's third quarter 2025 revenue benefited from a $15 million year-over-year increase in product resales related to on-premise clients. This revenue, while generally decreasing as clients migrate to the cloud, delivers lower margins accounting for a portion of the decline in operating income. Excluding the resales, revenue was $103 million, representing a decrease of 7.9% over the prior year with operating income at 9.9% of revenue. Recurring revenue declined 9.8% in the quarter compared to the prior year, primarily due to the reduction in managed services related to a premise contact center solution that moved to end-of-life status in July of this year. As Ken stated, our business is rapidly evolving and shifting from point solutions related to contact center technology to fully optimizing existing environments through AI-led consulting, journey orchestration and data and analytics services. With this shift, our recurring revenue that is reliant on CenterPoint solutions is decreasing while our diversified partnerships with hyperscalers and our other practices reflect revenue growth. The timing of this remix, however, is putting temporary pressure on revenue. Excluding product resales, recurring managed services represented approximately 67% of Digital's third quarter revenue, which is slightly lower than 68% for the same period last year. The market shift is also impacting professional services as front-end consulting engagements related to migrations of contact center solutions to the cloud have declined. As a result, professional services revenue decreased 4% in the quarter compared to the prior year. Despite the lower revenue, we proactively manage resource capacity by increasing utilization by approximately 10 basis points over the prior year. This resulted in a 7.6% increase in professional services operating income dollars, representing a 330 basis point margin improvement. Excluding our 2 legacy CCaaS partners, Professional Services grew 23.3% in the quarter compared to prior year, reflecting the momentum we are seeing with our expanded CX technology partner network. Furthermore, these AI-enabled offerings and solutions that drive enterprise-wide digital transformations are at higher margins with operating income increasing 88% year-over-year, far outpacing the revenue growth. Although we need to navigate through this market change and scale these dynamic partnerships, we believe the engagements will drive higher client retention and profitability in the long term. Our digital backlog is $444 million or 95% of our 2025 revenue guidance at the midpoint of the range, up from 92% of the same period last year. Before I discuss other financial metrics, I want to address the term extension of our credit facility. Our improved profitability and cash flow generation over the past year, along with significant year-over-year debt reduction drove this outcome. TTEC's executive leadership team and Board of Directors value the support from our long-standing banking partners. I will now share other third quarter 2025 metrics before discussing our outlook. Free cash flow was a negative $10 million in the third quarter of 2025 compared to a negative $100 million in the prior year, which as previously stated was impacted by the discontinuation of the accounts receivable factoring facility. If excluded, normalized free cash flow was a negative $18 million. The year-over-year improvement of $8 million after normalizing the prior year is due to an additional $13 million of cash flow from operations less an increase in capital expenditures of $5 million. Year-to-date, our deliberate actions to improve profitability and working capital management are evident in our cash flow from operations and free cash flow of $119 million and $92 million, respectively. In the third quarter 2025, capital expenditures were $14 million or 2.7% of revenue, compared to $9 million or 1.7% in the prior year. The higher end quarter spend was primarily due to the timing of real estate expansion and facility maintenance, along with IT spend related to health care seasonal ramps. On a year-to-date basis, capital expenditures totaled $26 million or 1.7% of revenue compared to $36 million or 2.2% of revenue for the prior year. As of September 30, 2025, cash was $73 million with $886 million of debt, primarily representing borrowings under our recently amended $1.05 billion revolving credit facility. The net debt position of $813 million represents a year-over-year decrease of $119 million as we continue to focus on cash flow generation and deleveraging. We ended the third quarter 2025 with a net leverage ratio as defined under the credit facility of 3.46x compared to 4.49x at the end of the same period last year. Our normalized tax rate was 53.7% in the third quarter of 2025 compared to 58.5% in the prior year. The tax rate is primarily due to the jurisdictional mix of pretax income where foreign taxable income cannot be offset by U.S. tax losses. The impact of the U.S. valuation allowance recorded against the U.S. pretax losses will continue to impact the normalized tax rate in future quarters. I will now provide some context with regards to our full year 2025 financial outlook. As discussed, Engage revenue continues to track towards the high end of the guidance range. This is driven by the strong continued growth in our embedded base and our enterprise new logos, which are contributing meaningful revenue this year. Revenue was also positively impacted by foreign exchange movement versus our original 2025 guidance at the beginning of the year. Relating to the Engage adjusted EBITDA and operating income, we are maintaining our full year guidance but are forecasting results to come in towards the lower end of the guidance range. Contrary to the revenue impact, the foreign exchange movements negatively impacted our profitability, increasing non-U.S. cost when converting them to U.S. dollars, accounting for more than the spread between our mid- and low-end range. Despite this headwind, I want to reiterate that we expect Engage to deliver solid bottom line growth sequentially and year-over-year in the fourth quarter and overall for the second half of the year. This is driven by the ongoing profit improvements we have demonstrated throughout the first half of the year as well as higher fourth quarter health care business and growth in key clients. In our Digital segment, we are navigating the market dynamics and have positioned ourselves to deliver continued transformational CX technology and service solutions. We have the partner network, the experienced talent, the in-depth knowledge and the AI-enabled solutions to be the partner of choice in this new demand environment. We are maintaining our full year guidance, however, at the lower end of guidance range due to remix factors discussed. Please reference our commentary in the Business Outlook section of our third quarter 2025 earnings press release to obtain our expectations for our reiterated 2025 full year guidance at the consolidated and segment levels. In closing, our third quarter and year-to-date results demonstrate our commitment to improve our operating and financial performance. Although we are proud of what we have accomplished over the past year, as Ken stated, we still have more work to do to return to our historical growth rates and profitability metrics. We will not be satisfied until we get there, but we believe we have set the necessary foundation and are on the right path to achieve this in the near term. We will not waver in our commitment and every action we take is with this goal in mind. I will now turn the call back to Bob. Bob Belknapp: Thanks, Kenny. [Operator Instructions] Operator, you may open the line. . Operator: [Operator Instructions] Our first question comes from George Sutton of Craig-Hallum. George Sutton: I wanted to better understand the front-loaded expenses you discussed relative to the health care opportunity. We're obviously in the midst of a very disruptive Medicare Advantage AEP and ACA, OEP. Can you just walk through the significance of your role there? And what these investments bring you? . Kenneth Wagers: George. Look, for us, I can't talk to the larger picture of health care. Maybe Ken can. I'll let him comment after me. I would just tell you that John Abou and the team and Engage this year has really done a good job with our Healthcare segment, and has really done a good job shoring up that business and growing that business and putting us in a really good position so that we can have this strong fourth quarter that we've alluded to all intents and purposes, the investments that we made in Q3 that I highlighted in my comments are about seeing double-digit growth in our health care seasonal business year-over-year. And so we're happy with those investments. And the key to those investments is, they shouldn't just last in Q4, right? When we take care of the client in Q4 and when we take care of the health care customers in their peak seasons, it really gives a very good business relationship going forward. And so not only do we see these investments paying off in Q4, but we see that with more steady work and growth from them into Q1 and into the balance of 2026. So that's what it means for TTEC specifically. Ken, I don't know if you want to comment on George's general question in the market. Kenneth Tuchman: I would second everything that Kenny just said. The bottom line is, is that not only are we growing the fourth quarter health care business, but more importantly, where we focused is on adding more what we would call long-term recurring business within the health care sector. So in other words, historically, we've had very significant seasonal ramps and then they start to fall off towards the end of first quarter. We will continue to have those peak ramps, but the difference is that we've negotiated multiple health care contracts where there'll be continuing revenue throughout the year, maintaining the base level of employees to service both front and back office requirements of these large health care payer organizations. I hope that helps to your question. George Sutton: No, that's great. So Ken, you also mentioned the AI experiences can be pretty negative if they're done just sort of as a sideline. And you mentioned the integration and sort of the broader inclusion of AI into the experiences with clients. Can you talk about what is the net economic scenario look like for you when someone is looking more holistic and adding in AI. Is that a positive net economic outcome for you as that evolves? Kenneth Tuchman: We believe that AI overall is going to be a very positive economic impact on multiple fronts. Number one, our digital business, I would say the majority of projects that they're now winning all include AI development. So from a digital standpoint, we absolutely see growth in that area. From an Engage standpoint, where we see the real opportunity is that by coupling AI with the human factor, we believe that what that allows us to do is to get to much more of a total value delivered solution. What we mean by that is instead of just simply pricing on a time and materials basis, it gives us the opportunity to actually price on an overall basis. And in doing so, we believe that we will be able to drive significantly better margin over the long term. And the reason for that is because if we can focus on continuing to reduce our labor component and labor cost and couple that with AI, that gives us certainly more margin impact by outcome-based pricing. So we already are starting to enter into some of those contracts as we speak, where we're happy to price on a per transaction basis as well as on a total where we're looking at the clients' total budget and making commitments to the impact that we can have on their budget. So for us, we're not run away from AI. We're incorporating it with into everything we're doing, whether it be how we operate internally or how we face the customer. The whole point that we -- that I was trying to make in my script and that I can't impress upon enough, is that the technology of AI right now where people have tried to over-rotate and basically replace entirely a customer service associate. It's just flat out not working for the average customer. Customers when they're dealing with complex medical issues, complex finance issues, they need to speak to a human being. Now where AI comes in is on all the more transactional types of issues, where human being really isn't adding a ton of value. And instead of AI is simply answering questions that are not dealing with the problems that they might be incurring with their mortgage or with their checking account, et cetera. And the last point is -- I'm sorry for waxing on this point, but I just really want to make a point about this is, we're using AI throughout our operations to make us significantly more efficient. And we believe that in 2026 that we will begin to see far better efficiencies in our quality assurance, in all of our learning and development and how we're using AI to build all of our learnings as well as all other aspects of our operations. So the goal is not only to streamline our operations and continue to reduce our cost to deliver, but it's also to be able to enhance the agent and the associates' capabilities as far as our ability to be able to make them smarter, to be able to make them deliver more accurate answers and to make them more efficient. So sorry for waxing on for so long. But we really are very excited by all the various different applications that we've been able to turn on. And our plan in 2026 with our clients' permission is to continue to keep adding more and more of these types of capabilities to become that much more efficacious on each and every interaction that we have. Operator: Our next question will be from Maggie Nolan of William Blair. Margaret Nolan: Given the shift that you talked about into AI consulting, can you talk about whether you have the sales and delivery head count that you need to make the pivot? Or how are you going to balance the investments that is potentially on the horizon? Kenneth Tuchman: Yes. It's Ken. So today, right now, we have approximately -- don't hold me to this exact number post call, we can get you the exact number, but close to 1,700 full-time engineers, all of which are background now in AI, all of which are involved in some aspect of AI within the company. So to answer your question, we feel very confident that we have the skill sets to do so. And that's proven by the fact of how deep our relationships are with our hyperscalers and the work that they're bringing us into and asking us to perform on their clients' behalf as well as joint selling with them, et cetera. We probably have right now, I feel very confident somewhere in the neighborhood of about 125 AI projects -- paid for projects that are underway as we speak by clients in our digital group. And that does not even count the amount of AI projects that are taking place on the Engage side. So we're -- AI is definitely in our blood. And I think we've really mastered at this stage of the game with AI, where we can be using it and where it can be reliable and where there's danger in using it and where there is risk of it actually creating a poor experience. And I think that's one of the main reasons why clients are looking to us because not only do we have the ability to integrate into all their CCaaS systems, which is extremely important, and we believe we have more expertise across the CCaaS channel of all the different various different CCaaS partners that are out there than virtually any other company out there. And to -- in order for AI to work properly, at minimum, you have to be able to integrate with all of these different CCaaS systems. Obviously, where it gets more complicated than what we really are specializing in is how to then integrate it with all the different client subsystems. We have clients that have anywhere between 85 and 200 systems. And that's what creates long-term opportunity for us is our ability to integrate into all those various different subsystems. So that AI can actually access the data and be able to either assist the agent or assist the customer. There was 2 parts to your question, and that was the first part. Could you repeat the second part? I'm sorry. Margaret Nolan: Yes. You've covered a good portion of it. So it was about the shift, how that impacts sales and delivery? And then how you'll be able to balance the investment on the horizon? But it feels as though maybe a lot of that investment has been made. Do you feel like you have the capabilities already intact? Kenneth Tuchman: No. Absolutely, 100%, we have the capabilities intact. And any time, Maggie offline, we would be thrilled to actually get into real-life client examples of the types of work that we're being brought into. We're doing right now complex projects in the genomics area, where we're building out modern data states with genomic so that we can create presentation layers to doctors as well as the patients that they can actually understand after doing the genomics test we're doing a myriad of very complex projects in the area of taking advantage of AI. And like I said, we would be happy to not only take you through some of the projects, but even give you the client names, which I can't do in a public setting like this. Margaret Nolan: Okay. Maybe one follow-up, one different topic. Can you just expand upon or you or Kenny, the ability to further improve free cash flow, particularly given some of the revenue dynamics you're experiencing? Kenneth Tuchman: Sure, Kenny, do you want to start with that? . Kenneth Wagers: Yes, Maggie, look, as we talked about over the last couple of quarters, our number one -- One of our number one objective, obviously, on the financial side is debt reduction. And as we look at our free cash flow conversion, and as we look at the use of that cash, that's what we've been doing and that's what we've been executing on. As a matter of fact, that was one of the big impetuses of us getting the extension that we just announced as well. And so as we look at free cash flow generation into the future, it's a balance of all those things, right? It's a balance of improvement in the net working capital that you've seen over the last couple of quarters. It's managing our CapEx. And it's also looking at and improving the ultimate gross margins that fall down to the EBITDA dollars that really are the genesis of your free cash flow. And so we've got that outlook. But again, we're balancing especially in this quarter as we alluded to, we're balancing that with investments as well, right? We -- Ken alluded to, there's always this push and pull about build versus buy in AI. We've got a ton of engineers like Ken talked about on the digital side specifically, but also in the Engage business as we build AI tooling for the BPO customer, right? Some we're building in-house, some were acquiring in a pay-as-you-go right now. And so we've got to balance that because the market is dynamic right now, and we need to continue to be a leader on the AI side, not just in digital, but also in Engage because every single client, every single interaction is about the ability to leverage AI next to the humans that we have. And so we'll continue to balance the investments going forward, but we're happy with where the free cash flow generation has gotten over the last couple of quarters. And we'll really get into that a little more when we do our 2026 planning that we'll discuss the outcome of in the next quarter. Kenneth Tuchman: And Maggie, just one other point I want to add on to Kenny's thought. As we said in our script, in 2025, we made significant investments in building a myriad of AI capabilities and tools, they're built, they're operational. So I want to just stress to you. For example, we have a real-time translation product. That's our product that we built the code set for overlaid on top of -- that takes advantage of all the language models that are out there, which means that we can compete in language translation at a fraction of the cost of other people that are having to purchase third-party language translation capabilities, which are just now coming to market. And not to sound like a salesperson, but one of the larger health care companies in the world just did a bake-off of 25 different language translation products, and they scored our #1 in capability over the other products that were available. We've built agent assist tools that listen to interactions, whether they be chat or voice, and instantly are assisting the agent with the next best action. We've built a myriad of analytics tools that give our clients real-time information on exactly what's taking place day-to-day of what are the top inquiries that are taking place about a product offering or about a recall, et cetera. I could go on and on and on. But that's part of the investments that we've been making and that we'll continue to make, but we feel like we've got a really good head start on the base level of AI capabilities that we can implement immediately on behalf of any of our existing or new clients that are coming on board. Operator: Our next question comes from Vincent Colicchio of Barrington Research. . Vincent Colicchio: Yes, Ken, what verticals aside from at Engage aside from health care, do you feel most optimistic about in the coming quarters? Kenneth Tuchman: Well, financial services, we feel really good about a lot of stuff happening in the fintech area. So that certainly is one area. Government or public sector, et cetera, as you can imagine, with the administration and everything that's going on. What I would say is that they are more pro, let's just say, outsourcing than probably they ever have been as they continue to cut people on the payroll. So we feel good about that. In the automotive sector, especially on the digital side, we're seeing really exciting opportunity in that area as well. Our travel business is growing extremely well right now, which we're excited about. And that's growing on a not just North American basis, but global basis. And then retail, which is an area that, frankly, we have underinvested in from a sales and marketing standpoint, and now we've stepped up that investment and we're seeing some really good results and really strong pipeline in that area as well. So I'd say those are the primary areas that we're focused on and that we're winning deals and that we see a long-term opportunity. Vincent Colicchio: And are you seeing an increase in prospects that have not outsourced in the past, which would suggest an expanding TAM? Kenneth Tuchman: It's a good question. And I want to give you an accurate answer. There's no question that we have recently -- for example, we just won, a deal, I can't really be very specific that has very significant opportunity with a company that's 100% captive in, let's call it, the health care space and in the testing space. And they are now -- this is their first entree into outsourcing. And if all goes well, there is a very deep well of additional opportunity. So -- but I don't think that anecdotally is enough for me to give you a definitive answer. I think that all companies are under intense cost pressure due to tariffs, et cetera. And so I think that, as I've said on previous calls, there is a slow leak of business coming from captives. And I know that there's this wall of worry about how AI is going to replace every human, et cetera. A, we don't buy it; and b, I can't stress enough, there's $300 billion of internal captive spend that has not yet been outsourced. So regardless of the impact that AI may or may not have, there is still so much business out there that has not yet been outsourced that we feel very confident as does Gartner and as to the other third-party analysts that have recently put out reports saying that over the next 36 months, there will be 1.7 million customer service associates added to the payrolls of whether it be companies or outsourcers due to the demand and the need. I can't stress enough, as we go more digital, and as more and more people take advantage of digital, that just simply creates more and more customer interactions of interactions that are not taking place in a retail type environment -- a physical retail environment. And instead of that physical retail environment shifts to a digital environment, there is more need for support to be able to resolve issues and how people assisting them with their large capital expenditures, or financial issues, or medical issues, et cetera. Operator: Our last question will be from Jonathan Lee of Guggenheim Securities. Yu Lee: I want to focus on resale here. Is that revenue went off in nature? Or rather -- and if so, does that set up for a sequential decline 4Q for digital revenue? Or do you expect that third-party resale revenue to lead to larger, more profitable engagements near term? . Kenneth Wagers: Yes, Jonathan. Look, our resale volumes are -- those product sales are tough to forecast because by definition, they're one-off. But we always with the customer breadth that we have in digital and with so many engagements on that side, we end up counting on them. They happen every quarter. They'll continue to happen. We've got a couple teed up for Q4. So specifically, we've not -- we don't count on them in the forecasting process as we move forward, but they are a product of the digital business that we have based on our managed services engagements and professional services engagements. And so we take them when they come. But by definition, they aren't recurring. Kenneth Tuchman: Yes. And I would just add, Kenny, to that, and that is that the Digital has 1,000 clients, and they have a significant amount of clients that are in the public sector, many states, as an example, as well as federal clients. These clients tend to be slower or let's just say, more behind on the technology curve of fully shifting to the cloud. And that's the part that's so complicated because they'll reach out to us and say 2025 is the year that we're going to move all of this to the cloud and we need your help with that. And then we'll say, "You know what, our budget just got cut. So we're going to delay moving to the cloud. But now what we need to do is add XYZ of software and hardware to their bare metal solution, et cetera. And that's Kenny's point, it's just hard for us to predict the folks that are kicking the can, so to speak, on shifting to the cloud, which obviously is a different type of revenue. And so as much as we do not depend upon these sales, the fact of the matter is, I think that they're going to continue to sporadically come in, and they're going to always be chunky. There's just no way around it. The last point that I would make, which is also very difficult for us to predict is, we're starting to see a little bit of -- it's early days, but a little bit of a trend on clients who actually over-rotated to the cloud and have experienced some significant outages. They've all been in the general public. So I'm not going to name the names of the outages that we're talking about, but I'm sure everyone on this call knows exactly what I'm talking about in 2025. And so now some of them are questioning whether or not they need to be not only diversified, meaning multi-cloud. But in addition to that, do they also need to maintain x amount of infrastructure internally so that they're not 100% reliant on something that they don't have control over. . And because we do business with so many Fortune 500 companies, I'm sure you can imagine that there is a wall of worry in this area, whether it be cyber worry, whether it be just flat out outage worry technical, et cetera, that are causing these various different outages. Some of which I'm sure you're aware of, took place just in the last couple of weeks. So I'm sorry that I'm not giving you a precise answer, but there isn't really a way for us to give you a precise answer. I think what matters the most is the following. We are 100% focused on the cloud, on AI and on analytics. And therefore, all of our energy from a sales standpoint is not in the product area and is in this shift to the cloud. That said, we have a very large embedded base. And when they call us up and say, we're delaying x part of our move to the cloud, and therefore, we have to renew all these licenses or whatever, we're not going to say no to them. I hope that's helpful. Yu Lee: Got it. So then how do you think about the path to Digital ex third-party pivoting to growth? Kenneth Tuchman: I'm sorry -- I'm not sure maybe you could phrase your question differently. I'm not sure I fully understand the question. I'm sorry. Yu Lee: Is there a path to the digital business ex the third-party resale revenue actually growing year-on-year organically from here? Kenneth Tuchman: Oh, 100%. Yes. It's all about our remix. It's all about the remix that we're doing right now in professional services. It's all about the types of business that we're winning right now. And our goal is that in the second half of 2026, we are -- our goal is to get the digital business back to a net positive growth because of the remix. But the part that's been hard for us to predict is really just the percentage of decline of what I'll just call the legacy old versus all the new and the projects that are ramping up on the actual remix. So yes, there is -- I can't stress enough with this AI revolution that's out there, there is going to be no exaggeration, a 10-year tailwind of opportunity with clients. And I also can't stress enough that there is way too much type of people believing that all you have to do is add water and AI, you can turn on AI. This is not like mixing a cup of cocoa with boiling water, this requires a lot of groundwork before you can get to the supposed AI Nirvana. And I'd say that a high percentage of the Fortune 1000, and I don't think this is even a slight exaggeration, their systems are nowhere near ready to be able to take advantage of what AI can actually do. They don't have a modern data state. They need help there that unto itself is a very significant lift and a big project. In many cases, most of their applications are not yet in the cloud. And if they are, they're still integrated, that requires a heavy lift and a lot of work. And so the AI part in many ways is the easy part. It's all of their current infrastructure and legacy software, et cetera, that is just not ready for AI to be able to seamlessly integrate with, et cetera. And so I think what you're going to see is, exactly what we're seeing is that clients are dipping their toe in the water with AI. They're not dipping their leg or their whole body into the water. And they're basically starting to experiment with different pieces of it to see what impact it can have on helping them drive more efficiency, et cetera. And so this is a process that we're confident that we can capitalize off of. Operator: Thank you for your questions. That is all the time we have today. This concludes TTEC's Third Quarter 2025 Earnings Conference Call. You may disconnect at this time.
Veronika Zimmermann: Good afternoon, everybody, and welcome to Hensoldt's 9M 2025 Results Call. Thank you all for joining us today. I'm Veronika Endres, Head of Investor Relations at Hensoldt. And with me today is our CFO, Christian Ladurner. Christian will guide you through this presentation today, which will be followed by Q&A. And with that, over to you, Christian. Christian Ladurner: Yes. Thank you very much, Veronika, and a very warm welcome to all of our investors and analysts following our company. It's great to have you with us today. I'd like to begin with a quick update of this time line, which you may remember from our recent analyst calls. Since then, our assumptions have further materialized. Right after the adoption of Germany's 2025 defense budget in September, the parliamentary sessions for procurement approvals gained strong momentum. By the end of 2025, a total of more than a double -- high double-digit number of so-called EUR 25 million approvals will have been passed, many of them with direct Hensoldt involvement. The first tangible evidence was our recent guidance upgrade for the 2025 book-to-bill ratio published 2 weeks ago. While the majority of expected orders is still anticipated to enter our books in 2026, the increased guidance for this year already reflects the early materialization of these strong dynamics. This sets the stage for a strong finish to 2025 with significant orders to be expected in the near term. Let me start with the Sensors segment. In October, we booked a major sustainment contract for the German P-8 Poseidon program worth EUR 130 million. Alongside the procurement of the German Eurofighter Tranche 5, the contract of our Mk1 radar is now in the flow down, and we expect to book the order with approximately EUR 180 million shortly. The same applies to further orders for TRML-4D air defense radar for Ukraine, for Switzerland with a combined volume of around EUR 200 million. Notably, the Optronics segment will contribute significantly to our order intake in 2025, combining both upcoming and recently booked contracts with approximately EUR 1.4 billion. This is predominantly driven by the land domain. The contract for the new reconnaissance vehicle named Luchs II is currently in the flow down process. This landmark order represents a volume of approximately EUR 850 million for Hensoldt. In addition, we anticipate further orders for the Leopard 2 main battle tank and for the Schakal, the Boxer platform equipped with the PUMA turret. The latter we expect in 2026. Further key contributors are projects for Algeria's border surveillance as well as upgrades for the German U212A submarines, both recently booked. I will give an overview of how these orders will contribute to our raised book-to-bill guidance for 2025 in a minute. Of course, all of you know that ramping up capacity is key to meet increased customer demand. Therefore, we have started our Operations 2.0 initiative, which we have introduced in H1 of this year. Since 2022, we have been expanding production capacity through continuous improvement, automization and outsourcing, integrated into our annual CapEx plan, and this will continue. And of course, we will provide more details at our Capital Markets Day next week. Nevertheless, our first concrete initiative. This is our new production site, which will significantly increase our production capacity for air defense radars. This strategic capacity expansion will enable us to substantially ramp up production from 2027 onwards, especially for TRML-4D and Spexer radars. We are investing around EUR 80 million in this rented site, combining resilience with synergies across our existing footprint. Let me now come to our financials for the first 9 months of this year. After outlining our promising growth outlook, let's now shift to what we have accomplished so far. So let me walk through our financial results for the first 9 months. To begin with, I'm very pleased with the performance we have once again achieved. Order intake developed as planned, reaching more than EUR 2 billion. Also this year's orders placement from Germany are heavily weighted towards year-end, we exceeded the high prior year figure by 9%. Key drivers behind this performance was the Eurofighter program as well as TRML-4D radars. Revenue performance was strong, increasing to EUR 1.5 billion. Optronics continued its strong momentum, while Sensors further gained traction in Q3 as anticipated following a slower start in the first half of the year. Passthrough revenue continued to decline in line with our planning. Excluding parcel revenue, core revenue grew strongly by 14%, reflecting the strength of our underlying business. With a book-to-bill of 1.3x, our order backlog again reached a new record level of EUR 7.1 billion, providing us with an excellent visibility. To sum it up, the increasing investments in defense by our German and international customers continue to translate into higher order intake and revenue. The strong performance of our top line is also reflected in our profitability. Adjusted EBITDA increased to EUR 211 million with an adjusted EBITDA margin of 13.7%. The increase was primarily driven by higher volumes in the German Optronics business. In the Sensors segment, product mix effects partly offset this growth, while the impact on margin from the logistical ramp-up has further diminished. Additionally, we continue to capture cost and revenue synergies from the ESG acquisition, further strengthening our bottom line. Adjusted EBIT increased to EUR 122 million in 9M 2025. Cash generation was excellent in Q3. Adjusted free cash flow increased to minus EUR 119 million per 9M 2025, supported by advanced payments received. While on the other hand, investments in our working capital continued as planned to manage the business volume in Q4. To conclude, our bottom line is on track and set to gain further momentum as the year progresses. Now let's have a look at our segments. The Sensors segment delivered a solid order intake of EUR 1.7 billion, exceeding previous year's high comparison base. This corresponds to a book-to-bill ratio of 1.3x. The development was driven by orders for the Eurofighter re-baselining and Halcon program as well as TRML-4D radars for Ukraine. Revenue in Sensors increased to EUR 1.3 billion. Despite the slower start in our radar production during the first half year, revenue growth was strong and fully in line with our expectations. Excluding the declining share of parcel revenue, core revenue in sensors rose by 12%. Adjusted EBITDA in Sensors increased to EUR 199 million. Product mix effects had a minor impact, while the effect of the ramp-up of the logistics center in H1 is further diluting. This is reflected in the adjusted EBITDA margin of 15.1%, catching further up as the year progresses. As mentioned, cost and revenue synergies from the ESG acquisition contribute to this as planned. Optronics realized a strong order intake with orders summing up to EUR 328 million, resulting in a book-to-bill ratio of 1.4x. This was primarily driven by orders for the U212A submarine retrofit, gimbals and site systems for ground-based systems. Revenue performance in Optronics was excellent, continuing the momentum from the previous quarters. This was boosted by the sustained strong performance of the German entity, which achieved revenue growth of 27% in the first 9 months. Main driver was accelerated production in ground-based systems. At this stage, we are also pleased to have successfully the first step of the move of the ground-based systems business in the Oberkochen, from the former Zeiss building to the new build Optronics campus. This milestone will provide our business with the capacity to continue the strong growth path ahead. In terms of margins, Optronics continued to show a significant improvement compared to prior year with adjusted EBITDA reaching EUR 12 million. This development was driven by higher volumes from the German unit. Let's now have a look how our order book will develop until year-end. In addition to the orders mentioned at the beginning, we are preparing for a broad series of additional contracts across our business areas such as for air defense, the Eurofighter program, our naval business as well as self-protection systems and services and integration. To sum it up, we are very well on track to secure major orders that will drive our order intake from around EUR 2 billion in the first 9 months to approximately EUR 4.4 billion per year-end. Let me now come to our guidance for 2025 updated 2 weeks ago. First and foremost, order intake. Following the recent development, we have significantly raised our book-to-bill guidance from around 1.2x to a range of 1.6x to 1.9x. As highlighted earlier, we expect to book key programs like Eurofighter and Luchs 11 already within this year, pushing the book-to-bill notably upwards. Furthermore, we specified our revenue guidance to approximately EUR 2.5 billion. As outlined in our recent analyst calls, the rollout of our new logistics center represents a strategic investment in long-term competitiveness and operational efficiency. While this go-live has temporarily moderated the pace of revenue growth in 2025, it is a critical enabler of sustainable growth and scalability in the years ahead. For adjusted EBITDA margin, we specified our guidance to 18% or higher. This reflects our focus on sustained strong profitability by investing in our capacity to secure long-term success. For adjusted free cash flow, we continue to expect strong performance with an unchanged cash conversion target of approximately 50% to 60%. And our net leverage target remains at around 1.5x, reflecting our disciplined financial management. Finally, our dividend payout ratio will continue to be in the range of 30% to 40% of adjusted net income, in line with our commitment to shareholder returns. So coming now to a conclusion, let me mention the following key takeaways. The ever-increasing demand for our products and solutions is reflected in substantial order intake across both segments, driving order book to a record high of EUR 7.1 billion. This continues to provide excellent visibility for the years to come. Our revenue performance remains strong, driven by sustained high momentum in optronics and accelerated growth in sensors during the second half of the year. This is reflected in our solid profitability, supported by higher volumes in Optronics, while the impact of Sensors margins from the logistical ramp-up is further diluting. Our outlook remains promising, and we are strongly positioned for the upcoming growth. Germany is taking the leadership role for defense in Europe, and Hensoldt has the right strategy, products and capacities to play a major role in upcoming German and European procurement programs. This is now increasingly reflected in concrete orders, driving our book-to-bill guidance significantly upwards and with further major contracts on the horizon. So in short, Zeitenwende 2.0 starts to materialize. Through targeted investments in capacity and processes, we are safeguarding our delivery capability. We proactively secured the further ramp-up of our air defense production from 2027 onwards, safeguarding our delivery capability and long-term sustainable growth. Thank you very much for listening. And with that, I'm now happy to open the floor to your questions. Operator: [Operator Instructions] The first question comes from Sebastian Growe from BNP Paribas Exane. Sebastian Growe: The first one would be on the Optronics segment. And apparently, the segment is outpacing the earlier indicated 10% EBITDA margin for this year. And against the backdrop, where do you see the segment trending both in '25 and particularly in the midterm, i.e., do you eventually see scope to return to the 20% plus levels that you achieved in 2020? And as a follow-up to this, as Optronics is going to roughly double its order backlog based on your statements. How should we think about the growth cadence in the outer years, i.e., would you agree that optronics might ultimately outgrow the Sensor segment? Christian Ladurner: Sebastian, many thanks for this question. So yes, a very good question about Optronics margin. You're right. So we guided until half year 10%. I have to say, currently, we see with the positive development, a figure which goes more into the direction of 14% EBITDA at the year-end. With having said that, we see every year a figure of around 2% in addition. And of course, in the midterm 2027, 2028, we expect that figures at the profitability of Optronics will be in this year, as you have mentioned, so for sure. And the second question, yes, you're also right. We see more momentum now from the optronics. We have to keep in mind that sensors is a classic project business with heavy also engineering load in the work, whereas Optronics is a delivery business. That means if we have everything in place and industrialized products and the demand is there, which is currently there, we are able to ramp up more intensively. And for, I would say, more concrete numbers, I'm happy to share with you on the upcoming Tuesday that we will give some more insights how the segments will progress. Sebastian Growe: Makes sense. I won't stretch my luck too far. Just one other quick one, if I may, on some comments we heard recently from your second largest shareholder. Those very comments suggest that there might be scope for an expansion of the cooperation between the -- as you referred to legacy part of the product offering. And I was just wondering considering also that there are so many cooperations happening in the defense sector, in which areas might you see headroom for more cooperations and that could either be then with the Italians or then eventually also other partners? Christian Ladurner: Yes. Thank you very much. You're right. The dynamics is quite high currently, and Leonardo has stated that there is a good collaboration with our company up to now, especially we have currently in the Eurofighter and also in the air defense topic. I see within -- with Leonardo, there are, of course, also opportunities in the land platforms to go for more cooperations even if there is nothing material yet. And of course, I think with the increasing budgets coming from Germany and acting Germany as a frontrunner, of course, other companies are interested in participating of this growth and then going to partnerships with German OEMs, but also in Hensoldt. And when you have seen now the Luchs II contract, which is at the end of the day, a cooperation between GDLS (sic) [ GDELS ] so General Dynamics Europe Landsystems (sic) [ General Dynamics European Landsystems ] and Hensoldt gives you also a concrete example where this successfully happened. And going forward, we see also possibilities in the land platforms, for example, also in space, also in air defense in all ranges. So there is more to come. And also here, we will give you some more details on Tuesday in the Capital Markets Day. Operator: The next question comes from the line of Ross Law from Morgan Stanley. Ross Law: So the first one, just on order intake. Obviously, it continues to track strongly. And obviously, you've raised full year guidance quite materially. What's a little surprising is that your cash guidance is unchanged. Can you maybe just flesh out the moving parts there into year-end as I would have thought that you're going to get a reasonable amount of down payments like you've noted for the 9 months? And then just on the outlook, you've confirmed your 2030 sales guidance. Can we also expect you to provide 2030 guidance for other metrics like margin at next week's CMD? And given the strong visibility from Germany specifically, can we expect you to provide some indications of growth for the group beyond 2030 next week? Christian Ladurner: Yes. Thanks, Ross. So in terms of down payments, first of all, it's a good progression we have seen now in the last year when we compare 9M 2025 with 9M 2024, we have EUR 200 million more down payments on balance sheet. On the other hand, I have to say we are heavily further investing into working capital. That means the strategy, and this is also seen in the figures is clearly to go for pre-investments in working capital to further deliver and outbalance this advance payments. So this is why I do not really expect an increase now of cash conversion by year-end. And regarding 2030, yes, we will give some more insights how we think about this EUR 6 billion figure on Tuesday and also some bottom line figures for sure, and also some aspects how we think the company will grow from 2030 onwards. I think it's not a secret when you now currently look how Germany will behave from this and next year onwards that most of the contracts will not only last 5 years, they will 5 to 8 years. And then we are at the beginning in the mid of 2030. And on top of that, there will be service business due to that the availability of services of systems in Germany has to be increased massively. So there is room and there will be more details on Tuesday. Yes, clear yes. Ross Law: Great. Thanks Christian, see you by next week. Operator: [Operator Instructions] Next question comes from the line of Christophe Menard from Deutsche Bank. Christophe Menard: Two questions on my side, just on the updated 2025 guidance. The revenue growth you have in Q4 is actually a bit softer than usual. Is it only linked to the logistical center? You're going to be growing more or less in line with what we've seen in the first 9 months. Usually, it's a stronger quarter. So the question is, is it just that phasing? And will -- should we resume kind of that accelerated growth in Q4 as of next year? The second question is on the margin. You stated 18% plus. As you previously outlined, Sensors was doing very well in the first 9 months and in Q3. What about -- sorry, Optronics, you talked about optronics. And my question is about sensors. We also had a very good performance on sensors. How can we think about the margin performance of sensors in the full year? Christian Ladurner: Yes. Thanks, Christophe, for that. Yes, you're right. It should be a little bit weaker. I think especially in sensors, when I look at the key products such as Eurofighter and TRML-4D, there are fewer figures now planned for Q4. But nevertheless, we see an increase. I think when we talk about 2026, we will be in a normalized Q4 again, which will be stronger from my point of view because then the logistics center effect will be fully phased out next year. So this is the picture I currently have. So in terms of margin, I've outlined 14% for Optronics for this year in the sensors, I expect approximately 19%, which is then in the sum around 18% to 18.2% and which gives us confidence to reach our guidance for the full year. Operator: Next question comes from the line of David Perry from JPMorgan. David Perry: Christian, look forward to seeing you next week. I was just going to ask you to unpick this big jump in the Optronics margin, the 14% so basically you're double year-over-year. Just how much of that is that R&D has dropped? How much of it is kind of one-off self-help, say, South Africa or something like that? And how much do you think is related to the volume? And then just to square the circle on it, can you just tell us where you think the revenue ends up for this year in Optronics, please? Christian Ladurner: David, many thanks for the question. I see currently that it's solely volume-based. So R&D, we are still in the digitalization of periscope and the WAO for the Puma. So this will last until 2027 because these figures go down. We are still at Ceretron. Ceretron is the sensor suit for the Luchs II, which has to be finished until 2027 until the first systems are to be delivered to GD. So this will stay at a high level. And as I said before, this is volume-based. South Africa is more or less on the level of the prior year. So this is exactly volume-based. In terms of revenues, I see approximately EUR 420 million to EUR 430 million for the Optronics segment. I see EUR 2.07 billion to EUR 2.09 billion in the Sensor segment, which then comes up to the group guidance. Operator: We have a follow-up question from Sebastian Growe from BNP Paribas Exane. Sebastian Growe: So the first one is on Sensors, and it's actually then a follow-up to Christophe's question. I think if one looks at the 9-month period, then I take the point that the dilution effects from the logistical ramp-up were quite significant. But if one singles out quarter 3, then apparently it's the first quarter where you're up like 200 basis points year-on-year. So the question that I have -- it's 3 questions actually. So the first one, is this logistical ramp-up fully digested by now as we speak? And conversely, it appears really that the ESG business is performing way stronger than potentially expected. So can you provide some color with regard to the trends in the, a, core and, b, then ESG business, please? Christian Ladurner: Yes, for sure, Sebastian. So first answer is clearly, yes, we have digested that effect. Nevertheless, I see approximately EUR 10 million of effect we will have. We had this EUR 10 million effect in Q1, which is from an absolute term still in the figures. Relatively, it phases out, as you have seen through Q1, H1 now 9M and also Q4. So this is clear. And ESG, yes, we bought this company for approximately 14% EBITDA. We see currently a figure which is around 15%. So this -- the cost synergies have completely realized as we have planned on a pro rata basis. So these are the 2 figures. Sebastian Growe: Okay. That's helpful. And then just finally, again, on the order pipeline and in addition to Ross' question. So I know it's hard to compare you guys with Rheinmetall, for instance, but they hinted at around EUR 20 billion in quarter 4, another EUR 40 billion, EUR 50 billion potentially in '26. And again, I appreciate that apparently, there are differences in both the business mix, the regional mix and whatnot. But from the sort of cadence and general sort of dynamics, would the sort of potential rule of thumb like seeing a doubling or so from the quarter 4 dynamics be directionally also the right yardstick for you? Put differently, what are you seeing recently from the order pipeline perspective going into '26? Christian Ladurner: Yes. Look, I expect in 2026, especially in the land platforms where we currently talk about these thousands of Boxers, Pumas, Leopard and so on. So from my point of view, there will be big dynamics in 2026 in the land platforms also in our business. And I think the book-to-bill we currently guide for this year, I see at least also for next year. This is simply due to the fact how the structure is currently working in the German parliament with having now the budget in place 2025 and 2026. So this is my view currently. We have to keep in mind that, of course, every special land system goes then by OEMs. That means there will be a kind of a flow down process between the OEM to receive the contract. But also next year, I see in terms of book-to-bill, a figure which will be similar as the figure we have now updated for this year. Sebastian Growe: Very helpful, thank you so much, and see you next week then. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Veronika Endres for any closing remarks. Veronika Zimmermann: Yes. Thank you all for listening today. As always, should you have any further questions, the IR team is around all day to follow up. And as Christian mentioned, we are very much looking forward to welcoming you at our CMD event next week. Have a great weekend. Thank you, and goodbye.
Operator: Ladies and gentlemen, thank you for standing by. Hello. My name is Dustin, and I will be your conference operator today. At this time, I would like to welcome you to Riley Exploration Permian Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our CFO, Philip Riley. Please go ahead, sir. Philip Riley: Good morning. Welcome to our conference call covering our third quarter 2025 results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Chairman and CEO; and John Suter, COO. Yesterday, we published a variety of materials, which can be found on our website under the Investors section. These materials in today's conference call contain certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. We'll also reference certain non-GAAP measures. The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website. I'll now turn the call over to Bobby. Bobby Riley: Thank you, Philip. Riley Permian delivered another solid quarter marked by disciplined execution and strategic progress on multiple fronts. In July, we closed the Silverback acquisition and began integrating the asset where we are already realizing synergies. In just a few months, we have reduced costs and increased production. For September and October, combined production on the acquired asset exceeded our underwriting case by more than 50%. We executed our development and capital plan during the third quarter, which contributed to significant free cash flow generation. Over the last 9 months, we have generated $100 million of upstream free cash flow, approximately flat compared to the same period a year ago despite a 14% lower realized oil price. We continue to progress our midstream and power generation projects, securing equipment and advancing build-outs. These critical infrastructure projects should enable Riley Permian to scale operations in 2026 and beyond. Today, we are paying our 19th consecutive quarterly dividend as a public company. In October, we increased the dividend to $0.40 per share, up 5% from the previous quarter. Maintaining a consistent and growing dividend underscores our commitment to capital discipline and focus on sustainable free cash flow. With that overview, I'll turn the call over to John Suter, our COO, for operational highlights, followed by Philip Riley, our CFO, who will review financial performance and forward-looking guidance. John Suter: Thank you, Bobby, and good morning. Riley Permian has once again shown its commitment to safe operations, achieving a total recordable incident rate of 0 in the third quarter. We achieved 93% safe days, a metric requiring no recordable incidents, vehicle accidents or spills over 10 barrels. As for activity, in the third quarter of 2025, we completed 5 and turned in line 10 gross operated wells. 5 of those wells turned in line were completed at the end of the second quarter. Average daily net production was 18,400 barrels of oils per day and 32,300 barrels of oil equivalent per day for the third quarter of 2025. Oil volumes increased by 3,200 barrels per day during the quarter, benefiting from the addition of acquired Silverback volumes, incremental production gains from Silverback workovers, along with strong performance from several new wells on legacy acreage. Total net oil production increased from 1.38 million to 1.69 million barrels of oil quarter-over-quarter in Q3. This is an increase of 22% quarter-over-quarter and an increase of 19% compared to the same quarter last year. Total equivalent production is up 34% quarter-over-quarter from 2.22 million to 2.98 million barrels of oil equivalent and up 38% compared to the same quarter last year. Total equivalent volumes grew faster than oil last quarter for 2 reasons: First, because our Texas midstream partner completed some upgrades, which led to materially more gas sold; and second, with the contribution of the Silverback asset, which has a gassier mix currently. This will become more oily as we bring on new horizontal wells. At Riley Permian, we pride ourselves on being a low-cost operator. We nearly doubled our operated well count in New Mexico through the Silverback acquisition. Many of the acquired wells are lower volume vertical wells with a higher cost per barrel. However, we maintained LOE per BOE near $9 per BOE, which is only a 6% increase over Q2 and a 5% increase over the same quarter last year. We believe we can reduce costs further as a result of synergies we're realizing through the Silverback acquisition that we'll discuss shortly as well as increasing the mix of horizontal wells as we continue to develop. Riley Permian picked up a drilling rig in October, getting a head start on our development for 2026. We are drilling 8 to 10 gross wells in Q4, which will set us up for some early completions in Q1 of 2026. In addition to the drilling program, 3 to 5 gross operated wells will be completed in Q4, cementing a solid exit rate for 2025 and base production for the year to come. Our initial look at D&C pricing for the upcoming wells in our Red Lake asset is down nearly 10% over our last campaign in New Mexico. This is the result of softening of prices in both rigs and frac spreads as well as lower steel prices than realized earlier in 2025. Moving to midstream. Our gathering and compression project in New Mexico continues to add value in the form of increased flow assurance by reducing downtime and allowing us to bypass some of the legacy low-pressure systems in the area that struggle with reliability. In the fourth quarter, we plan to upgrade the initial compression facility we installed earlier this year with an incremental 40 million cubic feet per day nameplate compression capacity. This will allow us to utilize 15 million cubic feet per day in addition to what we're currently delivering to our existing provider, and we'll be able to utilize all remaining high-pressure capacity when our transmission line is in service in mid-2026. Low-pressure gathering lines are currently being installed to expand the input capacity to the compressor facility, allowing us to utilize the additional capacity that we will have by year-end. The high-pressure transmission line we're planning to install continues to progress. Permitting is submitted and underway and secured pipe is scheduled to arrive late in the fourth quarter or during the first quarter of 2026. Shifting to power. Our joint venture, RPC's project in Texas continues to grow in scope and improve in reliability. In the third quarter, we added 5% more of our total load to the generation in Texas with 100% uptime in September. In New Mexico, RPC is progressing on the plans for another behind-the-meter generation project. We've begun permitting, designating a location and securing long-term lead items, including 10 megawatts of generators. The pilot generation station as well as the distribution system will begin construction in 2026. We continue discussions to advance both water and oil infrastructure projects that will maximize our ability to control development pace. We also look forward to better realized pricing on our oil barrels as we consider moving away from trucking where opportunities exist. The Silverback acquisition is already realizing value through synergies and cost-saving opportunities since closing. We've been able to drive down fixed costs in the field through things like combining multiple field offices and managing headcount. We expect that those fixed costs will come down 10% to 20% following those and other changes. We mentioned last quarter that we intended to leverage our expertise in water handling to drive down costs in both Silverback and legacy Red Lake assets. In a few short months, we've seen a $70,000 per month decrease in costs due to our integration efforts. We're nearing completion of low-pressure gathering lines that will tie back some of the gas in the Silverback acreage to our compressor station we've built, allowing for better reliability, maximizing production from the area. Significant progress has been made in maximizing production from the asset. Without bringing on any new wells, the Riley Permian operating team has increased production over the purchase case forecast by over 50% for the months of September and October combined. This was achieved primarily through strategic workovers, returning wells to production as well as artificial lift optimization. We're pushing forward with several RFQ processes, attempting to leverage the larger economy of scale achieved through acquisition. We anticipate notable savings on frequently used materials such as steel tubulars and production chemicals as a result. Overall, it's been a very successful quarter for the operations team. We're progressing our efforts on both our midstream and power endeavors. We're already seeing costs come down on our latest drilling program. We're maintaining disciplined operating costs and all of this while achieving record levels of production. Congratulations to the team on a job well done. Philip, I'll now turn the call back to you. Philip Riley: Thank you, John. Third quarter results reflect the Silverback acquisition given the deal closed on the first day of the quarter. The transaction was accounted for as a business combination. Cash paid at closing was $120 million, 15% lower than the $142 million unadjusted purchase price upon announcement, benefiting from cash flow from the January 1 effective date through closing as well as other favorable adjustments. Overall, company third quarter results were either within or favorable to guidance levels. Prices after hedges were roughly flat quarter-over-quarter and oil represented all of our revenue last quarter as we experienced negative natural gas and NGL revenues after fees. As discussed by other operators reporting recently, the industry experienced an especially weak September and October gas market in the Permian with select operators voluntarily shutting in an estimated 1.5 to 2 Bcf a day of gas production. LOE was higher quarter-over-quarter, driven by 2 primary factors. First, from the contribution of higher cost Silverback vertical wells that John discussed earlier and as I previewed on the second quarter call; and second, from increased workover activity associated with the positive results John described earlier, which drove higher corresponding workover expense. A quick clarification is in order here. Investors often associate most dollars spent supporting new production volumes in the form of capital expenditures, while we often opportunistically pursue workovers like these, which get expensed and are embedded in LOE on the income statement. Production taxes were higher as a percentage of revenue as more volume shifted to New Mexico, which has a higher tax rate than Texas. Third quarter administrative costs included transition costs associated with the acquisition and other nonrecurring items, which should normalize over time. On a per BOE basis, costs were squarely within the guidance ranges for LOE and administrative costs. We had nearly $5 million of favorable income tax benefits in the third quarter resulting from the new federal legislation, allowing for increased bonus depreciation, which we realized across our legacy assets, the acquisition and from our midstream project. Third quarter cash flow from operations before changes in working capital was $54 million, higher by 17% quarter-over-quarter, primarily from higher volumes and from slightly higher oil prices before hedges. Adjusted EBITDAX margin was 59%, down from 66% last quarter, primarily as a result of the cost items noted above. On costs and margin, consider that we've just closed the Silverback acquisition. Our team has made good initial progress and is excited by the potential to drive synergies and develop the asset. We're optimistic to lower our cost structure and improve margins over time. We take confidence in this potential given our track record in this area. Since the Pecos acquisition 2 years ago, we've reduced LOE per barrel for that specific asset by more than 30%. During the third quarter, we reinvested only 27% of cash flow from operations before working capital and upstream CapEx or only 36% for the 9 months year-to-date. Third quarter upstream accrual-based CapEx was nearly 40% below midpoint guidance as a result of some delayed non-op activity and infrastructure spending. Some of this will be shifted to the fourth quarter. We generated a very robust $39.4 million of upstream free cash flow in the third quarter, representing 73% conversion of operating cash flow before working capital. Year-to-date, we've generated $100 million of upstream free cash flow or 64% of free cash flow from operations, an amount equal to the same 9-month period for 2024 despite 14% lower realized oil prices. On our other projects, we invested $14 million in our New Mexico midstream project. And in power, we invested $8.5 million with the latter -- into the JV, with the latter being slightly over guidance as we simply accelerated most of the fourth quarter spend to secure some equipment. Year-to-date, we've allocated 31% of total free cash flow to dividends. Debt was $375 million at quarter end, corresponding to 1.3x leverage based on pro forma adjusted EBITDAX, including Silverback. Now I'll move to guidance. We're raising oil production guidance for the fourth quarter by 4% at the midpoint to 19,200 barrels a day. This fourth quarter oil production rate at the midpoint corresponds with 5% quarter-over-quarter growth and 21% year-over-year growth from the fourth quarter of 2024. This leads to a 2% increase in guidance at the midpoint for full year oil production to 17,100 barrels a day, corresponding to 13% year-over-year volume growth. We're maintaining guidance for full year total CapEx and investments at the midpoint at $92 million of accrual CapEx with some shift in spending from third quarter to the fourth quarter. The combination of increased production with flat CapEx evidences doing more with less. Fourth quarter drilling and completion activity will primarily drive 2026 results with only modest impact on fourth quarter volumes. D&C cost savings in New Mexico and some schedule flexibility allowed us to accelerate 2 completions from 2026 into the current quarter. These wells will support 2026 production with no impact to fourth quarter 2025 volumes. Looking to next year, we're striving to balance excitement around development potential in our asset base with capital allocation discipline in the face of softer oil markets. While some longer-term planning commitments are required, we'll watch the markets and aim to maintain flexibility with shorter-term commitments. We believe the current state of the oilfield service market affords such flexibility. Fortunately, we're in a situation that allows for resiliency and confidence across a range of prices. I'll offer the following examples based on preliminary forecasts. We believe we could maintain our third quarter 2025 oil volume level of 18,400 barrels a day over the full year in 2026, which would equate to 8% year-over-year growth while reducing 2026 upstream CapEx by approximately 15%. This scenario partially benefits from the fourth quarter 2025 forecasted volume tailwind of 19,200 barrels a day at the midpoint. Next, if we focused instead on maintaining upstream CapEx and not volumes, then we believe we could keep our 2025 upstream CapEx level generally flat while growing full year oil volumes year-over-year by approximately 12% to 15%. If oil markets improve, we can grow beyond these levels with increases in capital spending supported by our deep inventory of development locations. Finally, we forecast the dividend being well covered across these 2026 activity and oil price scenarios, benefiting from this capital efficiency and hedges in place. We have over 60% of 2026 oil volumes hedged at a weighted average downside price of $60 with upside optionality as 44% of hedges are in the form of collars. I'll turn it back to Bobby for closing. Thank you. Bobby Riley: Thank you, Philip. Once again, we appreciate your time and interest in Riley Permian. While we're pleased with our Q3 2025 results, our focus remains firmly on the future. We are committed to creating long-term value through disciplined capital allocation, strategic infrastructure investments and operational excellence. We believe these initiatives will position us for sustainable growth and shareholder value. We appreciate your ongoing support and confidence in Riley Permian. Operator, you may now turn the call over for questions. Operator: [Operator Instructions] And we will take our first question from Derrick Whitfield from Texas Capital. Derrick Whitfield: Congrats on a solid overall print. Wanted to start with a bigger picture question on capital efficiency and capital allocation. As we think about Slides 5 and 7 and Philip's ending commentary, it's clear your business has differential capital efficiency and can accomplish an all-of-the-above funding strategy while continuing to grow in a relatively low to mid-cycle pricing environment. As you think about your cash flow priorities in a below $60 per barrel environment, how would you prioritize capital allocation in that environment? And are there pathways where you can continue to fund all 3 segments of your business while maintaining control of each? Philip Riley: Yes. Fair question. Thank you, Derrick. In a $55 scenario, that starts to get to the point where on a corporate level, full cycle, we're mindful of spending too much. I think our half cycle economics, as evidenced there on that slide you referenced, can work down below $40, but there's no pressing need to develop that sooner. So I think in a $55 scenario, you're going to see us in that lower potentially volume maintenance scenario where we're spending sub-$100 million, maybe it's in the $85 million range. We can maintain volumes that way. We've got the dividend well covered. I think we are funding CapEx for the midstream find that way, and I can talk more about that in a bit, if you like. But that's probably a fair inflection point. I think there's also probably some psychology bias there at that inflection point of $55. Things below it start to get tougher for our industry. That said, it's never just a single variable equation. We'll see how the oilfield services market reacts. Some believe that their costs won't go lower, but you never know. Should those continue to decrease, then that can change some of the economics as well. Derrick Whitfield: Terrific. Yes, that makes sense. And maybe for my follow-up, I wanted to shift over to the New Mexico Midstream project. While the ability to control pace of development and flow assurance are the primary drivers, could you offer some color on the potential improvement you'd expect in netbacks for the upstream business and the amount of third-party volumes that could accrete value for the midstream business? Philip Riley: Yes, I can start and then maybe, John, if he wants to fill in on some of the volumes. Look, on netbacks, this is never a binary clear impact. I think the way that works is, first and foremost, we start with the flow assurance. We're getting into good systems there, newer generation gathering compression pipe and their facilities. We think we're going to get some economic improvement based on more efficient, best-in-class type of processing and treating facilities. So we've got some of that modeled that we hope to realize. And then the netbacks themselves, sometimes what that involves is making an additional commitment to get to capacity basically by your way into some capacity that reaches the Gulf Coast. You see some companies -- I think there's a company hosting a call at this exact time that's done that, where you make a commitment to the midstream counterparty for that capacity, and they can offer you a bit closer to the ship channel pricing. Now there's a negotiation involved. And not everybody can do that because clearly, most of the Permian would like to have the ship channel versus the Waha pricing. But I think it represents a spectrum. We hope to get some of our gas closer to that, but it will be something that takes place over time. John Suter: Yes. Derrick, I'd like to add from an operational perspective, I think this midstream project is just a must-have for our company to be able to grow the New Mexico asset. I think not only are we going to get a little bit better processing outcome from the new provider, once we put about $15 million more into the -- as I said in our initial discussion, that will be all that current provider can handle. And so there will be -- without gas decline, there will be no more room. So this really allows us with $150 million to $200 million more capacity within this new line I mean it's going to let us do what we're -- our main objective to drill oil and gas wells. We'll have a home for our product. So it really is a must-have. Again, we can -- right now, our pace is very limited in New Mexico just because of that. So given that new capacity opportunity, then we can make the choice as commodity price swings, as our value from making more oil and gas is enhanced, we can step it up and fill that need quickly. Operator: Our next question comes from the line of Jeff Robertson from Water Tower Research. Jeffrey Robertson: Bobby, maybe to follow up on your last comment is essentially the midstream project, once it's completed, will allow Riley to produce more oil because you can more -- you can pace the development of your field however you see fit with commodity prices since that's where the -- at least currently, that's where the real value is. Is that the right way to think about it? Bobby Riley: Absolutely. I think that was John that was talking there, but he's right on point. I mean, our objective is to get unconstrained takeaway capacity for both gas, oil and water so that we have full flexibility in our pace of development to develop the asset. I mean we've been drilling some pad locations with anywhere from 3 to 5 wells coming on at the same time. So it's a substantial bump in all of those -- that commodity mix all at one time. So the track we're on is just to get us in a position to have all options on the table. Jeffrey Robertson: Philip, can you talk about the capital spend for the midstream project completed in the first half of 2026 and then how that impacts your free cash flow flexibility in the back half of the year with that burden behind you? Philip Riley: Yes, sir. So I think this weaves into how I -- in my prepared remarks, talking about some of those maintenance scenarios and the level of spending there. If you look at what we've disclosed in the very beginning of 2025, we saw spending roughly $130 million on this midstream project to get it completed with the pipe and through initial areas in our kind of core development area. Since buying Silverback, we could expand that, but we don't have to do that right away. So we're considering a number of options, Jeff, if we bump along in this kind of $60 level or even a little bit low, we're going to be watching the prices and watching our cash flow. We could maintain the status quo and keep this on the balance sheet. I think based on the scenarios I described, we can be roughly free cash flow positive even after combined upstream and midstream CapEx. So maybe that's somewhere in the $170 million to $180 million range or possibly just short after the dividend at kind of $60 WTI, in which case, you've got a slight deficit there, but you've got plenty of capacity because you are creating value. So we take comfort there because we've created real asset value. We've got an implied $120 million, $130 million of spend there into the midstream at that point. And so because of that, I guess I could segue, we're also considering some financing options at the project level. We've considered using a credit facility. Our existing credit facility is an RBL, reserve-based loan. It allocates 0 value to the midstream assets right now because it's all about the upstream reserves. But there very much is material hard asset value there. As I just described, it could be a cumulative basis, $120 million, $130 million of book value by the end of next year if we proceeded with that. We've also considered bringing on an investor partner, which could take different forms. And so we've had those and other options that we're working through. We take confidence that we have a number of alternatives. Nothing has been definitively decided at this stage. Jeffrey Robertson: So if you went some sort of project route and any economic benefit from third-party volumes would flow through that type of entity. Is that right? Philip Riley: Yes. And just to be clear, I'm talking more capital partners, Jeff. We can -- we could have third-party operators that could come through the pipe, and we could sell them some capacity, in which case we're collecting more fees. That's something that's possible, too, and that's something that helps with -- that's something that would help with revenue and cash flow over time, but not with the upfront capital to build the project. That has its pros and cons. Pros is you got true third-party incremental revenue there. The balance is with Silverback and the size of our footprint now, I mean, we see potential to fill up the entire capacity by ourselves. Now that takes time to do it, maybe it's 7 or 8 years. And so the question then is, do you sell some of that capacity for a shorter-term basis? Do you sell it for a longer-term basis at a higher price? Do you expand this and so forth. So it's kind of an organic thing that we're working through. But going back to the capital, we'd be looking at some capital type partners that could come in different forms, whether it's an equity or credit. Jeffrey Robertson: And lastly, on production on the Silverback assets, John or Bobby, is there more to do on those assets to continue the solid performance that you had in September, October in terms of workovers and lift optimization and those types of projects? Or have you done the most obvious projects to this point? John Suter: Yes. This is John. No, I would just say we've barely touched it. We've just gotten some obvious things where wells were offline when we took it over. They had gone through this divestiture process a while. So missing a little TLC that we have found just some easy things to do, but we've also tried bringing over some of the more technology based, the way we do our cleanouts that we think are different from what other people do and have had some really nice success on a couple of those. We obviously have several hundred wells that we can work on. I think there's probably like 30 horizontals and upper 200s of vertical wells. So there's quite a bit of playground there. We're frankly just very excited about it. Operator: Our next question comes from the line of Nicholas Pope from ROTH Capital. Nicholas Pope: I was hoping you could expand a little bit on that last question. Just kind of looking at the workover, John mentioned that, that was a part of operating expenses being a little up for the quarter, just a lot of opportunity. Just trying to quantify a little bit how much, I guess, workovers were as a percentage of like total operating expenses for the quarter and like how you anticipate that split of OpEx kind of over the next year or so? Philip Riley: Nick, I'll take a first stab at this. I think this quarter, it was a few like probably $3 million -- $2 million to $3 million higher than normal. The reality is this is always in there. Sometimes it's a nature of our wells versus a shale, but we're always doing workovers. Last quarter was relatively light. And this quarter, we did more. You only see that on the line called lease operating expenses. But I think we had something like $8 million to $9 million total here of workovers. And so on an incremental basis, that was probably $2 million to $3 million higher than the prior quarter. John Suter: Yes. For instance, workover was 59% of total LOE this quarter versus last quarter, 27%. And I think it tends to range more in the 45%, 50%. So really, there was, I think, $5 million. Silverback came in at around a $13 per barrel cost versus our 2 assets typically average more in the $8.50 range. And so that kind of tells you how that blended up to a little bit over $9 per BOE total LOE with, again, workovers being typically 40% to 50%. Philip Riley: And just to add a final point there, just how we manage the groups is that this is a mix of reactive and proactive work. Reactive is something shut is down, and it's a big miss. But proactive to go out and do these exciting projects, the groups are given a budget and we can monitor with real-time analytics and stuff, how our costs are coming in for the month, and so they have certain budgets to work with. And that's a way we can have that vacillate from quarter-to-quarter, but then come out smooth on the overall cost per BOE. Nicholas Pope: That was very precise. I appreciate it. Looking at the activity, no drilling this quarter, bringing the rig back, I guess where is the focus of kind of that near-term drilling with the rig coming back to start drilling right now? John Suter: Yes. So we're over in champions in Texas. Like I said, we've got 8 to 10 wells coming by year-end. This will kind of refill our inventory of DUCs that we will use to complete -- gives us a great bit of flexibility with this whole commodity price challenge. So we'll be able to frac these things as we need them, kind of move that throughout the year depending when the markets are in our favor. So we have that. And around the turn of the year, we will shift our focus to New Mexico, and we will plan to start drilling a program there. I think we've only drilled 12 wells in New Mexico in the last 1.5 years that I've been here, and we've had some great results there so far. So I'm excited to get back and prove out some more territory there. Philip Riley: And then on the turn-in lines, Nick, the first half of the year next year will generally be Texas. The second half then would be New Mexico contingent on our pipe coming online around midyear. Again, we've got that flexibility with the DUCs, as John described, to throttle those more or less based on price or if things are faster -- if the project is faster or slower around the midyear. Operator: [Operator Instructions] Our next question comes from the line of Noel Parks from Tuohy Brothers. Noel Parks: I was interested to hear your thoughts earlier about some external financing possibly being in sight. And we're in such a sort of unusual uncertain macro environment and interest rate environment. And I was just wondering, as you consider that project level financing, are you talking to pretty much usual suspects, the names we would kind of all be familiar with? Or I was wondering if you're seeing interest or capital coming in from more unexpected players or new players? Philip Riley: Sure. Let me take and respond to the first half of the question, which I think was a comment about the uncertain macro and economic situation. I admit and agree that the upstream energy industry is out of favor at the moment. It's a tougher situation on the equity markets. Credit markets, whether for upstream or the wider market are very, very healthy right now. This is on the upstream, just real quick. We've had a lot of consolidation. So a lot of paper has come off from the banks. They are really wide open lending. High-yield markets, bond markets are wide open again, generally and upstream, we've got some very, very low spreads. That's not exactly what we're looking at here, but it just gives some context. What I'd also say is, aside from just pure upstream, there is a tremendous amount of appetite for capital for interesting new projects, infrastructure projects. If I go to the extreme, we look at what's happening with the hyperscalers, AI and data centers, and you see the tremendous amount of capital being thrown at that. Well, that's -- we're on the spectrum there of an infrastructure asset midstream being much easily -- more easily financed than upstream typically. We've got some real hard asset value here. We're going to have some contracted volumes and values, and that's something that you can lend against. Like I said, the credit facility currently has 0 allocated value for that. And so there's some debt capacity there. So just one example to start is just a plain vanilla bank is happy to do some lending there. Down, we don't talk about it because it's not in our financials directly, but our JV partner or our JV, RPC Power, has a plain vanilla credit facility with a regular way bank for financing some of that. And that's 7%, 8% cost of capital. Something like that could be available for midstream or if we wanted more capital, we could bring in a type of private capital investor who could be investing in some kind of common or preferred if we structured it that way at the midstream level. You can go look at case studies of different groups that have done this at those midstream projects. Private capital providers are excited to do this. I'm probably going to get a lot of calls after this is done just for saying this. But yes, they're excited to do that, and that represents something between credit and equity. And then you've got just pure common equity if you wanted someone to be really investing all of it. I hope that helps. Noel Parks: Very much though. Sort of staying on that topic of where there's a lot of interest these days. I'm just curious, compared with a few years ago when you decided to go forward with the power JV, mainly with an eye to your internal needs, first and foremost. And today, when it seems now that the sky is the limit for any sort of gas-fired generation any place, anytime, anywhere these days. Just wondering if any conversations you're having on the power side, maybe around local generation or regional generation for possible data center projects and so forth. Just wondering how the environment and the conversation is different now compared to when you were first going forward with the project. Philip Riley: Right. So we're very grateful that we got in, feel fortunate that we started this over 2 years ago, nearly 3 years ago at this point. So clearly early there. And clearly, the environment is very, very different now, both nationally and in West Texas. And so some of that, we feel happy to have the thesis validated, but ultimately, that doesn't matter, and we just want to make money. On new projects, look, we're -- I think we're taking a balanced approach. We've got a relatively full plate at the moment, but we're always looking for new places to invest our time and capital if we think we can earn a good return. Just to be a little cautious with so many people coming into the data center space, we want to be mindful of what incremental value can we add there. And then on a return of capital and cost of capital, typically, the more people you have to come into something, it gets crowded, it pushes down returns. We just have to be sufficiently comfortable and confident that we can earn a return of capital there. That competes with our core business and such. And then finally, if it's something that we did want to do, do we do it as a developer and so that you're getting this up to a certain critical stage and then effectively sell it versus if you decided to keep it on the balance sheet in perpetuity, we would have to believe that we get re-rated and that analysts like you suggest that we should be rerated to trade at a higher valuation because that would be embedded in our -- what's typically a lower valuation type multiple for, say, an upstream company versus an infrastructure or an IPP, which are trading at 12 to 15x EBITDA. Noel Parks: Right. Okay. That makes a lot of sense. Operator: There are no further questions. That concludes our question-and-answer session, and that concludes the call for today. Thank you all for joining. You may now disconnect.
Veronika Zimmermann: Good afternoon, everybody, and welcome to Hensoldt's 9M 2025 Results Call. Thank you all for joining us today. I'm Veronika Endres, Head of Investor Relations at Hensoldt. And with me today is our CFO, Christian Ladurner. Christian will guide you through this presentation today, which will be followed by Q&A. And with that, over to you, Christian. Christian Ladurner: Yes. Thank you very much, Veronika, and a very warm welcome to all of our investors and analysts following our company. It's great to have you with us today. I'd like to begin with a quick update of this time line, which you may remember from our recent analyst calls. Since then, our assumptions have further materialized. Right after the adoption of Germany's 2025 defense budget in September, the parliamentary sessions for procurement approvals gained strong momentum. By the end of 2025, a total of more than a double -- high double-digit number of so-called EUR 25 million approvals will have been passed, many of them with direct Hensoldt involvement. The first tangible evidence was our recent guidance upgrade for the 2025 book-to-bill ratio published 2 weeks ago. While the majority of expected orders is still anticipated to enter our books in 2026, the increased guidance for this year already reflects the early materialization of these strong dynamics. This sets the stage for a strong finish to 2025 with significant orders to be expected in the near term. Let me start with the Sensors segment. In October, we booked a major sustainment contract for the German P-8 Poseidon program worth EUR 130 million. Alongside the procurement of the German Eurofighter Tranche 5, the contract of our Mk1 radar is now in the flow down, and we expect to book the order with approximately EUR 180 million shortly. The same applies to further orders for TRML-4D air defense radar for Ukraine, for Switzerland with a combined volume of around EUR 200 million. Notably, the Optronics segment will contribute significantly to our order intake in 2025, combining both upcoming and recently booked contracts with approximately EUR 1.4 billion. This is predominantly driven by the land domain. The contract for the new reconnaissance vehicle named Luchs II is currently in the flow down process. This landmark order represents a volume of approximately EUR 850 million for Hensoldt. In addition, we anticipate further orders for the Leopard 2 main battle tank and for the Schakal, the Boxer platform equipped with the PUMA turret. The latter we expect in 2026. Further key contributors are projects for Algeria's border surveillance as well as upgrades for the German U212A submarines, both recently booked. I will give an overview of how these orders will contribute to our raised book-to-bill guidance for 2025 in a minute. Of course, all of you know that ramping up capacity is key to meet increased customer demand. Therefore, we have started our Operations 2.0 initiative, which we have introduced in H1 of this year. Since 2022, we have been expanding production capacity through continuous improvement, automization and outsourcing, integrated into our annual CapEx plan, and this will continue. And of course, we will provide more details at our Capital Markets Day next week. Nevertheless, our first concrete initiative. This is our new production site, which will significantly increase our production capacity for air defense radars. This strategic capacity expansion will enable us to substantially ramp up production from 2027 onwards, especially for TRML-4D and Spexer radars. We are investing around EUR 80 million in this rented site, combining resilience with synergies across our existing footprint. Let me now come to our financials for the first 9 months of this year. After outlining our promising growth outlook, let's now shift to what we have accomplished so far. So let me walk through our financial results for the first 9 months. To begin with, I'm very pleased with the performance we have once again achieved. Order intake developed as planned, reaching more than EUR 2 billion. Also this year's orders placement from Germany are heavily weighted towards year-end, we exceeded the high prior year figure by 9%. Key drivers behind this performance was the Eurofighter program as well as TRML-4D radars. Revenue performance was strong, increasing to EUR 1.5 billion. Optronics continued its strong momentum, while Sensors further gained traction in Q3 as anticipated following a slower start in the first half of the year. Passthrough revenue continued to decline in line with our planning. Excluding parcel revenue, core revenue grew strongly by 14%, reflecting the strength of our underlying business. With a book-to-bill of 1.3x, our order backlog again reached a new record level of EUR 7.1 billion, providing us with an excellent visibility. To sum it up, the increasing investments in defense by our German and international customers continue to translate into higher order intake and revenue. The strong performance of our top line is also reflected in our profitability. Adjusted EBITDA increased to EUR 211 million with an adjusted EBITDA margin of 13.7%. The increase was primarily driven by higher volumes in the German Optronics business. In the Sensors segment, product mix effects partly offset this growth, while the impact on margin from the logistical ramp-up has further diminished. Additionally, we continue to capture cost and revenue synergies from the ESG acquisition, further strengthening our bottom line. Adjusted EBIT increased to EUR 122 million in 9M 2025. Cash generation was excellent in Q3. Adjusted free cash flow increased to minus EUR 119 million per 9M 2025, supported by advanced payments received. While on the other hand, investments in our working capital continued as planned to manage the business volume in Q4. To conclude, our bottom line is on track and set to gain further momentum as the year progresses. Now let's have a look at our segments. The Sensors segment delivered a solid order intake of EUR 1.7 billion, exceeding previous year's high comparison base. This corresponds to a book-to-bill ratio of 1.3x. The development was driven by orders for the Eurofighter re-baselining and Halcon program as well as TRML-4D radars for Ukraine. Revenue in Sensors increased to EUR 1.3 billion. Despite the slower start in our radar production during the first half year, revenue growth was strong and fully in line with our expectations. Excluding the declining share of parcel revenue, core revenue in sensors rose by 12%. Adjusted EBITDA in Sensors increased to EUR 199 million. Product mix effects had a minor impact, while the effect of the ramp-up of the logistics center in H1 is further diluting. This is reflected in the adjusted EBITDA margin of 15.1%, catching further up as the year progresses. As mentioned, cost and revenue synergies from the ESG acquisition contribute to this as planned. Optronics realized a strong order intake with orders summing up to EUR 328 million, resulting in a book-to-bill ratio of 1.4x. This was primarily driven by orders for the U212A submarine retrofit, gimbals and site systems for ground-based systems. Revenue performance in Optronics was excellent, continuing the momentum from the previous quarters. This was boosted by the sustained strong performance of the German entity, which achieved revenue growth of 27% in the first 9 months. Main driver was accelerated production in ground-based systems. At this stage, we are also pleased to have successfully the first step of the move of the ground-based systems business in the Oberkochen, from the former Zeiss building to the new build Optronics campus. This milestone will provide our business with the capacity to continue the strong growth path ahead. In terms of margins, Optronics continued to show a significant improvement compared to prior year with adjusted EBITDA reaching EUR 12 million. This development was driven by higher volumes from the German unit. Let's now have a look how our order book will develop until year-end. In addition to the orders mentioned at the beginning, we are preparing for a broad series of additional contracts across our business areas such as for air defense, the Eurofighter program, our naval business as well as self-protection systems and services and integration. To sum it up, we are very well on track to secure major orders that will drive our order intake from around EUR 2 billion in the first 9 months to approximately EUR 4.4 billion per year-end. Let me now come to our guidance for 2025 updated 2 weeks ago. First and foremost, order intake. Following the recent development, we have significantly raised our book-to-bill guidance from around 1.2x to a range of 1.6x to 1.9x. As highlighted earlier, we expect to book key programs like Eurofighter and Luchs 11 already within this year, pushing the book-to-bill notably upwards. Furthermore, we specified our revenue guidance to approximately EUR 2.5 billion. As outlined in our recent analyst calls, the rollout of our new logistics center represents a strategic investment in long-term competitiveness and operational efficiency. While this go-live has temporarily moderated the pace of revenue growth in 2025, it is a critical enabler of sustainable growth and scalability in the years ahead. For adjusted EBITDA margin, we specified our guidance to 18% or higher. This reflects our focus on sustained strong profitability by investing in our capacity to secure long-term success. For adjusted free cash flow, we continue to expect strong performance with an unchanged cash conversion target of approximately 50% to 60%. And our net leverage target remains at around 1.5x, reflecting our disciplined financial management. Finally, our dividend payout ratio will continue to be in the range of 30% to 40% of adjusted net income, in line with our commitment to shareholder returns. So coming now to a conclusion, let me mention the following key takeaways. The ever-increasing demand for our products and solutions is reflected in substantial order intake across both segments, driving order book to a record high of EUR 7.1 billion. This continues to provide excellent visibility for the years to come. Our revenue performance remains strong, driven by sustained high momentum in optronics and accelerated growth in sensors during the second half of the year. This is reflected in our solid profitability, supported by higher volumes in Optronics, while the impact of Sensors margins from the logistical ramp-up is further diluting. Our outlook remains promising, and we are strongly positioned for the upcoming growth. Germany is taking the leadership role for defense in Europe, and Hensoldt has the right strategy, products and capacities to play a major role in upcoming German and European procurement programs. This is now increasingly reflected in concrete orders, driving our book-to-bill guidance significantly upwards and with further major contracts on the horizon. So in short, Zeitenwende 2.0 starts to materialize. Through targeted investments in capacity and processes, we are safeguarding our delivery capability. We proactively secured the further ramp-up of our air defense production from 2027 onwards, safeguarding our delivery capability and long-term sustainable growth. Thank you very much for listening. And with that, I'm now happy to open the floor to your questions. Operator: [Operator Instructions] The first question comes from Sebastian Growe from BNP Paribas Exane. Sebastian Growe: The first one would be on the Optronics segment. And apparently, the segment is outpacing the earlier indicated 10% EBITDA margin for this year. And against the backdrop, where do you see the segment trending both in '25 and particularly in the midterm, i.e., do you eventually see scope to return to the 20% plus levels that you achieved in 2020? And as a follow-up to this, as Optronics is going to roughly double its order backlog based on your statements. How should we think about the growth cadence in the outer years, i.e., would you agree that optronics might ultimately outgrow the Sensor segment? Christian Ladurner: Sebastian, many thanks for this question. So yes, a very good question about Optronics margin. You're right. So we guided until half year 10%. I have to say, currently, we see with the positive development, a figure which goes more into the direction of 14% EBITDA at the year-end. With having said that, we see every year a figure of around 2% in addition. And of course, in the midterm 2027, 2028, we expect that figures at the profitability of Optronics will be in this year, as you have mentioned, so for sure. And the second question, yes, you're also right. We see more momentum now from the optronics. We have to keep in mind that sensors is a classic project business with heavy also engineering load in the work, whereas Optronics is a delivery business. That means if we have everything in place and industrialized products and the demand is there, which is currently there, we are able to ramp up more intensively. And for, I would say, more concrete numbers, I'm happy to share with you on the upcoming Tuesday that we will give some more insights how the segments will progress. Sebastian Growe: Makes sense. I won't stretch my luck too far. Just one other quick one, if I may, on some comments we heard recently from your second largest shareholder. Those very comments suggest that there might be scope for an expansion of the cooperation between the -- as you referred to legacy part of the product offering. And I was just wondering considering also that there are so many cooperations happening in the defense sector, in which areas might you see headroom for more cooperations and that could either be then with the Italians or then eventually also other partners? Christian Ladurner: Yes. Thank you very much. You're right. The dynamics is quite high currently, and Leonardo has stated that there is a good collaboration with our company up to now, especially we have currently in the Eurofighter and also in the air defense topic. I see within -- with Leonardo, there are, of course, also opportunities in the land platforms to go for more cooperations even if there is nothing material yet. And of course, I think with the increasing budgets coming from Germany and acting Germany as a frontrunner, of course, other companies are interested in participating of this growth and then going to partnerships with German OEMs, but also in Hensoldt. And when you have seen now the Luchs II contract, which is at the end of the day, a cooperation between GDLS (sic) [ GDELS ] so General Dynamics Europe Landsystems (sic) [ General Dynamics European Landsystems ] and Hensoldt gives you also a concrete example where this successfully happened. And going forward, we see also possibilities in the land platforms, for example, also in space, also in air defense in all ranges. So there is more to come. And also here, we will give you some more details on Tuesday in the Capital Markets Day. Operator: The next question comes from the line of Ross Law from Morgan Stanley. Ross Law: So the first one, just on order intake. Obviously, it continues to track strongly. And obviously, you've raised full year guidance quite materially. What's a little surprising is that your cash guidance is unchanged. Can you maybe just flesh out the moving parts there into year-end as I would have thought that you're going to get a reasonable amount of down payments like you've noted for the 9 months? And then just on the outlook, you've confirmed your 2030 sales guidance. Can we also expect you to provide 2030 guidance for other metrics like margin at next week's CMD? And given the strong visibility from Germany specifically, can we expect you to provide some indications of growth for the group beyond 2030 next week? Christian Ladurner: Yes. Thanks, Ross. So in terms of down payments, first of all, it's a good progression we have seen now in the last year when we compare 9M 2025 with 9M 2024, we have EUR 200 million more down payments on balance sheet. On the other hand, I have to say we are heavily further investing into working capital. That means the strategy, and this is also seen in the figures is clearly to go for pre-investments in working capital to further deliver and outbalance this advance payments. So this is why I do not really expect an increase now of cash conversion by year-end. And regarding 2030, yes, we will give some more insights how we think about this EUR 6 billion figure on Tuesday and also some bottom line figures for sure, and also some aspects how we think the company will grow from 2030 onwards. I think it's not a secret when you now currently look how Germany will behave from this and next year onwards that most of the contracts will not only last 5 years, they will 5 to 8 years. And then we are at the beginning in the mid of 2030. And on top of that, there will be service business due to that the availability of services of systems in Germany has to be increased massively. So there is room and there will be more details on Tuesday. Yes, clear yes. Ross Law: Great. Thanks Christian, see you by next week. Operator: [Operator Instructions] Next question comes from the line of Christophe Menard from Deutsche Bank. Christophe Menard: Two questions on my side, just on the updated 2025 guidance. The revenue growth you have in Q4 is actually a bit softer than usual. Is it only linked to the logistical center? You're going to be growing more or less in line with what we've seen in the first 9 months. Usually, it's a stronger quarter. So the question is, is it just that phasing? And will -- should we resume kind of that accelerated growth in Q4 as of next year? The second question is on the margin. You stated 18% plus. As you previously outlined, Sensors was doing very well in the first 9 months and in Q3. What about -- sorry, Optronics, you talked about optronics. And my question is about sensors. We also had a very good performance on sensors. How can we think about the margin performance of sensors in the full year? Christian Ladurner: Yes. Thanks, Christophe, for that. Yes, you're right. It should be a little bit weaker. I think especially in sensors, when I look at the key products such as Eurofighter and TRML-4D, there are fewer figures now planned for Q4. But nevertheless, we see an increase. I think when we talk about 2026, we will be in a normalized Q4 again, which will be stronger from my point of view because then the logistics center effect will be fully phased out next year. So this is the picture I currently have. So in terms of margin, I've outlined 14% for Optronics for this year in the sensors, I expect approximately 19%, which is then in the sum around 18% to 18.2% and which gives us confidence to reach our guidance for the full year. Operator: Next question comes from the line of David Perry from JPMorgan. David Perry: Christian, look forward to seeing you next week. I was just going to ask you to unpick this big jump in the Optronics margin, the 14% so basically you're double year-over-year. Just how much of that is that R&D has dropped? How much of it is kind of one-off self-help, say, South Africa or something like that? And how much do you think is related to the volume? And then just to square the circle on it, can you just tell us where you think the revenue ends up for this year in Optronics, please? Christian Ladurner: David, many thanks for the question. I see currently that it's solely volume-based. So R&D, we are still in the digitalization of periscope and the WAO for the Puma. So this will last until 2027 because these figures go down. We are still at Ceretron. Ceretron is the sensor suit for the Luchs II, which has to be finished until 2027 until the first systems are to be delivered to GD. So this will stay at a high level. And as I said before, this is volume-based. South Africa is more or less on the level of the prior year. So this is exactly volume-based. In terms of revenues, I see approximately EUR 420 million to EUR 430 million for the Optronics segment. I see EUR 2.07 billion to EUR 2.09 billion in the Sensor segment, which then comes up to the group guidance. Operator: We have a follow-up question from Sebastian Growe from BNP Paribas Exane. Sebastian Growe: So the first one is on Sensors, and it's actually then a follow-up to Christophe's question. I think if one looks at the 9-month period, then I take the point that the dilution effects from the logistical ramp-up were quite significant. But if one singles out quarter 3, then apparently it's the first quarter where you're up like 200 basis points year-on-year. So the question that I have -- it's 3 questions actually. So the first one, is this logistical ramp-up fully digested by now as we speak? And conversely, it appears really that the ESG business is performing way stronger than potentially expected. So can you provide some color with regard to the trends in the, a, core and, b, then ESG business, please? Christian Ladurner: Yes, for sure, Sebastian. So first answer is clearly, yes, we have digested that effect. Nevertheless, I see approximately EUR 10 million of effect we will have. We had this EUR 10 million effect in Q1, which is from an absolute term still in the figures. Relatively, it phases out, as you have seen through Q1, H1 now 9M and also Q4. So this is clear. And ESG, yes, we bought this company for approximately 14% EBITDA. We see currently a figure which is around 15%. So this -- the cost synergies have completely realized as we have planned on a pro rata basis. So these are the 2 figures. Sebastian Growe: Okay. That's helpful. And then just finally, again, on the order pipeline and in addition to Ross' question. So I know it's hard to compare you guys with Rheinmetall, for instance, but they hinted at around EUR 20 billion in quarter 4, another EUR 40 billion, EUR 50 billion potentially in '26. And again, I appreciate that apparently, there are differences in both the business mix, the regional mix and whatnot. But from the sort of cadence and general sort of dynamics, would the sort of potential rule of thumb like seeing a doubling or so from the quarter 4 dynamics be directionally also the right yardstick for you? Put differently, what are you seeing recently from the order pipeline perspective going into '26? Christian Ladurner: Yes. Look, I expect in 2026, especially in the land platforms where we currently talk about these thousands of Boxers, Pumas, Leopard and so on. So from my point of view, there will be big dynamics in 2026 in the land platforms also in our business. And I think the book-to-bill we currently guide for this year, I see at least also for next year. This is simply due to the fact how the structure is currently working in the German parliament with having now the budget in place 2025 and 2026. So this is my view currently. We have to keep in mind that, of course, every special land system goes then by OEMs. That means there will be a kind of a flow down process between the OEM to receive the contract. But also next year, I see in terms of book-to-bill, a figure which will be similar as the figure we have now updated for this year. Sebastian Growe: Very helpful, thank you so much, and see you next week then. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Veronika Endres for any closing remarks. Veronika Zimmermann: Yes. Thank you all for listening today. As always, should you have any further questions, the IR team is around all day to follow up. And as Christian mentioned, we are very much looking forward to welcoming you at our CMD event next week. Have a great weekend. Thank you, and goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Brookfield Asset Management Third Quarter 2025 Conference Call and Webcast. [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, Jason Fooks, Managing Director, Investor Relations. Please go ahead. Jason Fooks: Thank you for joining us today for Brookfield Asset Management's earnings call for the third quarter of 2025. On the call today, we have Bruce Flatt, our Chief Executive Officer; Connor Teskey, our President; and Hadley Peer Marshall, our Chief Financial Officer. Before we begin, I'd like to remind you that in today's comments, including in responding to questions and in discussing new initiatives and our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable U.S. and Canadian securities laws. These statements reflect predictions of future events and trends, and do not relate to historic events. They're subject to known and unknown risks and future events and results may differ materially from these statements. For further information on these risks and their potential impact on our company, please see our filings with the securities regulators in the U.S. and Canada, and the information available on our website. Let me quickly run through the agenda for today's call. Bruce will begin with an overview of the quarter and the market environment. Connor will walk through key growth initiatives across each of our businesses. And finally, Hadley will discuss our financial results, operating results and balance sheet. After our formal remarks, we'll open the line for questions. [Operator Instructions] One last item to mention is that the shareholder letter, which this quarter will be a single letter covering the biggest themes across Brookfield will be published Thursday morning alongside Brookfield Corporation's earnings. And with that, I'll turn the call over to Bruce. Bruce Flatt: Thank you, Jason, and welcome everyone. We are pleased to report another strong quarter for our business, marked by record fundraising, earnings deployment and monetization. Quarterly fee-related earnings grew 17% over the past year to $754 million. Distributable earnings grew 7% to $661 million, and fee-bearing capital reached $581 billion, an 8% increase year-over-year, all driven by our strongest fundraising period ever. These results reflect the strength of our franchise and the benefits of our global scale diversification and long-term client partnerships. Our business continues to benefit from the major themes shaping the global economy. The acceleration of AI and data digital infrastructure, the accelerating demand for electricity and the improving strength in the real estate markets, each of these themes plays directly to our strength as an owner, operator and investor in real assets and together, they are fueling multiyear growth across the business. In the third quarter, we raised $30 billion, bringing total inflows over the past 12 months to more than $100 billion. This was our highest pace of organic fundraising ever. Our fundraising in the quarter came from strong closes for two of our flagship funds, and increasing capital from our comp to entry funds and partner manager strategies. Our flagship global transition fund, our venture-focused Pinegrove strategy and our music royalties-focused Primary Wave business, all had closed just recently and each exceeded its target. Turning to the broader market environment. Transaction conditions have improved steadily throughout the year. The global economy remains resilient despite trade and tariff uncertainty. Corporate earnings are healthy. Capital markets are liquid, and the Federal Reserve has begun lowering rates. This is giving the market more confidence and leading to transaction activity significantly increasing. Global M&A volumes are up nearly 25% year-over-year. The third quarter alone saw $1 trillion of announced deals, the highest level since 2021. This resurgence in large cap M&A and a record backlog of sponsor-owned assets are therefore fueling activity. This is creating a good environment for both deployment and also asset sales. We remained active in this environment, deploying large-scale capital at attractive entry points where operating expertise provides us a competitive edge, while also crystallizing value from our mature investments at attractive returns. Our ability to recycle capital efficiently, returning proceeds to clients while raising new funds for the next generation of opportunities is fundamental to how we compound value over time and continue to consistently grow our business. Another important milestone was our recently announced agreement to acquire the remaining 26% in Oaktree Capital Management. As you know, one of the most respected names in global credit investing. When we partnered with Oaktree 6 years ago, the goal was to combine our global scale and real asset expertise with Oaktree's deep credit experience and value-oriented culture. That partnership exceeded expectations, enabling the rapid expansion of our credit platform, supporting the launch of Brookfield Wealth Solutions, and driving a 75% increase in Oaktree's asset base. Bringing Oaktree fully into Brookfield is the next natural step. It combines the scale and reach of our nearly $350 billion credit platform, enables deeper collaboration across our businesses from origination and underwriting to distribution and analytics. Most importantly, it enhances our ability to deliver the full breadth of Brookfield's credit capabilities to clients. Turning briefly to overall credit markets. Liquidity remains ample, and spreads in both public and private markets are near historically tight levels. Certain pockets of private credit such as middle market, direct lending and sponsor-backed leverage have become more commoditized as large amounts of capital is raised for a small pool of attractive deals. We've been disciplined in avoiding these segments of the market and instead of focused on attractive risk-adjusted return opportunities where we have strong competitive advantage, such as infrastructure, renewable power, asset-based finance strategies and opportunistic credit. Across our business, our ability to raise large-scale capital deployed strategically across the megatrends and deliver risk-adjusted returns to trusted clients continues to drive record results. Our balance sheet is extremely solid. Our margins are expanding and double-digit growth trajectory is sustainable. With record fundraising momentum, deep deployment pipelines and healthy monetization activity across our platforms, the foundations we've built over the past years have set the stage for an even stronger 2026. With that, I'll turn the call over to Connor, and thank you for the results. Connor Teskey: Thank you, and good morning, everyone. As Bruce mentioned, this past year was the most active period in our history across fundraising, deployment and monetizations. Our infrastructure and renewable power franchise is one example of this momentum, as over the past 12 months, we've raised $30 billion, deployed $30 billion and monetized over $10 billion at approximately 20% returns, demonstrating strength, scale, and consistency of our platform. Our franchise is the largest and most established globally, serving as a cornerstone of our business and a key driver of long-term growth. Deployment is centered around sizable investments across all sectors, geographies and positions in the capital structure, including by utilities, from a controlling equity investment for an industrial gas business in South Korea, and a minority equity investment in the United States for Duke Energy Florida, across transportation, via structured equity investment in a Danish port, across data with a mezzanine financing for a European stabilized data center portfolio, and across renewables, by an equity investment in a South American hydro platform, and to take private of a global renewable developer concentrated in France and Australia. And finally, across our first AI infrastructure deal with Bloom Energy, which we committed to this past quarter. AI promises unprecedented improvements in productivity but it is simultaneously driving an unprecedented demand for infrastructure, from data centers and power generation to compute capacity and cooling technologies. We estimate that AI-related infrastructure investments will exceed $7 trillion over the next decade. Brookfield's unique position, owning and operating across the full energy and digital infrastructure value chain gives us a tremendous advantage in capturing this opportunity. On the back of this generational investment opportunity, we are launching our AI infrastructure fund. A first-of-its-kind strategy that pulls together our global relationships with hyperscalers, our expertise in real estate, and our leading position in infrastructure and energy into one strategy. With the goal of being the partner of choice to leading corporates, governments and other stakeholders looking for integrated solutions that combine development capability, operating expertise and large-scale capital. We are also preparing to launch our flagship infrastructure fund, which is our largest strategy at Brookfield early next year. Looking ahead, we expect to have all of our infrastructure strategies in the market in 2026, including our flagship infrastructure fund, our AI infrastructure fund, our mezzanine debt strategy, our open-ended super core and private wealth strategies. And in the back half of the year, we expect to launch the second vintage of our Infrastructure Structured Solutions Fund. As a result, despite raising $30 billion over the last 12 months, we expect next year will be even bigger. Within renewable power, this quarter, we also held the final close of the second vintage of our global transition flagship at $20 billion, making it $5 billion larger than its predecessor and the largest private fund ever dedicated to the global energy transition. The success of this fund raise also reinforces the scale, credibility and momentum of our energy franchise. Since launching our first ever transition strategy less than 5 years ago, our platform now produces over $400 million of annual fee revenues. More important, we are investing into an environment that is highly attractive and increasingly constructive for us. Global demand for electricity is increasing at an unprecedented rate. This is the result of the ongoing trend of electrification as large sectors like industrials and transportation are increasingly electrifying. And this growth has now been supercharged in recent years by the surge in electricity demand from data centers to support cloud and AI growth around the world. Data centers are becoming some of the largest single consumers of electricity and the scale of new generation required to support them is immense. Each of these forces is contributing to a structural shortage of generation capacity. To put it plainly, the world needs more power, and it needs it faster than ever before. Our business is uniquely designed to meet this challenge. We are positioned to provide that any and all power solutions that will be necessary to meet this need. Our leading renewable power business can provide the low-cost wind and solar solutions needed to meet this increasing demand. Renewables continued to see significant growth due to their low-cost position, but also their ability to win on speed of deployment and energy security, as they do not rely on imported fuels. And in a world where baseload power and grid stability are increasingly important, in addition to renewables, we have leading platforms in hydro, nuclear and energy storage, all of which play a critical and growing role for electricity grids, both independently and as complement alongside natural gas and renewables in the energy mix. In this regard, we are very pleased to announce, last week, a landmark partnership with the U.S. government to construct $80 billion of new nuclear power reactors using Westinghouse technology. The agreement reestablishes the United States as a global leader in nuclear energy and positions Brookfield at the center of a historic build-out of clean baseload power, creating one of the most compelling growth opportunities across our transition platform, and potentially one of the most successful investments in Brookfield's history. Within our private equity business, we recently launched the seventh vintage of our flagship private equity strategy, which focuses on essential service businesses that form the backbone of the global economy. These include industrial, business services and infrastructure adjacent companies where we can apply our operational expertise to drive efficiency, productivity and scale. Early investor feedback for this strategy reflects a growing recognition that value creation in the current environment is driven less by multiple expansion or financial engineering, and more by hands-on operational improvement, an approach that has long defined Brookfield's success. While many traditional buyout strategies are navigating slower fundraising cycles, we continue to be differentiated. We have consistently returned capital at strong returns from preceding vintages, and are seeing strong demand for our differentiated, operationally focused model. We expect this next vintage to be our largest private equity fund ever. We are also bringing our private equity strategy to the private wealth channel with the recent launch of a new fund structured for individuals. Similar to how we structured our successful private wealth infrastructure fund, this new private equities fund will be able to invest alongside all of our private equity strategies. This means that targeting individual investors in the retirement market does not require us to invest differently, but rather simply package our current investment activity in a different way to meet the growing demand from a new set of clients. Within real estate, we continue to see strong momentum across our property business. Market conditions have improved meaningfully. Transaction volumes are rising, capital markets are robust and valuations for high-quality assets are firming. We are actively monetizing stabilized assets, selling approximately $23 billion of properties, representing $10 billion of equity value over the past 12 months. At the same time, it is an excellent point in the cycle to be deploying capital into certain segments of the market, and we have significant dry powder to put to work following the successful close of our latest flagship real estate fund, our largest real estate strategy ever. The combination of limited new supply, recapitalization needs and improving sentiment is creating one of the most attractive investment environments we've seen in years. We are also taking advantage of the constructive financing backdrop to strengthen our long-term holdings, including the $1.3 billion refinancing of 660 Fifth Avenue in Manhattan, part of the over $35 billion of real estate financings we've closed year-to-date. And finally, on our credit business, we will make a few additional points. We continue to see a large opportunity set to invest in the areas that fit our core competencies. The themes driving our equity businesses will require significant debt capital investment and Brookfield is well suited with its expertise and capital to meet that need, whether it be in real asset, opportunistic or asset-backed finance. As we look ahead to the rest of the year and into 2026, we see the market continuing to be strong for our business. Capital markets remain healthy. Liquidity is abundant, and the opportunity set across our businesses continues to expand. The flagship strategies we are launching will continue to anchor our growth while our complementary products, including our AI infrastructure fund, and our rapidly scaling fundraising channels such as wealth and insurance, are diversifying our platform and driving our consistent high-teens growth rates. The secular forces shaping the global economy, digitalization, decarbonization and deglobalization are the same themes that have guided our strategy for many years. Today, they are accelerating. As these trends converge, Brookfield's global reach, operating depth and access to long-term capital position us well to continue leading the industry. With that, we'll turn the call over to Hadley to discuss our financial results, record quarterly fundraising and balance sheet positioning. Hadley Peer Marshall: Thank you, Connor. Today, I'll provide an overview of our third quarter financial results, including additional color around $30 billion of fundraising, our recent M&A activities, and the strategic positioning of our balance sheet. As previously mentioned, we delivered another record quarter of earnings, driven by strong fundraising, deployment and monetization. Fee-bearing capital increased to $581 billion, up 8% year-over-year. Over the last 12 months, fee-bearing capital inflows totaled $92 billion, of which $73 billion came from fundraising and $19 billion came from deployment of previously uncalled commitments. In the third quarter, fee-bearing capital grew $18 billion, driven in large part by the final close of the second vintage of our global transition flagship fund and continued strong capital raising and deployment across our complementary strategies. Fee-related earnings were up 17% to $754 million, or $0.46 per share, and distributable earnings were up 7% to $661 million, or $0.41 per share. Distributable earnings growth reflected higher fee-related earnings, partially offset by increased interest expense from the bonds we issued over the past year and lower interest and investment income. Overall, growth was driven by a record $106 billion raise over the last 12 months and record deployments of nearly $70 billion. This activity has been a major catalyst for our business and we will continue to be active on the deployment front given strong investment opportunities in front of us. The simplicity and consistency of our earnings anchored almost entirely in reoccurring fees, gives us a strong foundation to continue to build from, especially as we continue to further our capital base and launch new strategies. Lastly, our margin in the quarter was 58%, in line with the prior year quarter and 57% over the last 12 months, up 1% from the prior year period. This margin increase was driven by three offsetting dynamics. First, we continue to acquire a greater portion of our partner managers. These businesses have lower margins, and therefore, while these acquisitions are highly accretive acquisitions, they do weigh a bit on our consolidated margin. Second, Oaktree margins are temporarily lower than usual. At this point in the cycle, Oaktree is returning significant capital, but has not yet called capital for some of its deployment, leading to a natural reduction in fee-related earnings and margins. That trend will reverse as it has in the past given the strong growth in the business. Finally, our margins on our core business continued to increase as expected, more than offsetting these dynamics. Turning to fundraising. In total, we raised $30 billion of capital in the quarter, bringing our 12-month total to $106 billion. Over 75% of that capital came from complementary strategies, reflecting the breadth, strength and diversification of our offerings, which allows for sustained fundraising momentum in addition to our flagship cycle. As for our flagships, we also raised $4 billion for the final close of our second global transition flagship, bringing the strategy size to $20 billion. We continue to raise capital for the fifth vintage of our flagship real estate strategy, bringing in $1 billion from SMAs, regional sleeves and private wealth for the quarter with $17 billion being raised to date for the entire strategy. Within our Infrastructure business, we raised $3.5 billion, including $800 million for our private wealth infrastructure vehicle, bringing our year-to-date total for the fund to $2.2 billion. In our private equity business, we raised $2.1 billion, including a total of $1.4 billion for 2 inaugural complementary funds, our Middle East private equity fund and our financial infrastructure fund. Subsequent to quarter end, we held a final close for the inaugural Pinegrove opportunistic strategy for $2.5 billion, exceeding its initial target and ranking among the largest first-time venture growth, or secondary fund ever raised. And finally, on credit, we brought in $16 billion of capital across our funds, insurance and partner manager strategies. This included over $6 billion across our long-term private credit funds, including $800 million for the fourth vintage of our infrastructure mezz credit strategy, which has raised more than $4 billion for its first close. We also raised $5 billion from Brookfield Wealth Solutions, including an SMA agreement with a leading Japanese insurance company, marking its first entry into the Japanese insurance market, which should be the first of more to come. As we head towards the end of the year, we're confident this will be our best fundraising year ever, and we see that trend continuing with strong momentum for 2026. Broadening the scope to the next 5 years, we recently laid out our plan to double the business by 2030 at our Annual Investor Day hosted in New York. We outlined our plan to continue expanding our product offerings by scaling existing offerings and launching new ones, diversifying our investor base, including across Europe, Asia, middle market and family offices, and on the retail side by launching new private wealth related products. These drivers should enable us to double our business over the next 5 years with fee-related earnings reaching $5.8 billion, distributable earnings reaching $5.9 billion, and fee-bearing capital reaching $1.2 trillion. However, our business plan does not include certain additional growth opportunities such as product development, M&A associated with our partner managers, and opening up of the 401(k) market opportunity, which gives us multiple paths to outperform and to deliver over 20% annualized earnings growth. Turning now to our balance sheet. In September, we issued $750 million of new 30-year senior secured notes at a coupon of 6.08%, extending our maturity profile and diversifying our funding sources. We also increased the capacity of our revolver by $300 million to provide additional flexibility as our business continues to grow. At quarter end, we had $2.6 billion in liquidity, a strong liquidity position. We use our balance sheet selectively to seed new products and support strategic partnerships, such as closing the acquisition of a majority stake in Angel Oak and signing the acquisition of remaining 26% of Oaktree that we currently do not own, both of which occurred after the quarter. On Oaktree, we will invest approximately $1.6 billion to acquire their fee-related earnings, carried interest in certain funds and related partner manager interest. Upon close, it will create a fully integrated leading global credit platform with significant scale and capability. The transaction is expected to close in the first half of 2026 and is subject to customary closing conditions, including regulatory approval. Lastly, we declared a quarterly dividend of $0.4375 per share payable December 31 to shareholders of record as of November 28. In closing, we are confident in our trajectory towards achieving our long-term growth goals. The breadth of our platform, our operational expertise and our global scale continue to give us a clear advantage. Our strategy is aligned with the strong tailwinds of digitalization, decarbonization and deglobalization and we're expanding in areas where these trends intersect AI infrastructure, energy transition and essential real assets. Thank you for your continued support, and we're ready to take questions. Operator: [Operator Instructions] Our first question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping we could start maybe with the commentary around fundraising momentum in the business you're seeing into 2026. A number of pretty robust verticals. But at the same time, it sounds like monetization outlook is also picking up. So maybe help us frame what that could mean for management fee growth as you look out into 2026? So maybe we could start there. Bruce Flatt: Thanks, Alex. We're very excited about 2026. Maybe if we can start with fundraising. For 2025, I think we guided that fundraising would exceed 2024's levels ex AEL of $85 billion to $90 billion. Through 3 quarters, we're at $77 billion and expect to meaningfully exceed that target. As we look forward to 2026 with our infrastructure and flagship -- infrastructure and private equity flagships in the market with a bumper year expected in infrastructure fundraising with the closing of Just Group, and the continued growth in our partner managers and complementary strategies, we very much expect 2026 to exceed the levels we'll achieve in 2025. And then when you turn that towards FRE growth, we expect to maintain our momentum and either reach or exceed what has been laid out in our 5-year plan. And this is really driven by two things. One, with the addition of Oaktree, Just Group, Angel Oak, those transactions will add almost $200 million to our FRE on a run rate basis going forward. And then when you add the run rating of the growth in 2025 rolling through our numbers in 2026, and the expected growth just laid out from new fundraising in 2026, we expect next year to be a very strong year. Operator: Our next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: I just wanted to focus just a little bit on the credit business, if we can. Obviously, an important source of fee-bearing capital growth as part of the 5-year plan. This quarter, the fee rate, the blended fee rate, if I look at the fee revenues relative to the private credit, or the total credit I should say, funds was a bit higher than what we're used to seeing. Can you just talk a little bit about what was the driver of that, if that is a new rate we're looking at, if the fee rate is a little bit higher? Is that consistent? Or is that a one-off? And then there's just private credit has been a little bit more in the headlines. Just curious to kind of get a sense of how you think about it relative to your business and the growth aspirations that you have especially coming from credit? Bruce Flatt: Perhaps I'll start, and then I'll hand to Hadley. In terms of the slightly elevated fee rate this quarter in terms of private credit, it's really driven by two things. Our private credit business continues to evolve as the mix shift within our business adjusts through the transactions and the increasing ownership of our partner managers. And what we would say is on a blended basis, our fee rate is going up marginally. We will acknowledge that particularly within our Castlelake business that is performing very well, there was an outsized quarter with some one-off transaction fee revenue that is creating a little bit of upside in this quarter's numbers, but that shouldn't detract for a broader positive trend that we're seeing across our credit business. Hadley Peer Marshall: Yes. And I'll just talk a little bit about how we're seeing credit more holistically. I mean, there have been a few high-profile credit events in the market. And what we're seeing across our portfolio, and the broader credit trend, is that these events are very isolated and not a sign of a broader credit cycle. And if you actually look at our portfolio, we don't have any relevant exposure to these issues. But when we think about our portfolio, our area of focus has really been heavily around real assets, asset-backed finance, opportunistic. And these are where we have expertise around the structuring, the underwriting of the sectors, the sourcing capabilities and then, of course, our scale. And we've been less focused around the more commoditized part of the private credit market related, especially around direct lending. The one point I would probably also add though, is that if there was a broader credit cycle, that plays to our strength with our opportunistic credit strategies. So overall, we feel really good about our positioning. We have a large, diversified and differentiated platform around our credit business, and that's built for growth and resiliency across the market cycles. And we'll only benefit with the integration of Oaktree. Sohrab Movahedi: Hadley, if I can just ask one quick follow-up on that. Given the pleasant surprise, for example, this quarter, as minor as it was, came out of one of the partner managers that you own. Like is there a potential for negative surprises, I suppose, to come from the partner managers as well? And can you dimension what sort of risk management, I suppose, is in place to color that? Hadley Peer Marshall: No, we don't see that. And it goes back to the area of focus. If you think about our expertise around real assets and the areas within asset-backed finance that we focus on, that's critical because we're doing the due diligence. We've got collateral. We've got strong structures in place, and look, low default rates and high recovery rates. And so that puts us in a really good position. That's why we like that part of credit. Operator: Our next question comes from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: With regard to the pending buy-in of the Oaktree minority stake, can you talk about some of the things that you'll be able to do together as a combined company that you can't do today as a majority owner? Bruce Flatt: Thanks, Cherilyn. We're thrilled about the transaction that we've announced with Oaktree. And really what it allows us to do is accelerate the combination of the businesses and unlock the benefits of integrating two leading institutions. And maybe to simplify it, we would say the low-hanging fruit near-term upsides are really in three places. One will be almost instantaneously on closing. Oaktree had its own subsidiary balance sheet. We can immediately collapse that. That's much more efficient for us from a financing perspective. Even further within that balance sheet, there are a number of securities and investment positions, that under Brookfield Asset Management's asset-light model. We will actually monetize those positions and use them to fund a very large portion of our purchase price, making that transaction highly, highly accretive. The second opportunity is really just around operating leverage. When it comes to fund operations, administration and back office, there's tremendous synergies in operating leverage as both our businesses continue to grow from combining our combined capabilities, and that really is a scale business and putting the 2 institutions together will unlock a lot of value. And then the last one is absolutely the most important. And it's the ability to see upsides in our marketing, our client service and our product development. Our ability to combine the power of the 2 organizations in terms of the products and solutions and partnerships that we can offer to our clients, we think, is going to be unmatched. And this is particularly valuable for serving the growing portions of the market, whether it be insurance companies and individual investors going forward. Maybe just on a closing note, the team at Oaktree has been our partners for the last 6 years, and this just takes that partnership to a whole another level. Howard Marks is on the Board of BN. Bruce Karsh is going to go on the Board of Brookfield Asset Management. And it's early days, but our interactions with Armen, Bob, Todd and the fantastic team at Oaktree, we already expect this integration to be far better than we initially hoped. Operator: Our next question comes from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: I wanted to touch on the retail theme. So you talked about the infrastructure wealth product and the momentum there and then the PE evergreen strategy, I think that's in the market now. So one theme, but two parter. Just can you give us a sense of the early indication that you're seeing these products and the momentum into next year? And then just a reminder of the distribution strategy as you build these products out into next year? Bruce Flatt: Thank you. I think it goes without saying that the momentum we're seeing in the individual market is very robust. And again, that we will highlight, we view this as a market, the broader individual market, that's your high net worth and your retail investor, that's your annuity and insurance policyholder, that's your 401(k) and your retiree market. We view this as a very significant market opportunity that will continue to grow incrementally for the years and candidly decades to come. In terms of where we're seeing growth opportunities in the near term, we are launching new products into this market. We just recently launched our private equity product for the retail channel. That launched just recently and started with an incredibly successful launch in Canada and is now launching in the U.S. And our expectation is that's really the equivalent to our infrastructure product for the retail market. We expect the private equity product to scale even faster than our infrastructure product has. And therefore, we continue to expect this to be an increasing portion of our growth in earnings going forward. Bart Dziarski: And sorry, just on the distribution strategy? Bruce Flatt: Certainly. So I think there's two key components there. In terms of distribution into the individual market more broadly, the winners in this market are largely going to be driven by who has the track record, the scale and the credibility. And as a result of that, we are seeing the significant opportunity to get our products placed onto the leading bank distribution platforms around the world for that near-term market opportunity in retail. As we think ahead more broadly to other components of the individual market, in particular, the 401(k) and the retiree market. At this point, we are preparing our business for that very significant opportunity, making sure we have the right relationships and the right partners with all the stakeholders in that space. That's the advisers, that's the plan administrators, that's the consultants, that's the record keepers. And there's a significant effort within Brookfield. And we feel, given our focus on real assets that lends itself well to that growing market, we feel we're very well positioned. Operator: Our next question comes from the line of Craig Siegenthaler with Bank of America. Craig Siegenthaler: So our question is on corporate direct lending, both IG and non-IG. From your prepared commentary, it sounds like you're less constructive on the investment opportunity today versus some of what your peers are saying due to intensifying competition. However, when you take a step back, it looks like aggregate LTVs are still pretty low and the spread to publics are still pretty rich. And with the cash yields declining now with Fed rate cuts, the relative attractiveness to retail insurers and institutions should still be there. So my question is, what am I missing here besides the gaining share of private credit versus BSL and high yield? Connor Teskey: So Craig, great question. And maybe just to put some context around this, let's come at it from a few different ways. On a more general basis, we believe private credit for various reasons has become, and will continue to be a very important component of global finance, and it's going to continue to grow beside bank credit and other liquid sources. And that growth is very robust, and it's not short term in nature. It's going to be enduring for the long term. In terms of today within the market, where are we seeing the most attractive returns on a risk-adjusted basis? Obviously, every investment is specific. But broad-based, we're seeing tremendous -- we're seeing a very strong premium in particular, in credit related to real assets, infrastructure and real estate credit and certain components of the asset-backed finance market. I think the comments that you are referring to is there have been a significant amount of capital poured into the direct and corporate lending market. And in some places, we are seeing spreads very compressed. And in other places, we're seeing a little bit of covenant degradation due to the competition to secure some of those lending mandates. Obviously, that is specific on a case-by-case basis. But in general, what we are trying to do is avoid the most commoditized components of the market and really focus to where we're getting that attractive spread premium, and where we can preserve our covenant positions the way we have in the past. But I appreciate the question because what we would not want you to interpret is that we think private credit is slowing down. It is a very large and growing and enduring part of the financial system going forward. Craig Siegenthaler: Thanks, Connor. I have a follow-up on the credit business, and I think you covered a little bit earlier, but I was bouncing around between two calls. But management fees in the credit business went up a lot faster than average fee-bearing AUM. And I know Castlelake went in there. So maybe that had some lumpiness in there. But we still have the fee rate up 10% on the average fee-bearing AUM base. So were there any lumpy items in the revenue side that we should back out? And also, I don't think you hit this part, but were there any lumpy items in the expense side of the credit business? Because sometimes a lumpy revenue item might correlate with an expense item. So we just want to make sure we get the P&L run rate correct as we walk into 4Q here. Connor Teskey: Sure. And it's pretty simple. Thank you again for the question. The outsized growth that we had in credit this quarter, I think the way to think about it is I think that business was up almost 15%. About half of that is just run rate organic growth, the continued momentum we're seeing in that business. And half of that was the full quarter of an acquisition that was made within our Castlelake business. So some of it was M&A related, and some of it was organic growth. Maybe you can think about that as roughly half and half. And then on the fee rate component, within Castlelake, which is a business -- a partner manager of ours that's performing very well. They did have some outsized transaction fees in this quarter. The blended broader fee rate is trending up, but it was somewhat enhanced this quarter by onetime transaction fees. Operator: Our next question comes from the line of Kenneth Worthington with JPMorgan. Kenneth Worthington: Great. Maybe for Hadley. You're operating at 58% operating margins right now. You highlighted on the call that Oaktree margins are depressed, but getting better. Core margins are rising, but that acquisitions are operating at lower margins. How do we put these pieces together, particularly since we've got some of the transactions just closed, or closing? And you mentioned sort of the transaction fees sort of helps in the current quarter. So how do we think about the right level, and then the trajectory once everything gets closed? Hadley Peer Marshall: Thanks for the question. First, I'd say that we are very disciplined when it comes to our cost. And we expect our margins to continue to improve over time as we presented at Investor Day. And that's on the backs of our growth initiatives that will play out and the operating levers that's built into our business, as well as we execute on ways to drive additional efficiencies, including the integration of Oaktree. And in this regard, we are on track and actually ahead of our margin improvement plan that we've laid out. It's also worth pointing out that the consolidated margin increase that we're seeing today is a blend of a few offsetting dynamics. The first being, we acquired a greater share of our partner managers and these businesses, while highly accretive to our earnings do have lower margins, and do mildly dilute our overall margin level. Second is Oaktree's margins are temporarily lower as we point out. As they've been returning more capital and haven't yet called capital for some of its deployment. That's a typical cycle for that business, and it will naturally reverse given the countercyclicality to the overall business. And the last point I'd make is that the margins across our core businesses continue to expand, which is more than offsetting the first two items I just mentioned. So while we focus on continuously improving our margins and are delivering in that regard, we run our business with a focus to grow FRE over the long term, and we don't manage the business to a specific absolute margin level, which obviously can be impacted by the mix. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Daniel Fannon: So lots of momentum in fundraising, but I wanted to talk about private equity, in particular, it sounds like your outlook is quite optimistic around raising a larger fund. That seems different than what we've heard for that asset class from others. So just curious about what informs that optimism given the market backdrop? Bruce Flatt: Thanks, Dan. Our private equity business is a little bit unique, and it has been for 25 years. In that, it focuses on essential assets and services, and it -- and as a result, it produces very consistent results across the market cycle. And why that really plays out well today is, as mentioned, we've just launched BCP, the next vintage of BCP in the quarter, and we do expect it to be our largest private equity fund ever. We do feel that we are differentiated in the market because our focus on, one, high-quality assets that generate cash across the cycle has allowed us to return significant amounts of capital out of this strategy in recent years. So we're not facing the DPI issue that has driven a lot of headline noise in the sector. And then secondly, we, I think, all recognize that the next generation of growth and value creation in private equity, given the more normalized interest rate environment is not going to come from financial leverage and financial engineering. It's going to come from operational improvement. And given that over the 20-year history of our flagship private equity fund, we've delivered over 25% IRRs for 2 decades with over half that value creation coming from operational improvement. We are seeing tremendous market demand for our approach to private equity that we think is -- it works across the cycle, but it's perfectly suited for where we're at in the current economic environment. So it's early days. We've just launched the fund, but we do expect it to be our largest fund to date. Operator: [Operator Instructions] Our next question comes from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Good job on the fundraising this quarter this year. One thing that was mentioned at the Investor Day was broadening, or deepening the client base, the institutional client base. So I'm just curious on what the source of fundraising looked like from a breadth of client standpoint? Bruce Flatt: In terms of broadening the fundraising base, I think we can answer this question quite specifically. The growth in our business over the last several years has really been driven by the scaling and increased penetration of large-scale institutions. And while we focus on other additional pockets of fundraising, it's important to remember that component, and that core foundation of our business continues to grow. But what we have done internally within Brookfield and what we've been investing in for the last 12 to 24 months is dedicated fundraising teams that can target a much broader base of investors. This is small or medium-sized institutions. This is a dedicated team focused on insurance institutions. This is a dedicated team focused on family offices. All of those initiatives, we would say, are still in the relatively early innings, and we're seeing tremendous growth across 3 verticals. One, a greater number of clients within each of those groups. Two, a greater number of products amongst those clients that we're bringing on board. And three, simply larger checks from those clients that we have. So we would expect this momentum to continue, but it's really driven by having dedicated teams focusing on all the different subcomponents of the institutional market going forward. Operator: And I'm currently showing no further questions at this time. I'd now like to turn the call back over to Jason Fooks for closing remarks. Jason Fooks: Okay. Great. If you should have any additional questions on today's release, please feel free to contact me directly, and thank you, everyone, for joining us. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and thank you for participating on today's third quarter 2025 earnings conference call and webcast for Barfresh Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; and Barfresh Food Group's CFO, Lisa Roger. Following our prepared remarks, we will open the call for your questions. The discussion today will include forward-looking statements. Except for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relationships and projections of future financial performance. These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and project, continue, could, may, predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements other than the statements of historical fact that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K and in the quarterly reports on Form 10-Q and current reports on Form 8-K, including risk factors and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted gross profit, EBITDA, adjusted EBITDA, which are reconciled in tables in the business update release to the most comparable GAAP measures and certain calculations based on its results, including gross margin and adjusted gross margin. The reconciling items are nonoperational or noncash costs, including stock compensation and other nonrecurring costs, such as those associated with the product withdrawal, the related dispute and certain manufacturing relocation costs and acquisition-related expenses. Management believes that adjusted gross profit, EBITDA and adjusted EBITDA provide useful information to the investor because they are directly reflective of the performance of the company. Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir. Riccardo Delle Coste: Good afternoon, everyone, and thank you for joining us for our third quarter 2025 earnings call. I'm extremely pleased to report that the third quarter marked a transformational period for Barfresh as we delivered our highest quarterly revenue in the company history, positive adjusted EBITDA and completed a strategic acquisition that fundamentally enhances our business model and long-term growth trajectory. Before I discuss our quarterly results, I want to highlight a pivotal development that occurred immediately following the quarter. the completion of our acquisition of Arps Dairy in early October. This acquisition fundamentally changes our business model, providing us with own manufacturing capabilities that will drive top line growth. Arps Dairy brings us an operational 15,000 square foot processing facility along with a 44,000 square foot state-of-the-art manufacturing facility in Defiance, Ohio, that is nearing completion and expected to be fully operational in 2026. We have already commenced production at the existing facility, and I'm pleased to report that the integration is proceeding smoothly with immediate benefits from enhanced supply chain control and operational efficiency. Now turning to our third quarter results. Revenue for the third quarter was $4.2 million, representing 16% year-over-year growth. This record performance was driven by several factors: improved production consistency from our co-manufacturing partners, a successful start of the '25-'26 school year with expanded distribution and continued momentum with our Pop & Go 100% Juice Freeze Pops in the lunch daypart. We achieved this even though we faced additional manufacturing challenges and start-up issues for our Juice Freeze Pops at one of our co-packers. The manufacturing capacity issues that constrained our first half performance are expected to be fully resolved by the end of the fourth quarter. Our 2 smoothie bottle co-manufacturing partners are now operating with improved consistency and the inventory we built over the summer enabled us to service customer demand throughout the critical back-to-school period. We are in the process of bringing back customers who had temporarily removed our products due to spring supply constraints, with many reintroductions occurring in the fourth quarter. The 2025-2026 school year bidding process has concluded with positive results. We've seen strong uptake across our existing Twist & Go portfolio, and our Pop & Go 100% Juice Freeze Pops have gained meaningful traction with several large school districts, and we expect to add additional schools during the fourth quarter. The Pop & Go product specifically addresses the lunch daypart, a significantly larger market opportunity than breakfast and early adoption rates are encouraging. We remain at only approximately 5% market penetration in the education channel overall, which continues to represent substantial runway for growth. Most significantly, I'm pleased to report that we achieved positive adjusted EBITDA in the third quarter, a major milestone that demonstrates the operational momentum we're building and validates our path to profitability. With the operational improvements we achieved in the first half of this year, combined with the transformational Arps Dairy acquisition, we raised our fiscal year 2025 revenue guidance back in September to a range of $14.5 million to $15.5 million, representing a 36% to 46% year-over-year growth. More significantly, we issued preliminary fiscal year 2026 revenue guidance of $30 million to $35 million, representing a 126% increase compared to the high end of our fiscal year 2025 guidance. This substantial growth reflects the full year contribution from Arps Dairy, continued market penetration in the education channel and the expansion of our Pop & Go product line. I'll now turn the call over to our CFO, Lisa Roger, for a detailed financial review. Lisa Roger: Thank you, Riccardo. Let me walk you through our third quarter financial results in detail. Revenue for the third quarter of 2025 increased to $4.2 million, representing our highest quarterly revenue in company history and 16% year-over-year growth. This record performance was driven by the consistent production capabilities we established through our co-manufacturing partnerships, enabling us to meet increased customer demand during the critical back-to-school period. Our operational improvements are reflected in our margin performance. Gross margin for the third quarter of 2025 improved to 37% compared to 31% in the first half of 2025. The improvement reflects better operational efficiency as our co-manufacturers reached full capability and more favorable product mix with higher-margin products representing a larger portion of sales and reflects a return in performance to the adjusted gross margin of 38% achieved in the third quarter of 2024. Looking forward, our recent Arps Dairy acquisition will create some near-term margin dynamics. We're transitioning Barfresh production to the new facility to capture long-term operational efficiencies and scale benefits, which will involve typical start-up and implementation costs that will temporarily impact Barfresh margins. Additionally, we're continuing Arps Dairy's existing milk processing business, which operate at different margin profiles than our core business, but provides stable cash flow and diversification. These are strategic investments in our long-term growth. We expect margin recovery once the Barfresh transition is complete and we fully optimize our expanded manufacturing capabilities. Operating expenses remained well controlled as we scaled revenue. Selling, marketing and distribution expenses were $941,000 or 22% of revenue compared to $990,000 or 27% of revenue in the third quarter of 2024. G&A expenses for the third quarter of 2025 were $844,000 compared to $705,000 in the same period last year. The year-over-year increase was primarily due to $214,000 in acquisition-related expenses associated with the Arps Dairy transaction. Excluding these onetime costs, G&A would have been down 11% year-over-year. Net loss for the third quarter of 2025 improved to $290,000 compared to a net loss of $513,000 in the third quarter of 2024. The improvement was driven by increase in revenue and gross margin, partially offset by acquisition-related expenses. Adjusted EBITDA for the third quarter was a gain of approximately $153,000, representing substantial improvement from the prior year period loss of approximately $124,000 and demonstrating the operational momentum we're building. We expect to achieve positive adjusted EBITDA in fiscal year 2026 as we realize the full benefits of our integrated manufacturing model. Turning to our balance sheet. As of September 30, 2025, we had approximately $4.4 million of cash and accounts receivable and approximately $1.1 million of inventory on our balance sheet. The Arps Dairy acquisition was funded through our existing credit facility, and we continue to manage our liquidity through various measures, including receivables financing and our credit facilities. With the completion of the Arps Dairy acquisition, we have significantly enhanced our balance sheet with valuable manufacturing assets, including an operational 15,000 square foot processing facility and a 44,000 square foot state-of-the-art manufacturing facility that will be completed in 2026. Additionally, the $2.3 million government grant that has been preliminarily approved for Arps Dairy will support the construction and equipment needs for the expanded facility. Now I will turn the call back to Riccardo for closing remarks. Riccardo Delle Coste: Thank you, Lisa. The third quarter of 2025 marks an inflection point for Barfresh. We have not only delivered record financial performance and achieved positive adjusted EBITDA, but we have also positioned the company for unprecedented growth through our strategic acquisition of Arps Dairy. The Arps Dairy acquisition provides us with several strategic advantages, direct control over a significant portion of our production capacity, enhanced operational efficiency, flexibility to innovate and scale new products more rapidly and reduce dependency on third-party co-manufacturers, which has been a source of operational challenges and revenue limitations. As we look ahead, we have multiple drivers of growth, our own manufacturing capabilities through Arps Dairy, expanded capacity reaching significant scale with our new facility and continued growth in our core education channel. The integrated manufacturing model we are building through Arps Dairy will enable us to pursue opportunities with improved economics and operational control. The guidance we've reiterated today of $14.5 million to $15.5 million for fiscal year 2025 and $30 million to $35 million for fiscal year 2026 reflects the transformational nature of our strategic initiatives and our confidence in executing our growth plan. More importantly, we expect the Arps Dairy acquisition to be accretive to earnings in fiscal year 2026, positioning us to deliver top line growth and bottom line profitability as we scale. We are building a scalable, profitable business model that positions us to capitalize on significant market opportunities while delivering sustainable long-term value creation for our shareholders. The operational improvements we've achieved, combined with the successful integration now underway with Arps Dairy position Barfresh for a breakthrough period of growth and profitability. We look forward to updating you all on our progress as we close out fiscal year 2025 and enter what we expect to be an exceptional growth year in fiscal year 2026. And with that, I would like to open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Nicholas Sherwood with Maxim. Nicholas Sherwood: My first question is, what have you been doing to build trust with some of those schools that you had to pull product from or you weren't able to deliver product to last school year and that you're reintroducing your products to this fourth quarter? Riccardo Delle Coste: Yes. So we've been staying in close contact with our customers and really communicating where things are at. That's the benefit of being able to have a broad broker network and our own sales team and the ability to let them know that we've just gone into our own manufacturing facilities and just building the relationships really to make them aware that we have got product coming down the pipe. And that's really why we've been going back out to them and letting them know now that we've got manufacturing coming on board, they can start putting us back on their menus, and we've got a lot of that happening now in Q4 and more so even into Q1 of next year. Nicholas Sherwood: Okay. So when you talk about the Q4 to Q1 switchover, so is it almost like a pilot trial in this fourth quarter and then you'll probably properly kind of be reentering the school districts in the first quarter with like full steam ahead? Riccardo Delle Coste: You mean in terms of the customer sales process or in terms of the production at the new facility? Nicholas Sherwood: Yes, sales to the schools. Riccardo Delle Coste: Yes. I mean when we go back to the schools and they put us back on the menu, the sales go back immediately. We don't need to retrial the product. So it's more just about communicating when we have product available and then putting it back on the menu. There's no need for trials to start over again. The sales process doesn't start over again. It's more just about them placing the orders and it goes back on the menu and the sales basically start immediately from when they place the orders. Nicholas Sherwood: Okay. Understood. And then talking about those manufacturing facilities, can you give some detail on your CapEx expectations as you retrofit those facilities for your products? And just kind of like what that entails and how long you expect that to take? Riccardo Delle Coste: Yes. So we're working through that now. We have a -- we've already been approved for -- preliminarily approved for a $2.3 million government grant. So we expect that to go towards the remainder of the fit-out for the construction of the new facility. We also have the existing facility that is operational where we're making product. Nicholas Sherwood: Okay. So there wasn't any major -- like there wasn't any equipment that was needed to change their equipment, like any parts to change your stuff, okay? Riccardo Delle Coste: Yes, there's a complete operational facility already in place. The plan is to move into the new facility out of the old facility. So a lot of the equipment would be going over. And if we need some new pieces to be upgraded as we move into the new facility, we'll address those at the time, and we may look at how we finance those at that point in time. Operator: [Operator Instructions] There appears to be no further questions. This now concludes the question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, everyone, and welcome to the Docebo Q3 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Docebo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike. Michael McCarthy: Thank you. Earlier this morning, Docebo issued its Q3 2025 results. The press release, which included a link to management's prepared remarks and our quarterly investor slide deck, were all posted to our Investor Relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Docebo would like to remind listeners that certain information discussed may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on risks, uncertainties and assumptions relating to forward-looking statements, please refer to Docebo's public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I'd like to turn the call over to Docebo's CEO, Alessio Artuffo; and our CFO, Brandon Farber. Operator, we're now able to take questions. Operator: Our first question comes from George Sutton from Craig-Hallum. George Sutton: Nice results. So it all comes down to ARR. So I wondered if we could start there. It was up $2.5 million, sequentially. Can you just unpack the components? Alessio Artuffo: As you are suggesting, we are quite pleased with the results this quarter. The way we think about it is our business actually grew 14% year-over-year by excluding the Dayforce business. And I understand that we haven't disclosed this in the past. But I would add to that, that this is the second sequential quarter in which we've seen this growth happening, again, excluding Dayforce. And in a minute, we'll tee up why this matters. What I'm really pleased by is the fundamentals and the execution that led to this result, a trend that I continue to see in the future. First, we've seen our mid-market business exceeding performance and expectations. This has happened due to the changes and evolution brought in by our new leadership team, and changes that we had performed at leadership level in the quarters in the past. We're starting to reap the benefits of those improvements, not only in terms of people, but also framework, processes and improved pipeline processes. Secondly, we've seen, frankly, against seasonality -- and EMEA performance also exceeding expectations, something that has pleased us very much with the key logos, very material ones signed in EMEA during the quarter. And finally, not to be forgotten, our core business retention continues to improve. We also think this is a very important component and a part of the storytell. Notwithstanding all of the above, our turn with our -- with Dayforce accelerated faster than expected, and the results are just the reflection of that. George Sutton: Perfect. Just one other thing on FedRAMP. Obviously, impressive to see the wins pretty early. I'm curious if that's earlier than you had expected, or on track. And then we are sitting here in the U.S. with the government that's not effectively open. I'm just curious how that impacts the opportunity. Alessio Artuffo: Great. So we are very pleased to be achieving already 2 new federal customers shortly after our May dated FedRAMP listing. We believe that's an impressive outcome considering that originally, our thesis was to start winning federal business in fiscal 2026, and more backdated in the second half, because that is more aligned with our federal purchases. Not only we have expanded an account with the Department of Energy, which we were very pleased about, but also, we've been working closely with our partner, Deloitte, to secure the business of the Air Force Cyber Academy. In addition to that, outside of federal, which I understand is the headline, given the complexity of doing deals in federal in such a short time frame, we have continued to execute well also on the state and local side. And that trend is expected to continue. As it pertains to government shutdown, actually, we've been building pipeline at a very impressive pace, both in federal and SLED. Fortunately, if you will, the government shutdown did not affect the seasonal buying cycle that occurred with the deals that we disclosed. And I would say quarter 4 historically, for federal deals, is a very slow quarter because budgets get spent in quarter 3, our quarter 3. And in quarter 4, organizations, the federal organizations take a pause typically from purchases reigniting in our fiscal year 2026, by which time we expect the shutdowns have been addressed. I would also add and tee up by saying our progress in SLEDs is tied to our progress in federal. Why? Because we're seeing organizations in the state and local demand more and more frequently a barrier of interest called state RAM, which we do address via FedRAMP certification. So to tee it up, our investment in FedRAMP is playing a dual role here. Not only it's allowing us to increase TAM, but it's allowing us to win more in the SLED market, creating a great competitive differentiator for us for the future. Operator: Our next question comes from Kenneth Wong from Oppenheimer. Hoi-Fung Wong: Alessio, I wanted to maybe dive into the FedRAMP SLED dynamic a little more. As you think about the guidance that you guys put out there for 4Q, I realize it's a kind of seasonally low quarter. But any heightened conservatism in terms of what's coming in from the pipeline on the public sector side, just given that there is that shutdown? Alessio Artuffo: Like I said, I wouldn't say that we have seen a direct correlation between the pipeline outcomes and government shutdown. On our side, we're very, very focused on diversifying where we execute across state, local, and education. It's a big market. We're seeing more response and more, if you will, interest coming from civilian organizations. And the other thing I can say is that our technology favoring the use of Docebo, for both internal use cases but also external use cases, opens up to a new opportunity that in the market of government has been stark in terms of offering. So I believe that our continued pipeline execution is really the reflection of good timing, good execution, and great product market fit. Brandon Farber: Brandon here, I just want to add and great to have you on the call. If you think about it, we started down the government route of building the business from the ground zero, roughly 2 years ago. And part of that was building relationships with all various federal departments. And while we were building and looking to achieve FedRAMP authorization, we're able to demo and show our platform and have interest from various different federal departments. So while we see the cutdown temporarily impacting the ability to generate new pipeline, we are very confident in the relationships we've built over the past 2 years, and that will enable us to start winning material contracts in Q3 of 2026. Hoi-Fung Wong: Perfect. Then maybe we would love to get an update on the enterprise side. It looks like both customer counts and kind of ARR coming from large -- $100,000 customers is pretty strong. Would just love to get a sense of kind of how the pipeline was shaping up this quarter. What did sales cycles look like? Any extensions there as we head into the fourth quarter? And any thoughts on whether or not you might see some sort of a budget flush from customers going into Q4? Alessio Artuffo: Yes. So a few things on enterprise. Enterprise is a very critical area for us, and we continue to increase the customers over $100,000 sequentially, which is a strong sign of execution in our enterprise segment, but also in our mid-market segment that is able to sign customers with multiple use cases and multiple modules, and very healthy ACV. Additionally, on enterprise, I would say the following. In general, we continue to see deal elongation in the market. This is continuing to happen. But you're right, historically, quarter 4 is the strongest quarter within the enterprise segment for us, and we continue to expect that going into this quarter. A couple of notes that I would make on some enterprise wins notable in this quarter. I was very impressed with the ability to sign a multinational like Veolia. This kind of tees up not only the EMEA business, but also the capability of multi-use case -- and this is an organization with more than 200,000 employees headquartered in France -- and additionally, I would say our ability to expand upon Amazon, which is a customer of ours that we've had for a while. This is our third department that we're signing in the quarter is very significant. So both on the new logo side and expansion side, we're very, very happy about the results and expect a strong quarter 4. I would say important in the enterprise story is the system integrator story. We have invested heavily in partnership programs and system integrator programs to support that enterprise motion. And the large majority of the deals that we're doing in enterprise have a system integrator attached to it. And so that's the result of years of work. Operator: Our next question comes from Ryan MacDonald from Needham & Company. Ryan MacDonald: Congrats on a great quarter. Alessio, I very much appreciate that, obviously, the enterprise is really the driving force around growth moving forward. But can we get a bit more color on sort of the OEM wind down, the Dayforce wind down? Obviously, you mentioned it sort of occurred a bit faster than you expected in the quarter. But as we think about fourth quarter and into next year, can you just help us get a bit of a better understanding on the trajectory there and what opportunities you might have to sort of compete more directly within that base of customers? Brandon Farber: Ryan, it's Brandon. I'll take that question. So just taking a step back and just looking back, as a reminder, Dayforce started OEM and white labeling Docebo back in 2019. And they were very successful selling Docebo as an LMS, and got as big as roughly 9% to 10% of our total ARR at a specific point in time. Back in early 2024, Docebo acquired eloomi, which we all know. At that specific point in time, they were an LMS provider in Europe focused mainly on the SMB market. Subsequent to the acquisition, Docebo initiated legal action and was quickly resolved with Dayforce. Really, the goal of that lawsuit was 3 outcomes: number one, protecting our IP; number two, supporting the contributor of our revenue base; and number three, preserving our day-to-day relationship with Dayforce. How we're looking at it on a go-forward basis, we continue to expect economic benefits to flow to Docebo, and the contract to wind down over extended period of time. To provide a little bit more color, we anticipate Dayforce to represent approximately, 3.5% to 4.5% of our total revenues in 2026, 1% to 2% of our total revenues in 2027, and become immaterial thereafter. Just to leave on a positive note, it is important to note in the current quarter and since 2024, we've continued to grow. We've continued to diversify our revenue base away from Dayforce, and we're pleased with the ARR growth we had this quarter, excluding Dayforce of 14%. Ryan MacDonald: Maybe my second question, I wanted to talk on AI. As we've sort of spoken with companies and a number of companies rolling out AI strategies, it feels like there's sort of three buckets in which organizations are trying to sort of monetize AI efforts today. It first seems to be in improved customer retention and sort of, renewal rates. The second tends to be in sort of, building in higher annual price increases as you deliver more value with AI. And then the third tends to be sort of, separate SKUs or modules that are AI-specific modules that you can start to charge for. I'm just curious, as you think about the three buckets where you're seeing the benefits from AI. And at least in the shareholder letter, it seems like with these AI credits rolling out, it seems like you're getting a head start on that third bucket going into next year. So would love a little bit more color on that as well. Alessio Artuffo: Great breakdown of the 3, say, areas of return of AI. We very much agree with those 3 areas. I would say that having started with AI several years ago, our focus has certainly been more on the creating value and infusing AI in the product everywhere we can more lately. Originally, when we approached AI years ago, we were creating features that were supported by AI, mostly to provide a better customer experience, i.e., getting to the outcome faster. But at that time, monetization strategies were not a priority. As we have matured and are maturing every day at a really rapid pace, our posture on AI, I can say that your category #2 and category #3 are the ones that we think of very much. You are correct in saying that we've introduced recently an AI credit-based system that aimed at managing through this credit-based system, our AI pricing. The way it would work is for modules like AI Virtual Coach and AI Video Presenter, a consumption model whereby our customers using these modules consume credits that run against the packages they would buy upfront. We don't have a long history of doing this. We've recently started this, but we -- our thesis is to continue to roll in AI capabilities against this model to make it more meaningful from a monetization standpoint in the future. But then we also believe that continuing to provide AI capabilities will give us an edge against the competition, which will allow us and help us defend a premium of our product against the competition as a result. Finally, I would say retention is -- remains an evergreen goal that we have. So we infuse AI features everywhere. Every single product manager in the company is required to think AI first as they build new products and revise existing features, so that our customers have a better experience with the product. Operator: Our next question comes from Robert Young, from Canaccord Genuity. Robert Young: You said in the prepared remarks that you've seen the second consecutive quarter of improved retention. I assume that's with the OEM piece aside. So I was wondering if you could dig deeper into that. If you could update us on where churn is, where the elements of churn are, if that's improving? And then where you think that's going to go in '26? Brandon Farber: Rob, it's Brandon. As you know, we only disclose NRR on an annual basis, so we won't go into specific numbers. But you are right. We did see 2 consecutive quarters in a row of retention improvements, whether you look at it from a gross retention or net retention. This is actually very consistent with what we have been saying for the past 2 quarters. We knew in Q1, we had a large renewal base that would bring it down and we'd only go up from there. One thing that is important to mention is that we did lap the large Thomson Reuters downgrade that happened in Q3 of last year of roughly $2 million. So obviously, lapping that did result in improvement. And to be completely transparent, we do expect that metric to go down next quarter because of the AWS downgrade. So a couple of things that I'd say is we have a renewed focus on retention. We are putting together account mapping for every at-risk customer, and making sure we're proactive and not reactive. And we feel really good about the programs we have in place to continue strong retention metrics in the future. Robert Young: You noted the AWS Skill Builder roll-off. How is that handover progressing? Is there a potential for a subcontract, a support contract in 2026? Or is that going to disengage completely, as you expect? Brandon Farber: Rob, we expect that to completely disengage, December 31. Operator: Our next question comes from Josh Baer from Morgan Stanley. Josh Baer: Congrats on reaching 20% EBITDA margin early. That's something that you guys have been talking about for a long time. I wanted to just follow up with a couple more on the OEM. Just curious what that percentage was last quarter? Do you have that? Brandon Farber: Sorry, maybe if I could just rephrase, are you asking for what ARR growth was, excluding Dayforce? Josh Baer: No. The percentage of ARR, so 6.2% this quarter. Just wondering what it was last quarter. Brandon Farber: Instead of giving you that exact metric, what I can give you is what our ARR, excluding Dayforce was last quarter, which was roughly 13.9%. Josh Baer: For Q2 also? Brandon Farber: Correct. Josh Baer: I guess I'm just wondering why it was like a greater wind down than expected? Was it Dayforce-led? Was it customer-led? Any context there? And then I did want to just follow up, like is it a lot of smaller customers noticed like there was a big jump again in average contract value. So some really nice acceleration there. Wondering if it's related. I know you also had success more broadly in enterprise. But in part, I want to get a better sense of like does this average contract value continue accelerating? Or should we expect that to slow down? And then when we do get the total customer count at the end of the year, like should we expect that to move lower due to this Dayforce? Brandon Farber: Yes. A lot of what you just said is bag on. So our ACV this quarter did grow as a result of the Dayforce wind down. If you think about the customers that typically get attracted to an HRS system plus an LMS, they tend to be a customer who use it for 1 to 2 use cases, which is onboarding and compliance. And those average tickets tend to be materially lower than a customer that would sign directly with Docebo, for multiple different use cases. So you should expect and you should model that our ACV with Dayforce is materially lower than a customer that signs directly with Docebo. Regarding customer accounts, you should expect that our customer count overall will be down, and that is a result of the wind down of Dayforce. Operator: Our next question comes from Yifu Lie from Cantor Fitzgerald. Yi Lee: Congrats on the strong 3Q print and a busy week of earnings. So to start with you, Alessio, I want to go over the AI product vision. We understand from Inspire, Alessio, your model is to build a product that delivers value to customers first, and they will eventually pay Docebo and you can monetize it, right? So looking at the new product lineup, whether it be Harmony Search, support AI offering, Virtual Coaching, Copilot, et cetera. So which of these products, Alessio, would you say is closer to monetization potential? On the second part of this question, Alessio, in the end of your prepared remarks, you talked about redefining the future of learning. And I understand you like to solicit continuous feedback from your customers. What are the key things you've learned from your customer and stakeholders that you want to apply to your product road map for the end of this year and 2026? And I also have a follow-up with Brandon after this. Alessio Artuffo: Lovely question. Let's get started. start on the AI and product. First, let me share that you are correct. Our vision around our Harmony ecosystem is very ambitious, and we have executed. So far, Harmony Search from its recent launch has already powered about 0.5 million search with 0.5 million queries, which is a very positive result against our expectations. This is not only stopping with search. Search was just the beginning of a journey where we want to get Harmony to become the assistant of our customers. Harmony, in fact, was now evolved into a Copilot logic. The goal is to improve the productivity and the self-servicing of capabilities in the platform. So you can go in Docebo and ask Harmony to perform tasks for you and help you identify how to get things done in the product, and Harmony will either point you to it or do it for you. This is just the beginning of a journey towards full platform automation, which is a longer-term vision that we have that we're going to pursue. In terms of Creator, which you mentioned, I think your question was around which capability do I think will contribute the most to monetization. Creator is the engine behind the experience creation in Docebo, which includes, as part of it, our AI Virtual Coach, the ability to create simulations, and to simulate any scenario from customer service leadership and sales enablement, something that we have evolved this past month by releasing a new version of Creator, which -- sorry, of Virtual Coach, that initially was addressing only the sales enabling use case. Now that module is well rounded up and allows an organization to map simulation scenarios against any custom role play scenario they want to implement. So we do expect Creator and Virtual Coach to be great contributors to our monetization strategy in the future. No, I was just going to wrap up by saying our road map reflects our belief that a platform from a differentiated standpoint, you asked about the customers and what we are hearing. We are hearing customers saying they want more ability to create personalized experiences. They want to do less leaking and to be able to create content at a more rapid pace in automated way. That's what we're executing with Harmony and with Creator. Yi Lee: Alessio, I want to follow up on the -- obviously, you guys made on the customer wins, especially I want to focus on the industrial one, the 200,000 seat, right? Obviously, you're leaning more towards the system integrator channels similar to other Tier 1 SaaS software companies. I just wanted to get your sense on like what types of partnerships are you engaging? I know Deloitte is a big one, right? What's working and what needs to work on? Then I'll just ask a financial question as well, Brandon. On the financial side, I'm just looking at the KPIs for new logo ACV, 71k is flat year-over-year, but up 8% quarter-over-quarter. But in terms of the story, it seems like you guys are going upper enterprise, right? So why is that metric flat year-over-year? That's it for me. Brandon Farber: I'll kick it off on the last part of that question. So how we look at ACV is given the fact that we're seeing extremely strong success in mid-market, and this is 2 quarters in a row where we've seen that strength, and we're seeing leading indicators that that strength will continue into Q4. That is impacting obviously, the ACV, as we have larger concentration of customer accounts coming in at the mid-market. When you think about the enterprise space, you tend to have a lower number of customer wins, but at a larger ACV. So during the quarter, we actually did have really strong performance of units that had very healthy ACVs, upwards of, let's call it, $500,000 ACV. And seasonally, we do expect Q4 to be strong enterprise quarter, and we do expect that ACV to go up in Q4 as well. Alessio Artuffo: On the first part of the question, you asked about how we view the market of system integrators, and you mentioned the big logo that we mentioned earlier. I would say a few things. In the past calls, we've outlined how we made such great strides in partnering with the Accenture and Deloitte type of system integrators. That work continues, and we continue to advance our relationships with them and really formally progress our status as partner type within those organizations, which in turn, will only give us more penetration in their go-to-market efforts. But also remember, it's not only a matter of pipeline creation, it's also the ability for them to support us in complex implementations, which has an incredible amount of value with large enterprises. I would add a different type of color in this call by saying that not only we've been working with these very large system integrators, but also regionally, internationally, we've identified a number of system integrators that are leaders in their respective markets. And so when you think about wins like that, the State Administration School of Latvia, we would have not been able to do that with a critical regional partner that helped us become the de facto platform for the entire public sector of the country of Latvia. And so as we continue to expand with these regional and more focused system integrators, we expect deals like these to become more and more frequent. Operator: Our next question is from Erin Kyle from CIBC. Erin Kyle: I just had a question on how we should be thinking about the margin profile here into 2026, as you continue to expand the federal pipeline and opportunity here. Do you expect to see an increased spend in sales and marketing, or the 20% margin in Q4? I guess my question is, how sustainable is that you think going forward? Brandon Farber: The way we're thinking about EBITDA margin, and it is important to note, we do have a bit of seasonality in EBITDA where we do expect Q3 and Q4 to always be stronger than Q1 and Q2, given Q2, we have our big Inspire event in Q1, we tend to have seasonally higher payroll costs. How we're thinking about EBITDA going forward, we do think we're fairly staffed from a sales and marketing perspective. We've invested and spent money in government over the past 2 years, and we've staffed that team up for success. We do have pipeline targets, coverage ratios that once it exceeds those ratios, we will certainly accelerate hiring. But for now, the government team is fully staffed. How we're thinking about EBITDA margins going forward, we do post in our investor deck every quarter goals from a spend level. And one number to call out is we're at 20% EBITDA today. Our G&A as a percentage of revenue is roughly 15%, and our long-term or midterm goal is 9% to 11%. So if you think about incremental 5% leverage in G&A alone, that gets you to 25% margin over a mid-to long-term basis. And that's without sacrificing any investments we have to make in R&D and sales and marketing. Erin Kyle: Maybe I can just ask one more just on the professional services revenue in the quarter was a bit higher than we had expected. Is that related to the strength in the mid-market? And if that's the case, should we expect that to trend higher in Q4 and going forward as well as you see that mid-market strength continue? Brandon Farber: Yes, it's a great question. So what we're seeing is that the type of customers in mid-market that tend to be attracted to Docebo, are customers that have complex onboarding needs and complex use cases. And with complex use cases tend to lead to more hands-on onboarding experience. What I would say is that while we're pleased with the professional revenue growth, it's not a line item we're focused on. We're really focused on growing high-margin accretive subscription revenue, and we're very comfortable with handing off professional services revenues for our partners, such as Deloitte and Accenture. Operator: Our next question comes from Suthan Sukumar from Stifel. Suthan Sukumar: For my first question, I wanted to touch on the Amazon expansion. I thought that was a positive read on sort of, the state of that relationship. Can you speak a little bit about -- aside from the AWS contract, what use cases you are involved with Amazon, and how you expect that relationship to evolve going forward? Alessio Artuffo: Sure. So first, let me underscore the fact I'm very pleased with the fact that notwithstanding Amazon divesting from us on the Skills Builders initiative, we continue to attract the business of other Amazon companies who continue to entrust us with our products and services. I think that's a testament also to the great work that we've done over the years with Amazon Skills Builder. Because if we had done so, you would presume that the reference calls that would happen in order to sign with Docebo, would bring these Amazon companies to make different decisions. So I think that's a little bit of also in the retrospective to clear up any doubt remaining. I would say on the current win, we did sign Amazon Health, which is the health care division of Amazon. It's a very important win for us because not only it adds another Amazon logo to our customer base, but also it's a perfect fit for our products and services. They are going to be using Docebo for both customer experience, doing customer and partner education, effectively supporting health care professionals and technology partners and service teams. And then on the employee side, they're going to be using Docebo for sales enablement, onboarding, leadership development, professional development, and compliance. What we know is that organizations that use Docebo for more than 4, 5 use cases have the best metrics in terms of unit economics and retention. And so we love what we can bring in companies that effectively become so. And on the competition side, you guys usually ask that I want to know, unsurprisingly, we did overcome the other competitors, both on the mid-market and I would say, legacy enterprise side. Brandon Farber: One thing I'd add is that this new use case with Amazon, they were not interested in a short-term relationship with us. They did sign for 5-year contract, which just shows the strength of Docebo's relationship with Amazon. Suthan Sukumar: Great. My second question, I just wanted to kind of touch on the growth profile. You guys are -- ARR is now down 10% year-over-year. But when you exclude Dayforce, 14%, I think that does speak to the strong underlying growth momentum in the business. Can you remind us the impact with the AWS contract roll-off would be to ARR? And more broadly, what would need to happen for growth to continue reaccelerating from here? I'm just going to keep in mind that you guys have a new CRO in the seat. Just curious what sort of changes and priorities are playing out here to support that growth reacceleration. Brandon Farber: I'll start off and pass it off to Alessio. So the AWS impact consistent with last quarter is approximately $4 million hit to ARR, which will come out December 31. Alessio Artuffo: So on the question of reacceleration -- look, I think you were bang on in your observation. And I would underscore that our CRO and CMO, have been in seat for a relatively short time frame. In the past 90 days alone, though, I have seen them making a significant impact that Kyle and Mark, who hopefully are listening to us today. I'm going to say good things about their work. I've been very impressed with the level of sophistication that we've been able to already inject in our revenue architecture. There are a lot of practical details that are being improved from forecasting methodology to customer success methodology. We are investing significantly in optimizing our spend on the marketing side, becoming leaders in this AI referral traffic generation, which is a big aspect, and marketing -- digital marketing is changing a lot in the kind of post every single SEO era. So their execution has been start, and I'm seeing already the beginning of a trajectory that will continue in the years to come. In terms of reacceleration is achieved through a few things that we're pursuing. I would highlight four areas that we are particularly focused on. The first one is an evergreen, as I say, always improving our retention metrics. And that is not just improving our retention, but also improving our net dollar retention by strengthening our expansion engine. We're very focused on this, and we're seeing positive momentum in the pipeline in the business. The second one that I would mention is performance in the mid-market. As we mentioned, we are executing really well as a result of a mix of things, our people, and processes. And we expect this performance to continue in the quarters to come. The third one that I would mention is, again, government. We've only seen the beginning of a journey that started in May with federal, and will continue strong into 2026, alongside our continued execution in flat. And finally, we have been working on strengthening our enterprise momentum and pipeline. We're starting to see the results of that. We expect good signals in quarter 4, but we believe 2026 will be the year of enterprise at Docebo. Operator: Our next question comes from Richard Tse from National Bank Capital Markets. Richard Tse: I just want to go back to this AI product portfolio. Can you help us understand your assumptions around how your attach rates are going to scale with those products? And with that, how the revenue profile will lift alongside that? Brandon Farber: Richard, I'm going to wait to answer that question for Inspire, where we'll have an investor update and talk a little bit more about how we're envisioning AI credits to impact our overall business. The one thing that I would say is that we will have ARR that will lag a little bit in linearity with our typical nice ratable revenue as we'll recognize ARR credits as it's consumed. So the biggest impact is if we sign a new customer with -- that has an AI credit bundle, they won't start consuming until after onboarding. But we definitely see AI credits as a very strong way to lift our NRR, and have expansion within our existing customer base. Richard Tse: I guess the other question is around partnerships. You've been spending a lot of time talking today about SI partnerships. I think a few years ago at your conference, you showcased Microsoft from a technology partnership standpoint. So when you sort of look at those 2 types of partnerships, what's your sort of perspective on each in terms of driving lifetime value? I was under the impression that sort of the integration with Microsoft tends to make it stickier and potential to expand those offerings. And if that's the case, are you pursuing those type of partnerships as well in addition to these SIs? Alessio Artuffo: Our technology partnerships are an important part of our partnership thesis. On the Microsoft side, I believe you may be referring to our module called Microsoft Teams, which is a module that allows customers that use Teams, to connect Docebo to it. It's a module that we're seeing having success in organizations that are Microsoft add. In terms of our overall technology partnerships, what we're favoring and what we're leading with are capabilities that our customers can use to extend the value of the Docebo platform. To give you an example, we have integrated with Docebo tightly technologies like S'ABLE for Virtual Labs, or Honorlock for Proctoring. I would say our partnership focus remains more on the go-to-market side. And as far as the technology side, we will continue to invest to some extent with the integrations with the core platforms like Teams, Slack and others. Operator: We have no further questions. I would like to turn the call back over to Alessio Artuffo, for closing remarks. Alessio Artuffo: Thank you very much for attending and for helping us tell a story of another exciting quarter at Docebo. We look forward to seeing you at the end of February, for our Q4 results. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, everyone. Welcome to the BGSF, Inc. Fiscal 2025 Third Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] Now I will turn the call over to Sandy Martin from Three Part Advisors. Please go ahead. Sandra Martin: Good morning. Thank you for joining us today for BGSF's Third Quarter 2025 Earnings Conference Call. With me on the call are Keith Schroeder, Interim Co-CEO and CFO; Kelly Brown, Interim Co-CEO and President of Property Management. After our prepared remarks, there will be a Q&A session. As noted, today's call is being webcast live. A replay will be available later today and archived on the company's Investor Relations page at investor.bgsf.com. Today's discussion will include forward-looking statements, which are based on certain assumptions made by the company under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including those listed in the company's filings with the Securities and Exchange Commission. Management's statements are made as of today and the company assumes no obligation to update these statements publicly even if new information becomes available in the future. Management will refer to non-GAAP measures, including adjusted EPS and adjusted EBITDA. Reconciliations to the nearest GAAP measures are available at the end of our earnings release. I'll now turn the call over to Keith Schroeder. Keith Schroeder: Thank you, Sandy, and thank you all for joining us on today's call. Kelly and I want to apologize for the delayed earnings release. It was due to the additional time required to finalize the accounting for the sale of the Professional division, including its treatment between discontinued and continuing operations. After our prepared remarks today, we will open the call up for analyst and investor questions. In September, we closed on the divestiture of BGSF's Professional division to INSPYR Solutions, a portfolio company of A&M Capital Partners, for cash of $96.5 million plus a $2.5 million working capital adjustment. Subsequent to the closing, we paid off the company's outstanding debt of approximately $46 million. Then on September 16, the company's Board of Directors declared a special cash dividend of $2 per share on BGSF's common stock returning $22.4 million to shareholders. After our September 30 dividend payments, the company's cash balances were approximately $20 million. As a part of the Board's continuing evaluation of the best use of BGSF's excess capital, today, we announced a stock buyback plan of up to $5 million. The Board believes that purchasing stock at current prices is a good investment for the company and reflects our confidence in BGSF's long-term strategy. Following the close of the sale of the Professional division, we've been focused on 3 big directives. During the quarter, we engaged an independent consulting firm to conduct a comprehensive review of our business and the broader industry landscape, which Kelly will cover in detail in a few minutes. Next, as we touched on last quarter, we are taking aggressive actions to reduce head office G&A expenses when the TSA period ends and we can further reduce G&A costs with a target of approximately $11 million annually. The $11 million figure includes roughly $1.5 million of public company costs. We currently estimate the Property Management's 2025 overhead contribution to be in the $10.5 million to $11 million range. Finally, as part of our commitment to building a high-performing and aligned organization, we engaged an external compensation and organizational consulting firm to review our structure and ensure our compensation programs effectively reinforce company goals and promote accountability across the organization. As noted, implementing these recommendations or portions of them will occur after we complete our transition services agreement with INSPYR in early 2026. As we covered last quarter, GAAP financial reporting requires that we include Professional Group as a discontinued operations thus leaving our Property Management Group as a single reportable segment. In the MD&A section of our Form 10-Q, we are breaking out SG&A expenses into 2 main sections: selling costs for the Property Management Group and G&A for the head office function. This will allow you to build a model to forecast the company's future successes. And as a reminder, we are operating under a TSA agreement for up to 6 months to help INSPYR stand up the business in their operating environment. This means we will be continuing certain expenses longer than we would without the TSA. However, we will be paid for those services, which will be reported as a reduction in our G&A expenses. As expected, our financial results will be somewhat noisy for the next couple of quarters as we transition. And with that, Kelly will cover the Property Management results and our strategic initiatives that are underway. Kelly Brown: Thank you, Keith, and good morning, everyone. Total revenues from Property Management in the third quarter were $26.9 million, down 9.8% due to cost pressures on property owners and property management companies as well as increased competition in certain markets. Sequentially, revenues improved by 14.4% over the second quarter benefiting from a seasonal lift due to end of summer turnovers in apartments. Referencing back to the market study Keith mentioned earlier, we received valuable insight into our competitive position, market dynamics and opportunities to strengthen performance going forward. BGSF is one of only a few national scale firms that deliver reliable, vetted, high quality talent and this study is helping us identify the key levers that will drive our next phase of growth. With a fresh outside lens on the market size, the competition and white space opportunities; we refined our strategic road map and aligned the organization around clear priorities to drive sustainable growth. With the transaction behind us and a comprehensive review of our business complete, we are now leveraging the findings to shape the next phase of our growth strategy. For competitive reasons, we can't share the details, but we've identified actionable operational performance improvements as well as near- and longer-term expansion opportunities to capture a meaningful share of a growing $1 billion-plus addressable market. In addition, we have also identified a range of actions to further differentiate our staff quality and offerings. Based on our strategic initiatives and internal forecasting, we believe that 2026 revenues will grow compared to 2025 and the teams are moving forward with enthusiasm on our strategic initiatives. Last quarter, we also discussed tools and technologies to accelerate our sales and hiring processes. We're continuing to invest in AI not just as a technological initiative, but also as a way to deepen engagement with clients and elevate the experience of working with us as an innovative workforce partner. Even in a challenging industry environment, our priorities remain the same: to deliver talent faster and communicate more efficiently. We believe a disciplined execution of these capabilities will keep us at the forefront. The solution is a suite of engagement tools that have begun implementation and will continue to roll out over the next 2 quarters. We're excited about the potential of these tools to enhance performance, drive incremental revenue and deliver strong returns on our investments. At the same time, we continue to evaluate our cost structure to ensure it remains appropriately aligned with our projected revenues. With that, I will turn the call back to Keith. Keith Schroeder: Thank you, Kelly. Our comments today mostly refer to continuing operations unless otherwise noted. As Kelly mentioned, third quarter revenues were $26.9 million, a 9.8% decline driven by lower demand amid overall cost pressures on property management companies and property owners. Despite the increased competition in certain markets where we operate, we reported a seasonal lift of 14.4% compared to our second quarter revenues. We continue to see business normalization more in line with the expected seasonality. Gross profit and margins in the third quarter were $9.7 million compared to $10.7 million and 35.9% as a percentage of sales in both periods. On a sequential quarter basis, gross profit dollars increased and margins rose slightly by 10 basis points. SG&A expenses for the third quarter were $10.2 million compared to $11.3 million in the prior year's quarter. SG&A this quarter included strategic restructuring costs of $482,000 and $526,000 in the prior year quarter. Third quarter adjusted EBITDA was $980,000 or 3.6% of revenue compared to $75,000 or 0.3% in the year-ago quarter. We reported a third quarter GAAP net loss from continuing operations of $0.28 per diluted share compared to a positive non-GAAP adjusted EPS from continuing operations of $0.08 per share. Consolidated adjusted EPS for the quarter was a positive $0.08 per share. During the first 9 months of 2025, net cash used by continuing operating activities was $1.8 million. Our capital expenditures were at $122,000. Finally, the team remains focused on executing our strategic priorities and new road map while managing traditional work related to the Professional division. Kelly and I want to thank everyone inside the organization for their continued dedication and effort. We look forward to updating investors each quarter on our progress and hope today's discussion has been valuable. With that, now we'd like to open the call for questions. Operator? Operator: [Operator Instructions] Your first question is coming from Bill Dezellem with Tieton Capital. William Dezellem: Would you please discuss the process with the consultant that you hired to assist you with an internal evaluation? Kelly Brown: Certainly. Keith, I can take that one. We had a multipronged process really to the research. They did a combination of surveying current clients, prospective clients, a little bit of interviewing in the competitive environment. So we were able to look at their research based on the addressable market in multiple really avenues. So they were able to validate a lot of the addressable market that we believe is out there based on the growth of the multifamily sector as well as the commercial real estate sector. And so with that research, we were able to identify more firmly what the addressable market we would anticipate to be both right now and in the coming years. William Dezellem: And the conclusion or the outcomes of that research, would you please walk us through what you can? Kelly Brown: Certainly, yes. Based on the findings of the research, it was helpful because we're able to have better lens on what the true addressable market is; how much of that is being captured by us, how much of that is being captured by competitors in the market and it would help us drive our future strategic planning both geographically and strategically within the addressable market, different areas that we service. Obviously, as you know, in the past we've always serviced leasing as well as maintenance in the commercial side, engineers as well as accounting and management in that area. So really what the research did was just help us really have a future lens on what areas of the business would have the most growth potential and that way we can strategize accordingly. William Dezellem: And Kelly, you have been in this market for a long time now. What were the learnings that came of this for you? And the spirit which I ask that question is you've got a lot of -- because of your history, you either know or have a pretty good gut feel on a lot of this. So what did you learn from that? Kelly Brown: Yes. Great question. Couple of things. One, the last couple of years in the industry, I think we've mentioned this on a couple of prior calls, given the economic climate that our client partners are facing, we wanted to be cautious around assuming the impact that might have on their approach to talent acquisition. And so really what the study showed us and then helped us understand is how some of our client partners want to consume talent, what is their appetite for leaning on providers such as us, how can we better partner with their internal talent acquisition teams and I do think that that's evolving. Right now we have different levers we can pull using technology to best attract the talent that they want and so I think that's where we're seeing some evolution in how our industry attracts and wants to acquire the talent. So that was probably one of the larger takeaways is helping us drive our future planning to make sure that we're aligning with our partners in how they want to go about acquiring the talent that they need for their operations. Operator: There are no additional questions in queue at this time. I would now like to turn the floor back over to Kelly Brown for closing remarks. Kelly Brown: Thank you for your time today. We appreciate your continued support and look forward to providing an update on our fourth quarter and full year results in a few months. Have a great day. Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Operator: Welcome to Arkema's Third Quarter 2025 Results and Outlook Conference Call. For your information, this call is being recorded. [Operator Instructions] I will now hand you over to Thierry Le Henaff, Chairman and Chief Executive Officer. Sir, please go ahead. Thierry Le Hénaff: Thank you very much. Good morning, everybody. Welcome to Arkema's Q3 2025 Results Conference Call. With me today are Marie-José Donsion, our CFO; and the Investor Relations team. To support this conference call, we have posted a set of slides, which are available on our website. And as usual, I will start with some comments on the highlights of the quarter before letting Marie-José go through the financials. At the end of the presentation, we'll be available, as always, to answer your questions. Let's comment first on the economic environment, which remains, as you know, challenging. We noted weaker-than-anticipated trends in the U.S. over the summer. The lower demand is probably a reflection of ongoing uncertainty around the tariffs and frictions in adjusting supply chains. On the other hand, Europe and Asia remain consistent with what we have seen since the start of the year, Europe at relative low levels and Asia still with a positive dynamic in particular in China. The negative currency impact was also slightly stronger than in Q2. Despite this challenging macro environment, our growth pockets, which are at the heart of Arkema strategy delivered substantial growth. As a matter of fact, our sales were up 20% in several key markets, namely batteries, sports, 3D printing, health care and new generation fluorospecialties with low Global Warming Potential. This positive momentum is also supporting the ramp-up of our major project shown on Slide 7. But all in all, that was not sufficient, obviously, to offset the strong macro headwinds of the third quarter. With the Q2 results, we shared with you that this major project should bring EUR 50 million additional EBITDA in '25 versus '24. I am happy to convey that we reassessed the progress, and we can lift the impact to EUR 60 million. This contribution is essentially supported by the strong momentum in PVDF for batteries, by use of Pebax in sports and 1233zd fluorospecialties in building insulation. PIAM has also showed good growth since the start of the year, thanks to new smartphone models and now flexible packaging adhesives starting to contribute. This is certainly less than the initially estimated EUR 100 million attribute to the tough environment. Nevertheless, these projects show good momentum and the setup for 2025 is encouraging. As you know, these projects are already fully financed and therefore, are included in our capital employed with only limited contribution to the P&L until now. In this regard, the group will gain around 2.5 points of ROCE from this project over the next years in addition to the improvement of the cycle, which will benefit to everyone. We can mention also the start of 2 new plants in Q3 in the U.S., both on budget and on schedule, the new 1233zd unit, a fluorospecialty with low emissive impact used for building insulation or thermal management and our new DMDS capacity for refining and biofuels with an impact on earnings still limited in 2025. In addition, the new Rilsan Clear transparent polyamide plant reached mechanical completion. This unit, downstream of its polyamide 11 plant in Singapore is expected to be operational in the first quarter of 2026. Given the tough environment, I'd like to stress that all teams are fully mobilized on a daily basis to best manage the current economic and geopolitical context. We run a number of cost-cutting initiative as shown in Slide 3 and are on track to deliver the targeted EUR 100 million of fixed and variable cost saving by year-end. The cost alignment will continue, and we strive to again offset inflation in 2026. In addition, Arkema stayed disciplined in capital allocation. You see that we made progress in working capital management and delivered EUR 200 million (sic) EUR 207 million recurring cash flow, up compared to last year despite lower earnings. This cash generation is fully reflected in the reduced debt, maintaining a robust balance sheet. Arkema will once more reduce CapEx next year to EUR 600 million while continuing to optimize its working capital. Despite all the efforts of the Arkema teams, EBITDA was down to EUR 310 million. Looking at the results by segment, you could recognize the different profile of each product line. Adhesive Solutions and Advanced Materials are more resilient with earnings affected by lower demand, while net pricing was only slightly down. In contrast, there was more volatility in Coatings linked to the low cycle in upstream acrylics, while the old generation fluorogases in Intermediates reporting a seasonally lower outcome. I already mentioned the ramp-up of our major project, which reflects the execution of our growth strategy, but also our ability to work in parallel on 2 tasks. We focus on optimizing our operations in the short term, but at the same time, secure our growth potential on the long term, both prepare us to be ready in a year when the macro will again be more supportive. As highlighted before, we follow our strategy focused on 5 identified high-growth markets where we continuously look for new opportunities. In this context, I am happy to announce that we will expand our potential in the attractive advanced electronics market by adding a new structure platform dedicated to data centers. We have shared details of it in Slide 5 of our Q3 presentation. By dedicating a joint initiative to this powerful market, we see significant growth prospects, though starting from a low base. Besides, I would like also to emphasize Arkema's success in the battery market in Asia. Our bet on LFP batteries is clearly a winning one and our strategy to expand our asset base with modest CapEx in China, Europe and the U.S. turned out to be relevant, putting us in a good position to grow in this dynamic market. We recently inaugurated a new laboratory dedicated to the next generation of batteries using an innovative dry coating process for electrodes that significantly reduces the cost of battery production while lowering its carbon footprint. This innovation illustrates that PVDF's long-term growth potential remains significant while offering premium margin when we target as we are doing the high end of the range. I will now hand it over to Marie-José for more details, so a more in-depth look at the financials before we discuss the outlook at the end of the presentation. Marie-José Donsion: Thank you, Thierry, and good morning, everyone. Let's start with the Arkema's revenues. At EUR 2.2 billion, our Q3 sales were down 8.6% year-on-year. They were impacted by a negative 3.9% currency effect, reflecting mainly the weakening of the U.S. dollar against the euro, but also from other currencies, including Chinese yuan and Korean won. Volumes were down 2.5%, reflecting the lower demand observed in the U.S. over the summer and the overall weak demand environment in Europe. On the other hand, we continued to benefit from a positive dynamic in Asia and more particularly China, mainly driven by High Performance Polymers. The price effect was a negative 3.7%, impacted essentially by the acrylic cycle and the old generation refrigerant gases. All other activities showed a more limited price decrease of 1.3% with a slightly negative net pricing, the benefit from lower raw material costs works progressively through the supply chain. Q3 EBITDA came in at EUR 310 million. The currency effect representing around EUR 15 million negative. Looking at the performance by segment. Adhesives EBITDA reflected the weak demand in industrial additives and the disappointing summer in the U.S., notably in flexible packaging and construction. On the other hand, construction business grew in Asia, thanks to positive momentum in Asian buildings and remained broadly flat in Europe. The performance of Bostik continues to be supported by our ongoing work on efficiency and our price discipline. Finally, the integration of Dow's adhesives brought a limited contribution this quarter due to the softness in the U.S. market notably. In Advanced Materials, the EBITDA was essentially affected by the volume decrease in Performance Additives that were impacted by the weak demand environment in Europe and in the U.S. as well as the reorganization of our Jarrie site in France, in hydrogen peroxide. On the other hand, High Performance Polymers volumes were stable, benefiting from strong growth in Asia. And the margin of the Advanced Materials segment remained overall at the good level, 18.8% with HPP maintaining its solid margin level of 20%. In coatings, EBITDA was essentially impacted by the low cycle conditions in the upstream acrylics. Sales declined in the U.S., in particular, in the construction and the decorative paints markets. The performance of the segment was therefore significantly lower than last year. Lastly, Intermediates EBITDA included the usual seasonality of the third quarter as well as the impact of the evolution of regulations in the U.S. and Europe in refrigerant gases. Depreciation and amortization stood at EUR 168 million. They included the amortization of new production units, which started up in the course of 2024 as well as in 2025. This led to a recurring EBIT of EUR 142 million and a REBIT margin of 6.5%. Nonrecurring items amounted to EUR 48 million. They include the typical EUR 35 million of PPA depreciation and EUR 13 million of one-off charges, notably restructuring costs linked to the reorganization of our hydrogen peroxide site in France. Financial expenses stood at EUR 33 million. The increase versus last year reflects mainly the increased cost of our bonds as well as the lower interest of invested cash. And consequently, Q3 adjusted net income stood at EUR 78 million, which corresponds to EUR 1.04 per share. Moving on to cash flow and net debt. Arkema delivered a solid cash flow, as you could see in Q3 with recurring cash flow standing at EUR 207 million. This reflects our continuous initiatives to tightly manage our working capital and integrate also decreasing CapEx versus last year. The working capital ratio on annualized sales stood at 17.3% and total capital expenditure amounted to EUR 131 million, in line with our objective of EUR 650 million for the full year 2025. Net debt amounts to EUR 3.4 billion, including EUR 1.1 billion of hybrid bonds. The net debt to last 12 months EBITDA stands at around 2.6x. Note also that we continue to refinance our 2026 loan maturities with the issuance in September of a EUR 500 million green bond with an 8-year maturity and an annual coupon of 3.5%. This has also enabled us to extend our debt maturity now to 4.6 years. Thank you for your attention, and I'll now hand it over back to Thierry for the outlook. Thierry Le Hénaff: Thank you, Marie-José. So going into Q4, the macroeconomic environment remains challenging, marked by low visibility and weak demand in U.S. and Europe. So no surprises there. In this context, as already said, optimizing the short term by working on fixed costs, CapEx, working capital remains among our top priorities. We are on track, as mentioned, to achieve around EUR 100 million of fixed and variable cost savings in '25. More specifically, our numerous initiatives on fixed costs will enable us to offset inflation in both '25 and '26. At the same time, we continue to build Arkema for the future. It's very important, by maintaining our efforts in R&D as well as in sales and marketing, focused on the key attractive market identified by the group, supported by the major projects that you are well aware of. Taking into account the macro environment that remains challenging and the softer-than-expected demand in the U.S. for the time being, at least, we aim at delivering an EBITDA of between EUR 1.25 billion and EUR 1.3 billion in 2025 with a midpoint globally consistent with the consensus and a recurring cash flow of around EUR 300 million. I thank you now very much for your attention. And together with Marie-José, we are certainly ready to answer any of your questions. Operator: [Operator Instructions] First question is from Martin Roediger, Kepler Cheuvreux. Martin Roediger: I have 3 questions, if I may. The first question is for Thierry. Regarding the reason for this additional guidance cut this year, it seems you are getting more concerned about the U.S. market, especially about the weaker construction market in the U.S. How do you see the near-term prospects in the U.S. construction market? And the other 2 questions are for Marie-José. Other chemical companies have released bonus provisions in Q3, some already in Q2. Have you done that as well? And do you plan that in Q4? And is that part of the EUR 100 million cost savings this year, which tackles both fixed costs and variable costs, and we know that bonus belongs to variable costs. And finally, on cost savings impact on your P&L. Your SG&A costs increased in Q3 quarter-on-quarter and year-over-year. Why do we not see the cost savings in your SG&A line? Thierry Le Hénaff: Okay, Martin. So on the first -- thank you for your question. First -- on the first one, no, what we see today is that, yes, in the summer, the U.S. was weaker than expected, not necessarily weaker than Europe because Europe was already weak but does not mean necessarily that we are more pessimistic on U.S. going midterm. I think U.S., and we have a long experience there because it's [ 45% ] of our total sales around. Experience in the U.S. is that things are moving quite fast. They are -- this country is very agile. So you can have a quarter which is disappointing and 2 quarters after, it goes in the other direction. So I would be cautious on the answer. We just comment on what we see in Q3. We think Q4 will be in the same [ vein ]. But I would be cautious in extrapolating what it means for the following quarters because [ this is the ] nature of U.S. to be more reactive and we have a little bit more volatility than we can have in other parts of the world. Marie-José Donsion: So regarding cost saving, maybe more broadly, just to remind what we aim at doing. Basically, the objective is to deliver EUR 100 million cost saving. I would say, 2/3 fixed costs, 1/3 variable costs. And when we look at the fixed cost component, for sure, they incorporated bonuses. So this has been adjusted progressively as we progressed in the year based on the, let's say, the revised guidance we gave to you. So there is no last minute, I would say, effect that I expect in Q4. It has been progressively factored in the publications. So when you look at the evolution year-on-year, basically, you see a slight increase, which means right now, we are not fully offsetting inflation, but we are actually quite largely offsetting inflation. I consider inflation amounts to roughly EUR 60 million, EUR 70 million a year on fixed costs for Arkema. And clearly, we are limiting the effect of increased fixed costs right now at, I would say, only a total of EUR 50 million. So clearly, we are producing or delivering the effort to massively compensate this inflation effect. So I'm not sure why you think it's not visible, but it's definitely visible internally when we look at our metrics. So no particular effect of provisions, which when you look at the balance sheet, are rather stable over the period. I hope it answers your question. Thierry Le Hénaff: Maybe to add also to Marie-José, when we say that we remove inflation for next year, this means that we take into account the fact that, as Marie-José said, that a part of the savings this year are linked to bonuses. And we know that we will need to set that next year, but it's part of the game, and we take the challenge. Operator: The next question is from Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. First one is around the data center presentation that you made and specifically the refrigerant gases. You talked about Forane for chillers. What does that do to the market? Will that rapidly tighten the currently -- the current offering of HFCs and HFOs. And then secondly, with regards to the immersive heaters. Is that going to be a higher-margin product than your current emissive refrigerant gas business? So that's a couple of questions there. Secondly, on -- really on a kind of a higher level. Obviously, if I look at the bridges for all of this year, pricing is going down faster than raw materials. So is that a function of mix, i.e., you're losing higher-value products more so than you're retaining -- than you're keeping raw material gains? Or are you having to give back price to hold on to volume? Thierry Le Hénaff: Okay. Thank you, Tom, for this question. So very different in nature. So with regard to data center, first, as you could see, you have a presentation, Page 5. It's the first, I would say, exchange with you on data centers. It does not include -- for the sake of your knowledge, it does not include what we do in battery for data centers. This means what -- stationary batteries each in the battery platform. So this means that when we say more than EUR 100 million of sales in 2030, starting from a base, which is today, our first estimate is a bit more than EUR 10 million. So a significant increase. It does not include what we are doing in battery. So as you mentioned, chiller will be a key part on next generation of refrigerant. Today, the sales there are very, very limited, but we see strong potential for low GWP fluorogas in chiller. So it depends, as you know, on the technology of data centers, but we see there good growth with good margin, but it's only 1 point among 6 or 7. We see also growth for High Performance Polymers. It can be PVDF, it can be polyamide 11 for wire and cable. It can be also for [indiscernible] waterproofing. It can be even for direct-to-chip cooling, a kind of PVDF, et cetera. So we have plenty of application there. But as you mentioned, HFO is certainly one element. With regard to pricing, in fact, it's interesting to see more detail what is happening in pricing. In fact, we separate acrylic monomers and fluorogas, which obviously are affected significantly in pricing. The first one because of the cycle, the second one because of the evolution of generation. So it's not you don't compare apple-to-apple because of the quota mechanism. But clearly, Intermediates is big -- certainly has a big impact on pricing. Outside of Intermediates, it's far less. And outside of acrylic monomers, it's even far less for Adhesive Solutions and Advanced Materials. The net pricing is close to neutral, slightly negative, but close to neutral and the pricing itself is around minus 1%. Now with regard to raw material, what is happening is that, as you know, the supply chain, you have some stock, supply chain are long. And it takes time to work through for the raw material to work through the P&L. And so you have a little bit of a time lag between the pricing effect and the raw material. But we are not worried at all on, I would say, Adhesive Solutions and Advanced Materials. We have some examples where we are a bit more, especially in China under pressure in pricing there. But on the other side, we have positive pricing in some other areas, including our new business development with a high price. For us, a question of pricing, but since the start of the year is really concerning refrigerant for the old generation and acrylic monomers. Operator: The next question is from Matthew Yates, Bank of America. Matthew Yates: A couple of questions, if I may. I just like to follow up on Tom's one around the data center. As you said, it's the first time you've really mentioned this. So I'm just trying to educate myself a little bit. Where are you in the commerciality of some of these products? Are they technically developed? Are they qualified with customers? Are they already generating sales? Or is this more of an ambition and there's a lot of work to do over the next few years to actually get these products to market and generate some revenue? So just -- that's the first question. The second one, I'm not sure if it's for you, Thierry or Marie-José, but I wanted to ask about the dividend. And we know that traditionally, Arkema had sort of other strategic priorities, and the dividend payout ratio was relatively low. But compared to the amount of free cash you're now generating of EUR 300 million is effectively 100%. And you've got your leverage creeping up to 3x. So can you just give us an idea of how important and how sustainable that dividend is when you get to the end of the year, and you debate that with the Board? And whether has it got to the point where if we don't see a macro improvement paying out so much is going to infringe on your strategic flexibility and whether you want to do CapEx projects or M&A, whatever it is? So just like to hear your sort of philosophy around the dividend. Thierry Le Hénaff: Thank you, Matthew, for this important question, clearly. So with regard to data center, as I mentioned, so we have around a bit more than EUR 10 million of sales, which means that we have already a commerciality of this product and that most of the products we are talking about have already been developed now what takes time. And this is why we have a ramp-up until 2030 to be above EUR 100 million. And it does not, as I mentioned, take into account the PVDF for batteries in stationary, which go to data center, which is not insignificant, which is already fully commercial. But on what is outside, I would say we have already a certain maturity of the technology themselves. So it's more a matter of developing application with some qualification, et cetera. So it will take the time it takes, knowing that in data center, the technology are really continuing to evolve, as you may know, significantly. So even for -- you would have already mature sales in certain application, anyway, you need to work on the new application, the new technology and to adapt your product and your new business development to this. So to answer your question, we are in the middle of your question, I would say, some commerciality, mature technologies, but application are not fully mature. So we need to ramp up, and it will take a certain number of years. But I think it was mature enough to share this data center call with you, and we'll have the opportunity to come back in far more detail next year on this topic of data center, which is, as I mentioned, joining the electronics -- advanced electronics platform. With regard to the dividend to a certain extent, the answer is in the question. The good thing first is that we are in absolutely trough conditions in specialty chemicals and chemicals overall. And despite of that, we cover -- with the free cash flow, we cover the dividend. So I think it's good news. You know that the dividend return to shareholder is a very important policy for Arkema. So we will -- the idea is to make it sustainable as it has been in the past. You have not a year which looking like the other one. And to make it sustainable beyond what I've just said, you could see that next year, our CapEx will be at EUR 600 million versus EUR 650 million this year. So it's a difference. Our project will also ramp up. So no, I think we stay in the same -- with the same idea of [ at least ] stable dividend. Obviously, it has to be decided by the Board. So we will have this discussion normally before the Feb presentation of full year results, but this is the philosophy of Arkema. Operator: The next question is from Georgina Fraser, Goldman Sachs. Georgina Iwamoto: I've got 2. First question is on HPP. We've seen a decent amount of CapEx and also the acquisition of PIAM going to this division. And I just wanted to hear from you, how is the performance of this division been versus your expectations? And should we think about the fact that we're maybe at low utilization rates at the moment? I just want to try and gauge what kind of upside potential there is here and maybe why the performance has been a bit lackluster. And then my second question, a little bit of a follow-up on the dividend or cash flow outlook question. EUR 600 million in CapEx next year is still quite high. Could you give us a sense of what your maintenance CapEx is and how much flexibility you have there if it was needed? Thierry Le Hénaff: Yes. Okay. Thank you, Georgina. So on the first one -- first of all, we -- if you look at HPP, we have 4 lines, which are very interesting. We have PVDF, specialty fluorogases. We have polyamide 11, and we have PIAM. I would say all these line are growing line on which we have, as you mentioned, spent a high amount of money for development, for growth, for CapEx and for acquisition. Clearly, this year is a real challenging year for all chemicals company. So HPP is not immune. As you could see this part of the performance of Advanced Materials, HPP has resisted [ quietly ] compared to what we can see outside, but below our expectation because of the macro. So the projects themselves are ramping up okay, but they are not immune to the macro. So we -- at the beginning of the year, we were expecting more from HPP. The good thing is that we think that all the strategic moves that we have done with HPP were the right ones that the line is certainly one of the most resilient inside Arkema. And the prospect of growth -- even if they have been delayed to a certain extent because of the macro, the prospect of growth remain quite significant. With regard to utilization rate, it's clearly that in consistency with what we see from the macro, they are more on the low side. And don't forget that we are also optimizing our inventory as everybody is doing on the supply chain from customer down to our suppliers. And that -- because of that, we, let's say, also adapt the utilization rate of our site. But we consider that HPP will continue to remain a bright spot of Arkema in the coming periods. With regard to CapEx, I don't share with you the fact that CapEx is still quite high at EUR 600 million. And to share with you because we have discussion with all of you and including investor, some are telling us the contrary that maybe is a bit too low. So I think for us, we think it's reasonable in this kind of environment to take down the CapEx to something which remain relatively okay not to jeopardize our mid- and long-term growth. It would be a full mistake, and some companies have done that in the past in chemicals and now they regret it. So we try to stay consistent over years. And -- but on the other side, we were in '24 at EUR 750 million, then we are at EUR 650 million this year, next year, EUR 600 million. I think a good adjustment of the CapEx in order to take account the evolution of the macro. With regard to which part is maintenance, modernization, legislation, CapEx, I would say that we have around EUR 400 million -- when we are at EUR 650 million, we [indiscernible]. So this means that it's EUR 400 million, yes, around EUR 400 million. And the rest are really productivity and development CapEx, but which are more smaller scale compared to what we have been doing in the past 3 years with the major projects. Operator: The next question is from Jean-Luc Romain, CIC Market Solutions. Jean-Luc Romain: [Technical Difficulty] Operator: Romain, could you please get closer to the microphone, please? Jean-Luc Romain: I'm [indiscernible] microphone. Thierry Le Hénaff: We hear a second voice behind you. Okay. So maybe we can take another one and then come back to you when we fix your topic. Operator: Okay. So the next question is Chetan Udeshi, JPMorgan. Chetan Udeshi: I just had a bit more philosophical question. It seems from all your comments that your view is this is much more a cyclical phenomenon in the sector, and you don't want to necessarily take any radical steps for that reason. Is that understanding correct? Because when I look at your numbers, and it's not just Arkema, right, I mean, to be fair, it's across the whole sector. Everybody is suffering from same issue. And a lot of time, at least my personal opinion is it's blamed on demand weakness, which may or may not be the only reason. So I'm just curious, from your perspective, you don't see any structural changes in the industry that would warrant more structural changes in how Arkema is setup, I mean in terms of whether you need to have all the businesses that you have within Arkema, maybe it's better to monetize some of them, given the multiple. Thierry Le Hénaff: So thank you for the question. It's a good question at least on the [ paper ] is that from what we see today, which part is, let's say, short-term cyclical and which part could be more structural. I would say we have been in the business, as you know, since 20 years, I'm frankly speaking. And you may have forgotten what we have seen in 20 years are significant shifts of the world. So you have at the same time -- and it can be positive and negative. When you see structural change, the negative is always one-to-one with a positive. So you have opportunities and challenges at the same time. It's true today. It was true in the past 20 years. So this means that what we see today is a combination of -- and this is the majority of what we see by far of some macro-related cyclical issue, and it will come back. This is -- we are absolutely convinced of that. And then you have some more structural change. You have more, let's say, protectionism, you have more regionalization, you have more aggressiveness from Chinese competitors. But by the way, we also take advantage of it because we are strong in China, and we have enjoyed quite a good year in China. Yes, this is a world of today. You need to be agile to adapt permanently. Where I don't agree with you is this question of radical step or whatever. I think if you look at the, for example, portfolio of Arkema, 60% of the business, which was at the origin has been sold, we changed completely, we made the acquisition. I think it's part of our business life, and we continue to take the steps that makes sense to do. And so we are thinking all the time but not necessarily sharing what we are thinking with all of you, obviously. But no, no, I think we have a good level of reaction. And we try really to manage the 2 horizons at the same time. One is really short term, working on the cost, working on the cash. And we think we are doing quite a great job, thanks to the team on that. At the same time, having in mind that the frame in which we are operating is shifting a little bit, we are moving in order to adapt to that. This is what we have sold in the recent years with PMMA and we bought Ashland and PIAM. And even if these 2 are not in terms of ramp-up exactly where we would have thought they would be, I can tell you they are far more resilient than many business in chemicals. So it goes in the right direction. It takes time. But I think we are doing -- we are really on the right topics, and we are doing what we need to do, and it does not prevent us from thinking all the time if another evolution could be meaningful or not. So no, no, we are -- we recognize that. And it's good for us. I've always said that Arkema would not be the Arkema of today if the world has been easy and lighter, then you would have had the same players as they were 20 years ago. I think the fact that there is a disruption, maybe we suffer short term. But we think that in the long run, it gives opportunity to company like us, to companies that are reactive, agile, ready to question themselves to take new opportunities and to make a difference with the other guys. Operator: The next question is from Emmanuel Matot, ODDO BHF. Emmanuel Matot: I have 3 questions. First, do you think we are close to the bottom of the cycle now that the issue of customs tariff has been settled in the U.S.? What your main customers are telling you in that country? It seems you are very cautious about the scenario of recovery next year, considering your decision to reinforce your efforts on costs. Second, can we have an update on PIAM? How is it delivering in the current context? And my last question, your inventory levels at the end of September are stable in value compared to the end of June at EUR 1.3 billion. Does this mean that it will be very difficult to reduce stock in the future, demand does not recover? Thierry Le Hénaff: Okay. Clearly, as we mentioned, we are in a low cycle. So where are we exactly? I think everybody has to be modest on that. All the analysts and all the players in the industry, we have all been wrong. My feeling is that we are really at a low point -- and it has been also a long period of decline quarter after quarter. So I don't know if we are at the bottom, but we get close to the bottom. And what we cannot say is when the recovery will start. And this is why -- and I think we gave the message, we want to be ready for whatever scenario. This is why at the same time, we really optimize what is linked to cost, cash, et cetera, but not jeopardizing the ability to rebound when the cycle is coming back. And your experience has been that each time the light has come back, we are one of the first one to take advantage of the recovery. So we want to stay with this mindset, while recognizing the challenge of the current macro and adapting what we have to do, but without losing the, I would say, the focus on the long-term development of Arkema. It's a fine balance, but I think this is what we try to do so far. On [indiscernible], as you know, it depends really on the end market, particularly advanced electronic of PIAM. The vision per quarter can change because it depends on the stock policy of the customer, et cetera. But globally, we have done a good year, a good progression for PIAM with a margin around, again, 30% in Q3, which means the resilience of this -- of PIAM is far above any product line in specialty chemicals. They were rather stable in Q3 after a very strong growth in Q2. I don't want to talk '26 for the time being. But with regard to PIAM, I can make just a short comment is that this seems to be quite positive on '26 and from their discussion with the customers. So I would say PIAM certainly lagged from their initial business plan, but quite resilient, growing this year, rather positive for next year. On your last question, I think the difficulty -- first, we are doing a good job on our stock. You can see that in the cash generation. The difficulty when you are in the middle of the year, especially at the end of the Q3 is that you are still at a point where the sales seasonality is rather stable. So you cannot absorb, take the risk of losing sales. And -- but we know that we have opportunities to reduce further our stock up until the end of the year, and we will do it, and we know how to do it. Maybe Marie-José, you want to complete? Marie-José Donsion: So in fact, Emmanuel, when you look at the ratio of inventory on sales, frankly, we are very much aligned if you compare with last year. Last year, end of the year, we finished with EUR 1.350 billion, which represented 14.7% of our sales in terms of level of stock. And this year, we are at EUR [ 1.309 ] billion, as you mentioned, which represents 15% of our 12-month sales. So ultimately, because it's still not year-end, there is a very limited, let's say, excess of stock in the chain compared to last year year-end level. So definitely, we are adjusting permanently to the forecast, and there is an additional expected reduction for year-end on this metric in particular. Operator: The next question is from James Hooper, Bernstein. James Hooper: I have 2, please. The first is about the cost savings and delivery. How does the increase fit into the ambition that you had at the 2023 CMD to deliver EUR 250 million savings over the 5 years? So you've added the incremental EUR 50 million this year. Is this -- is it the opportunity has become EUR 50 million bigger? Or is this more just pulling forward savings to kind of take advantage of the current situation? And the second question is about the kind of Specialty Materials projects. So the -- initially, when you guide 2025, you had EUR 100 million. They've been downgraded to EUR 60 million. What kind of growth potential contribution are you expecting if we assume a similar macro environment in the coming years? And then kind of put another way, if these projects have contributed EUR 60 million more and EBITDA is down EUR 250 million year-on-year, then how do -- what actions are you taking for the rest of the business? Or can these businesses grow fast enough to offset weakness elsewhere despite your cost savings? Thierry Le Hénaff: Okay. With regard to additional -- to cost savings, so yes, clearly, what we are doing is not just to get quicker on the cost savings. It's to have cost savings. This means that if we say, for example, this year, we increased by [ EUR 50 million ]. This means this [ EUR 50 million ], you will find them at the end of the 5 years period. So this means that we are at EUR 300 million. If next year to deliver the offset of inflation, so we will be again significantly above the [ EUR 50 million ]. This above will be also on top of this EUR 300 million we have just talked about, et cetera. There is no way we said EUR 205 million to be, at the end, far more than EUR 250 million. I think it answer your first question. On the project contribution, the growth potential for us is intact. So the question is more -- it depends on the scenario of the macro. Well, it depends if the macro is coming back already in the course of next year or later or whatever. What is clear is that we believe that the number we have shared with you are still the same. The question is more the time line. This means that if the macro is coming back sooner than later, I think we can certainly still target EUR 400 million in '28. If it take more time, it will be difficult to deliver the EUR 400 million. But I think the best will be to have an update in the course of next year on all this project. What is very important for me is that this project is from a strategic standpoint. And it comes to a certain extent, it's consistent with the answer I made to the question before, the strategy that is supporting this project is still completely valid. Even if the world is changing all the time, I think this project are still completely relevant from what we see of the evolution of the world, and this is the most important thing. Now we can debate on the timing, if we can still maintain what we said for the achievement of the EUR 400 million for '28 or if the macro remains similar, as you mentioned, then by nature, there will be some delay. But at the end, the contribution will still remain very significant. And the endpoint would be the same, clearly. Now, as we said, I don't know if it clears really your question on additional action on the project. You got the answer or no? The work of Arkema is not limited to this project. There are plenty of new business, which are absolutely not linked to this project. And clearly, looking at, for example, when we discuss data center, which was not in our -- so much in our vision up until recently is something that we will develop, will be not linked to this major project [ as something ] else. So we permanently to complete our new business development prospect based on the evolution of the world. Operator: The next question is from Jean-Luc Romain, CIC Market Solutions. Jean-Luc Romain: [indiscernible] better now? Thierry Le Hénaff: You have to talk a little bit louder, I don't know because it's very low. Jean-Luc Romain: My question relates to the 5 outlets, which have 20% growth. When you first talked about those 5 sectors, it was representing 52% of your sales and your target is 25%. Where are you now in terms of the weight of those 5 outlets, which are growing faster than the rest of your business? Thierry Le Hénaff: Okay. So if I understood well the question, this 20% growth belongs to the 5 market, which represents 15% of Arkema, but they are not -- we don't make 20% on the full 15%. It's an extract -- the market we are mentioning at the beginning, battery, sport, et cetera. It's a part of that 5 market, of the 5 platform. This means this 20% applying more to around 7% of the sales. On the rest, the other 8%, we are far more stable. Does it answer your question? We take the last question. Operator: Gentlemen, there are no more questions registered at this time. Thierry Le Hénaff: Okay. So if no other question, I would like to thank you very much for taking the time to hear us, and I wish you a good day. Don't hesitate to come back to Beatrice and to James if you have any further question. Thank you very much again. Operator: Ladies and gentlemen, this concludes this conference call. Arkema, thanks you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to ARC Resources Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Taryn Bolder. Please go ahead. Taryn Bolder: Thank you, operator. Good morning, everyone, and thank you for joining us for our third quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer; Kris Bibby, Chief Financial Officer; Armin Jahangiri, Chief Operating Officer; Ryan Berrett, Senior Vice President, Marketing. Before I turn it over to Terry and Kris to take you through our third quarter results, I'll remind everyone that this conference call includes forward-looking statements and non-GAAP measures with the associated risks outlined in the earnings release and our MD&A. All dollar amounts discussed today are in Canadian dollars unless otherwise stated. Finally, the press release, financial statements and MD&A are available on our website as well as SEDAR. Following our prepared remarks, we'll open the line to questions. With that, I'll turn it over to our President and CEO, Terry Anderson. Terry, please go ahead. Terry Anderson: Good morning, everyone, and thank you for joining us today. This morning, we'll discuss our third quarter results and the 2026 budget. After that, I'll hand it over to Kris to review our financial results and provide a little more color on our plans for next year. Beginning with the quarter, overall, we executed a safe, efficient capital program and remain focused on profitability over BOEs, delivering solid operational and financial results. Third quarter production averaged approximately 360,000 BOE per day, which represents a 10% increase year-over-year and a 13% increase on a per share basis. This included a record high 114,000 barrels per day of condensate and oil, driven primarily from Kakwa and Attachie. In the quarter, we generated $283 million of free cash flow and returned it all to shareholders. This is a result of our low-cost structure and a balanced commodity mix that includes a high proportion of condensate. At Kakwa, which is our largest condensate asset, production averaged 206,000 BOE per day. This was above expectations due to better-than-anticipated performance from the assets we acquired in July. With the integration complete, we have now identified and advanced optimization opportunities to further enhance profitability on those assets and the overall property. Moving on to Attachie. Third quarter production averaged approximately 27,000 BOE per day, which was below our expectations. However, condensate production was 13,000 barrels per day, which is a relatively strong number that drives the returns on this asset. Our recent focus has been on optimizing our well design based on what we have learned to date, to improve predictability and performance. We are seeing evidence of our optimization initiatives on the most recent pads that were successfully drilled and completed as planned and will be on production in Q4. For 2026, we expect condensate production to increase to 15,000 barrels per day, which is in line with our original plan and total production between 30,000 and 35,000 BOE per day. At Sunrise, our low-cost natural gas asset, we curtailed approximately 360 million cubic feet per day or 60,000 BOE per day during the quarter, when Western Canadian natural gas prices were weak. This allowed us to preserve resource and defer capital. In the backdrop of strengthening fundamentals and higher natural gas prices, we resumed production in late October. A core part of our natural gas business is our transportation portfolio. Having long-term, low-cost access to key demand markets in the U.S. has been instrumental in allowing us to maintain high natural gas margins when AECO prices are low. During the third quarter, we realized a natural gas price of $2.75 per Mcf compared to the AECO monthly index of $1 per Mcf. As an extension to our natural gas marketing, our long-term LNG agreements will take effect in late 2026 or 2027. ARC will deliver approximately 140 million cubic feet per day of natural gas to Cheniere's Corpus Christi Stage 3 project and in return receive JKM pricing less about $5.50 per Mcf. Our strategy is to diversify our natural gas sales over the long term by accessing global natural gas prices. Moving on to next year's budget and our strategic priorities. The 2026 budget will deliver higher production, lower capital and higher free cash flow compared to 2025 and aligns with our long-term strategy to grow free funds flow per share. Our budget of $1.8 billion to $1.9 billion will generate annual production between 405,000 and 420,000 BOE per day and condensate production of approximately 110,000 barrels per day. Operationally, the focus will be, first, to continue to deliver consistent results and capture cost-reduction opportunities to achieve a best-in-class cost structure; and second, to apply the learnings we've gained from our first full year of production at Attachie to improve capital efficiencies and profitability. These results will inform the optimal development plan to maximize profits for Attachie Phase 2. At the current forward prices, ARC expects to generate approximately $1.5 billion in free cash flow. With this balance sheet strong, we once again intend to return essentially all free cash flow to shareholders. As evidence of this, we are pleased to announce an 11% increase in our base dividend this quarter, alongside a significant step-up in share repurchases. We continue to believe that the combination of growing base dividend and share buybacks is the optimal way to return capital to shareholders. With that, I'll hand it over to Kris. Kristen Bibby: Thanks, Terry. Good morning, everyone. First, I'll discuss our quarterly results, followed by an overview of our 2026 budget and resulting guidance. Quarter itself was ahead of expectations. Relative to analyst estimates, production was in line, while funds from operations was 10% above and free cash flow of $283 million was 80% above expectations. As mentioned, we returned all of that free cash flow to shareholders during the quarter. We were particularly active and opportunistic on our share buyback, investing $170 million to purchase 6.5 million shares. Since we introduced the NCIB in 2021, we've repurchased and retired a total of 155 million common shares, reducing the share count by roughly 21%. Moving on to production. ARC delivered average production of 360,000 BOEs per day, which represents a 10% increase year-over-year, 13% increase on a per share basis. Record condensate and oil production of 114,000 barrels per day represents a 30% increase from the prior year, driven by Attachie and the Kakwa acquisition that closed in July. Production from our newly acquired capital assets delivered at the higher end of our internal expectations, averaging around 40,000 BOEs per day in the quarter, which included roughly 13,000 barrels a day of condensate. We invested approximately $500 million this quarter drilling 50 wells and conceding 36. Activity focused primarily in our condensate-rich assets at Kakwa, Greater Dawson and Attachie. With the closing of the Kakwa acquisition from Strathcona in July, we ended the quarter with net debt of approximately $3.1 billion, implying a debt to cash flow ratio of approximately 1x. We view this as an appropriate amount of leverage for our business, given our low-cost structure and deep drilling inventory. The 2026 budget, we plan to invest $1.8 billion to $1.9 billion, which represents approximately $100 million decrease from 2025. Capital program is expected to generate 11% production growth with average production between 405,000 and 420,000 BOEs per day, of which 40% is liquids. In 2026, year-over-year growth will be driven by our 2 biggest condensate assets: First, at Attachie, where we expect stronger organic volumes; and second, at Kakwa, where we will have a full year with the recently acquired assets. We plan to allocate 80% of the capital towards well-related activities. The remainder is earmarked for facilities and maintenance, a nominal amount towards Phase 2 at Attachie and certain margin expansion initiatives. As one example, we are investing about $40 million towards water infrastructure and disposal at Kakwa. This investment will pay out in less than a year by lowering operating costs, while improving safety by reducing our reliance on trucking. As mentioned at current strip pricing, we will generate approximately $1.5 billion of free cash flow or roughly 10% of our market cap. For the fourth consecutive year, essentially all free cash flow will be returned to shareholders through our growing base dividend and continued share repurchases. With that, I'll pass it back to Terry for closing remarks. Terry Anderson: Thanks, Kris. In 2026, ARC will celebrate 30 years of being a proud responsible Canadian energy producer. We created a budget that supports our long-term strategy of investing in our assets to grow free cash flow while returning a meaningful amount of capital to our shareholders, providing an attractive and sustainable return. Our outlook is strong. We're fortunate to have amassed long-duration top-tier Montney assets. We've built a large network of company-owned infrastructure, and we have the best people to execute on our plan to deliver sustainable value to our shareholders. With that, we can open the line to questions. Operator: [Operator Instructions] With that, our first question comes from the line of Michael Harvey with RBC Capital Markets. Michael Harvey: So just a couple of questions. I guess the first one, maybe just walk us through some of the key learnings you've taken from Attachie Phase 1 and kind of how those would be applied to Phase 2? What changes would be applied just given the passage of time and kind of how would that affect cost, productivity, et cetera? And then the second one is just a little broader. How do you compare the 2 options, the first being going ahead with Phase 2, the second being just deferring for a longer period and just kind of buying back $1 billion or so in stock per year and staying flat. A lots of moving parts. I suspect that's the hot topic in the boardroom. I'd just love to get a bit of color on how you folks would kind of think through that complex topic. Terry Anderson: Michael, it's Terry. Why don't I start with your second question. So we've always stated that we are focused on improving our per share metrics. And so obviously, and Armin will touch on some of the learnings here for Phase 2 because we want to make sure that we are going to be the most capital efficient when we move into that second phase. So we're focused on the profitability side. But for us, where our shares are trading today, it's a good use of capital to be buying back our shares. And there's going to be times where it makes more sense to buy back our shares, and there's going to be times where we're going to invest more. And that's exactly what we had laid out in our long-term plan. When we're not investing in our assets, we're going to be buying back the shares. So it all ends up at the same spot of improving our per share metrics and in particular, the free cash flow per share. Armin Jahangiri: Yes. Michael, on your first question, most of our focus in terms of learnings are going to be on subsurface optimization of our well and frac design. Some of the activities already started, as Terry mentioned in his remarks that we are going to see the results of them in the next few months. That is going to really help us better understand the capital efficiency. What we are trying to do is to find that balance between recovery factor and capital efficiency and make sure not only Phase 2, but also the remainder of Phase 1 development activity set up for success. So in terms of cost, obviously, with improvement in capital efficiency, we have to look at exactly what the cost numbers are going to be. But what we are trying to achieve, as Terry mentioned, is profitability. Michael Harvey: Got you. And just to close it out, do you have an updated breakeven WTI number of where you think the Phase 2 project would give you your specified hurdle rate? Has that kind of changed and maybe just so folks can come with benchmark where it looks good and where it looks kind of less good? I'm not sure if you've updated that number or not. Kristen Bibby: Mike, it's Kris here. I mean I'm not sure we've given a specific number previously, but based on what Armin and Terry are saying like we don't see the future go-forward cost changing. So I think we've previously talked about in the 60s range, we'd be comfortable driving ahead. The reality is oil macro backdrop right now is quite weak. We do want to take the time, get the learnings in-house. And in the meantime, buy back the shares, but the reality is, even absent the learnings, there's no growth capital really being deployed into our sector right now. So I'm not sure now would be the right time to really be deploying a lot of growth capital. So we'll take that into account. I mean, if it's well above 60, obviously, we'd be very comfortable. If it's below 60, it's still probably economic. I'm just -- it's going to depend on where the shares are trading at the time, trying to make sure we are achieving the best rate of return on the capital we are deploying. Operator: And the next question comes from Kale Akamine with Bank of America. Kaleinoheaokealaula Akamine: I'm going to start with Attachie on the well cost. So total spend in full year '26 is [ $275 million ], you're bringing on 14 wells. The simple A divided by B math points to pretty costly wells but this is not a normal year. Can you kind of talk to us about the path towards a maintenance capital number? And remind us what that is? The number that I have in my head is about $150 million. Armin Jahangiri: Yes. So some of the numbers you see in terms of the capital for next year includes additional capital beyond drilling and completions activity. We have some Phase 2 pre-spend included in that number in addition to that seismic and some water-related infrastructure. So the per well cost is not exactly a straight calculation of the numbers, as you mentioned. As far as your overall capital cost estimate for sustaining is concerned, your numbers are relatively accurate. But remember that this is the second year, so we still are dealing with higher declines in the assets. So as we get into the subsequent years, we have to see those numbers are going to come down. Kaleinoheaokealaula Akamine: I appreciate that. My second question relates to Phase number 2. Now in '26, you're doing work to finalize the development pattern before taking that FID. Can you kind of talk about what a success case will look like, how are you scoring things like per well productivity or maybe that's measured on a per pad level? Are you pushing productivity to the edge with your completion intensity? Is there kind of an element in there of defining what the arrow extent is to which these best practices are applicable? Just trying to understand what the targets are that will allow you to move forward. Armin Jahangiri: We definitely see an opportunity to improve the profitability and capital efficiency based on some of the early production results that we have seen from Phase 1. So the objective here, as I said earlier, is that we want to make sure we find that right balance between recovering resource and making sure that we can recover it at a decent capital efficiency. So that's going to really inform our plan moving into Phase 2. Operator: [Operator Instructions] Your next question comes from the line of Jamie Kubik with CIBC. James Kubik: Just wanted to ask a little bit more on Attachie. Can you talk a bit more on the underperformance seen in 2025? What led to the underperformance versus your second half guidance of 35,000 to 40,000 BOEs a day that was issued with Q2 results? And I guess how much services have you baked into the 2026 guide for Attachie, just things like that would be great to understand. Terry Anderson: Jamie, it's Terry here. So the change in forecast is a result of the lower-than-expected production from one pad that came on stream in July here, which has impacted Q3 and Q4 production. And the pad at the 71 is just showing higher water production and it's taking a longer time to clean up. Some wells take longer, some to clean up on the water, some are quicker. We still expect a stabilized water cut around that 50% to 60%, which is very similar to Kakwa and our wells are coming down to this. This one -- this well is just that -- closer to that 70%, 75%. So we just need a little more time for it to clean up here. Kristen Bibby: And Jamie, I can handle the guidance side. What we focused on is we want to make sure we're setting out realistic guidance that we know we have a good shot at achieving, hence, a little bit wider range, both at the corporate and then specifically at Attachie, where if we're at the high end of the guidance, we're right where we should be. And if we're at the lower end, then we're going to have to do some explaining for that asset. But corporately at [ 405 to 420 ]. That should be rate where everyone is kind of expecting us to be. So pretty happy with how the budget came together and the overall guidance levels. Operator: [Operator Instructions] And I'm showing no further questions at this time. I would like to turn it back to Taryn Bolder for closing remarks. Taryn Bolder: Thanks, everyone. Have a great day. Operator: Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good morning. My name is Gigi, and I'll be your conference operator today. I would like to welcome everyone to The Chemours Company Third Quarter 2025 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I would now like to hand the conference call over to Brandon Ontjes, Vice President, Head of Strategy and Investor Relations for Chemours. You may begin your conference. Brandon Ontjes: Good morning, everybody. Welcome to the Chemours Company's Third Quarter 2025 Earnings Conference Call. I'm joined today by Denise Dignam, Chemours' President and Chief Executive Officer; and our Senior Vice President and Chief Financial Officer, Shane Hostetter. Before we start, I would like to remind you that comments made on this call as well as in the supplemental information provided on our website contain forward-looking statements that involve risks and uncertainties as described in Chemours' SEC filings. These forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events that may not be realized. Actual results may differ, and Chemours undertakes no duty to update any forward-looking statements as a result of future developments or new information. During the course of this call, we'll refer to certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non-GAAP terms and adjustments is included in our press release issued yesterday evening. Additionally, we posted our earnings presentation and prepared financial remarks on our website yesterday evening as well. With that, I will turn the call over to Denise Dignam. Denise Dignam: Thank you, Brandon, and thank you, everyone, for joining us. During today's call, I will begin by discussing highlights from our third quarter performance and will then turn it over to Shane, who will provide details around our outlook. Finally, I will provide updates on meaningful progress on our Pathway to Thrive strategy, along with strategic developments before taking your questions. For our third quarter performance, we exceeded our adjusted EBITDA expectations despite the persisting macroeconomic weakness that affected some economically sensitive sectors of our business. Our stronger earnings were driven through diligent commercial execution in stationary aftermarket sales of Opteon Refrigerants under the backdrop of the 2025 U.S. AIM Act stationary equipment transition, further supported by lower corporate costs. While we had highlighted some anticipated operational disruptions heading into the third quarter, these issues are now resolved, aided by our manufacturing center of excellence, enabling quicker response and enhanced issue mitigation. Now turning to each segment's performance in the third quarter. Starting with TSS. Our TSS business reported another quarter with results exceeding earning projections as Opteon sales maintained double-digit growth of 80% compared to the prior year quarter. This marks a third quarter record for Opteon sales. The increase in Opteon was primarily due to higher pricing and volume associated with sales into the stationary aftermarket in connection with the U.S. AIM Act's residential and commercial HVAC equipment transition this year. Throughout this transition, the TSS team displayed its focus on commercial excellence, capturing sales opportunities while making efficient use of our quota allowances. As a result of the achievement, Opteon Refrigerants now account for 80% of total refrigerant sales, an increase from 58% in the previous year. TSS' excellent commercial discipline drove earnings performance and a 35% adjusted EBITDA margin, underscoring the strength of our differentiated portfolio and ability to capture profitable growth tied to the regulatory transition. This earnings performance also reflected some higher-than-anticipated onetime costs associated with continued investments to commercialize our liquid cooling product. The latest notable achievement in this journey being the recent successful technical qualification of our two-phase immersion cooling fluid by Samsung Electronics. Altogether, this was an industry-leading performance from TSS, outpacing our third quarter adjusted EBITDA expectations and setting a solid foundation as we head into the fourth quarter and next year. Turning to APM. APM also drove solid top line performance for the third quarter, which ensured earnings performance was in line with our expectations. Washington Works was back up and safely running by mid-August following the external utility disruption due to the diligent response efforts from our site team. In addition to driving expected earnings results, the APM business continued to make notable progress to execute upon our portfolio management efforts, completing the shutdown of the SPS Capstone product line during the third quarter. Adding to this strategic execution, the APM business also announced an agreement with SRF Limited in India to support needs for essential applications. This partnership positions our company to benefit from a more flexible and robust operational footprint while providing optionality to better serve our dynamic customer base. Moving to TT. In the third quarter, TT delivered overall results below our expectations, primarily due to sustained macro weakness across the global TiO2 market. In our key Western markets, we experienced seasonal trends compounded by some near-term destocking that was partially offset by some sequential pricing strength. In these Western markets, we view this destocking activity as short term as customers look to preserve cash as they navigate uncertainties in exiting the year. Alternatively, in our non-Western markets, sequential pricing weakness was offset by sequential volume strength. Despite challenges in the broader market, our team demonstrated resilience while effectively addressing anticipated disruptions. Through our efforts, we are now well positioned to minimize future disruptions and respond proactively to external factors that may arise. While the broader market has yet to indicate improvements, we remain steadfast in our pursuit of a value-based commercial strategy. This approach is aligned with the higher product quality that we provide to our customers and is reflective of the competitive advantages that we provide in reliability, customer service and sustainability. In line with this approach, in the fourth quarter, we recently communicated a global pricing increase, which is reflective of our value in the market. As we look at global market capacity, during the third quarter, we continued to see capacity rationalization of Chinese production and other Western producers as the market continues to realign to a weaker demand environment. While it is clear that exports of Chinese product continue, albeit at lower rates than last year, much of this inventory continues to be exported to Southeast Asia, the Middle East and Africa and parts of Latin America. In light of this, we are seeing the recent fair trade actions in Europe holding strong, but with additional supply in the market due to excess inventory from a Western producer's inability to continue operations in the third quarter. Also, we were pleased to see finalized fair trade actions taken in Brazil and the Kingdom of Saudi Arabia. However, note that it will take some months for the existing oversupply of titanium dioxide inventory to work its way through the system in these markets. We believe these changes in the global supply environment provide longer-term opportunities in Western markets, but they are more muted in the near term due to the continued macro weakness and additional inventory in the system. I will provide additional perspectives on our strategic progress and our path for TT after Shane shares an update on our guidance for the period ahead. At the corporate level, we continue to make progress against our underlying cost structure, while we did incur some slightly more favorable costs, partially due to the timing of certain legal spending, a portion of these lower costs are due to the continued cost efforts that the company has executed over time. With that, I'll turn it over to Shane to walk through our outlook. Shane Hostetter: Thank you, Denise, and good morning, everyone. As shared in our earnings materials as well as in the supplemental prepared financial remarks available on our investor website, I would like to now discuss our expectations for the fourth quarter and as we look ahead. Beginning with TSS. For the fourth quarter, we expect net sales to decrease sequentially in the high teens to low 20s percentage range, driven by traditional seasonality with continued double-digit Opteon growth. This Opteon performance is anticipated to more than offset declines in our Freon business year-over-year. TSS' adjusted EBITDA is expected to decrease sequentially, ranging between $125 million and $140 million, also driven by seasonality. As we make progress on our next-generation refrigerants and liquid cooling solutions, we anticipate continued investments to support our commercialization and product sampling efforts. Similar to the $22 million in costs we saw this quarter, reflective of some onetime production-related costs, we expect another $8 million in the fourth quarter, bringing our full year estimate of product development costs to approximately $40 million. As we look ahead into next year, we anticipate that we will continue to achieve double-digit year-over-year Opteon growth into the early part of the year, as OEMs continue to transition to R-454B in the U.S. We also expect modest benefits from our cost-out efforts driven by our expanded capacity through our recent Corpus expansion, which will continue to expand margins over time. Also, we anticipate product development costs to be closer to $20 million next year, consistent with earlier expectations for annual spend. Overall, we anticipate continued sales growth for TSS paired with improved earnings as we head into next year. For our APM business, we expect net sales to decrease in the low single-digit percentage range sequentially due to market weakness in the global industrial end markets where we have more sensitivity to macroeconomic conditions. Adjusted EBITDA is expected to approximate $30 million to $40 million in the fourth quarter, driven by a return to normal operations at our Washington Works site, paired with continued progress on cost reduction efforts. We believe that APM's fourth quarter EBITDA will reflect our continued focus on operational excellence to drive increased reliability, paired with continued cost-out efforts and should be at a more normalized level of earnings, which we expect will continue in future quarters. For our TT business, we expect sequential net sales to decrease in the high single digits to low teens percentage range, driven by seasonality, regional sales mix as well as near-term destocking, which we see continuing until the end of the year. Adjusted EBITDA is expected to decrease sequentially, ranging between $15 million and $20 million. During the third quarter, the company decided to lower its production volumes concurrently with what we are seeing in TT's value chain, while near-term demand expectations remain muted. This decrease in production will result in a $25 million cost impact to TT's adjusted EBITDA in the fourth quarter, offsetting sequential benefits from improved operations and cost reductions, but will improve TT's cash generation. As Denise shared earlier, we anticipate that this destocking will be short term as downstream customers look to conserve cash moving into the end of the year. Looking to 2026, we anticipate some restocking efforts in the first quarter. In connection with this first quarter restocking, we expect improved earnings as we head into next year, supported by improved operational performance. However, we do anticipate muted market conditions to persist in the quarters ahead. Considering these weaker conditions, we are placing a greater emphasis on promoting improved cash generation, and we will seek to closely align our production with anticipated demand. To this, when the broader market demand profile improves, we will align production, which will drive improved cost absorption across our circuit. With our resolve unchanged, we continue to make good progress on costs. However, recognize that the full benefit of these reductions may be masked by the impacts of our lower circuit operations. On a consolidated basis, we anticipate our fourth quarter net sales to decrease 10% to 15% sequentially, with consolidated adjusted EBITDA expected to range between $130 million to $160 million. Also, we anticipate corporate expenses to range between $40 million and $45 million, considering the timing of certain accrued expenses. Our capital expenditures for the fourth quarter are expected to be in the range of $50 million, with free cash flow conversion expected to be between 50% and 70%. Based on these metrics, we would anticipate that full year 2025 sales would range between $5.7 billion and $5.8 billion, with adjusted EBITDA to range between $745 million and $770 million, with CapEx in the range of $220 million for the year. Looking forward to 2026, at a consolidated level, we anticipate overall sales and earnings growth with improved cash flow performance, supported by continued progress on our cost-out efforts. We remain committed to improving our enterprise's financial position to support our Pathway to Thrive strategy. Beyond the recent recapitalization of our U.S. term loan, which extended the maturity of the facility from 2028 to 2032, we continue to review our businesses' portfolio as well as looking at other avenues to create value, similar to critical minerals, which Denise will discuss in a minute. We are also taking a disciplined approach to the review of our nonoperating real estate footprint to determine how it can be optimized without impacting existing operations. Efforts like these aim to ensure that our resources are being used effectively and efficiently to further our strategic goals and to balance our financial flexibility. With that context, on our look ahead, I'd like to now hand the call back over to Denise to share perspective on our engagement in critical minerals and our continued strategic execution under Pathway to Thrive. Denise Dignam: Thank you, Shane. We continue to execute our Pathway to Thrive strategy with clarity and conviction to build on the progress we have achieved to date across all our pillars. With that perspective, I'd like to provide additional context on where we participate in the area of critical minerals, which is concentrated in our TT business, supporting our enabling growth pillar. While our minerals business is limited, we currently estimate approximately $90 million in mineral sales annually with roughly half consisting of high-value minerals comprised of monazite and precision investment casting zircon. The monazite that we process domestically through our mines, which support existing titanium dioxide feedstock operations, contains a uniquely high portion of heavy rare earth elements that are used to produce permanent magnets critical for the electric vehicle and defense markets. This attribute differentiates our domestic supply of monazite compared to other forms of rare earths found in North America. Additionally, we are the only qualified zircon supplier into U.S. precision investment casting applications, which is critical to the aerospace industry for both defense and commercial end uses. While our access to mines in Florida and Georgia provide the opportunity to extract these minerals, our TT business also possesses the ability to separate these critical minerals. Considering our specialized experience in the mining and mineral separation space, which has spanned over 75 years, we have been able to leverage this expertise to more recently attract government funding around our separation capabilities. This funding is designed to support innovative separation assets and to provide a framework to drive future growth in this space. Total grant funding awarded for 2025 and 2026 approximates $10 million. While an area that we have operational experience in, we look forward to continuing research of this innovative separation technology to develop future critical mineral opportunities in the United States. The presence of our mineral sales in the business today, combined with the potential of government support for future opportunities, provides an exciting pathway for our company to enable growth while continuing to serve the needs of these critical end markets. With regard to the execution of our operational excellence pillar, we have also launched the Chemours Business System to take the next step in operational excellence, applying lean principles to drive step change improvements in safety, quality and efficiency across our business operations. As we build on our recent operating improvements, we are also focused on pursuing further rigor in our commercial effectiveness. We believe that the reduced operational disruptions and enhanced commercial efforts will drive earnings growth as we head into next year. As we've shared in recent quarters, we remain focused on controlling what we can control while pursuing commercial growth opportunities where we can. We are confident in our ability to close out the year and remain committed to driving long-term value for our shareholders through disciplined execution, strategic growth and operational rigor. As we continue to execute on the four pillars of our Pathway to Thrive strategy, we are routinely evaluating our existing portfolio for opportunities where there may be a more efficient path to return value to our shareholders. Our senior leadership and Board remain grounded in our belief that the execution of our transformation strategy will provide a greater degree of strategic flexibility and position the business to thrive. Our team continues to pursue new ways to enable growth, remaining focused on optimizing our portfolio management efforts and is steadfast in our advocacy and execution to strengthen the long term for Chemours. Thank you for your continued support. With that, I'd like to open the line for your questions. Operator: [Operator Instructions]. Our first question comes from the line of John McNulty from BMO. John McNulty: So maybe the first question is just on the TSS business. It sounds like despite what we've been hearing from some of the residential HVAC OEMs around kind of what looks like a volume speed bump. It sounds like you're not really seeing that, and you don't expect it as you look to 2026. I guess, can you help us to understand why that would be some of the smoothing mechanism that you may have in place and/or -- look, maybe it's just not -- while it was a big improvement this year, it may not be -- it's not the only part of your business. But I guess help us to understand why we're not going to see that speed bump work through the refrigeration side of the business. Denise Dignam: John, thanks so much for the question. Yes, I mean, we, as a business, are focused always on maximizing value of our quota. So we have a broad portfolio outside of the HVAC OEMs from an application, from a product, from a regional perspective. So we're always focused on just maximizing the quota. We expect double-digit growth going into the fourth quarter and as we start 2026. I feel really proud of what the team has been able to deliver. If you look at our refrigerant sales, we're up year-over-year 32%, 80% increase in Opteon year-over-year. And from a segment, our sales are up 20%, and we've had margin expansion from 30% to 35%. John McNulty: Got it. Okay. Fair enough. No, it's -- look, it's been a great performance this year so far. Okay. And then I guess the second one I wanted to dig into kind of goes to your last point where you're constantly kind of reviewing the path to return value to the shareholders. And I guess, to that, you've got -- you have a lot of balls in the air at this point. You've got the data center opportunity. It sounds like you at least have some opportunities around critical minerals as well as kind of running the other core businesses. So kind of a lot going on. I guess, do you think Chemours has the bandwidth to manage all of that? Or are there other potential owners of some of these assets that might be better owners, not that you guys aren't good owners, but maybe better owners for specifically, the way to get as much out of these assets as they could? Denise Dignam: Yes, John, thanks for the question. We actually feel really good about the things that we're working on and really aligned with our Pathway to Thrive strategy. When you think about the strategy that we put in place, it really is about strengthening the company over the next several years. So we look at operational excellence, getting out $250 million of costs, enabling growth, getting to a 5% CAGR. On portfolio management, as you talked about, the critical minerals or data centers and even around our APM portfolio, some of the things that we've done. And then our last pillar, strengthening the long term, around our legal legacy liabilities and advocacy and really strengthening the whole portfolio. So it's really about creating a strong company, strong balance sheet and to give us optionality as we move beyond Pathway to Thrive. Shane Hostetter: Yes. Just to add to that, John, as you think about the third pillar about portfolio optimization going to -- are we the right owners, et cetera, we'll do whatever the right thing is to optimize the value to our shareholders, and that's including as we're managing these internally and thinking through our options there. Operator: Our next question comes from the line of Pete Osterland from Truist Securities. Peter Osterland: So first, I just wanted to start on just operating performance within the TT business. It looks like you're guiding for the impact from operational disruptions to be zero in the fourth quarter. So I was just wondering if you could give a bit more detail. I guess, what specifically were the major improvements you've made operationally here? How much opportunity is there to improve further in the coming quarters and potentially offset some of the cost impact if you have to continue running at lower production rates? Denise Dignam: Thanks, Pete. From an operations standpoint, we're feeling very, very good. Many of the issues that we faced were onetime distinct issues. We've put contingency plans in place around those issues. We have brought in really strong operational leadership. We stood up our manufacturing COE, and reliability is really one of the key elements of that work. You saw we responded extremely well in the third quarter, and it was really through the resilience of that teamwork. And we're moving forward, even bolstering further, putting in a standardized operating system throughout the company. So I feel really good about it. I'm going to turn it over to Shane to kind of talk through the numbers. Shane Hostetter: Yes. Pete, thanks for noticing it. We don't anticipate the one-off operational issues that we saw earlier part of this year in the third quarter, going forward, given all the efforts that Denise just mentioned and continued excellence will be. That said, we did call out $25 million of, call it, fixed cost absorption that we're going to see in the fourth quarter, just given that we are decreasing production to align with what the demand is that we see ahead of us. Those costs will continue, but it will depend upon where we ramp up production depend upon as we view demand ahead of us. That, as you mentioned, potential offsets, we continue, that first pillar and Pathway to Thrive, and really driving out costs within TT. They are somewhat masked based on these fixed cost absorptions, but we'll continue to optimize and control what we can control. Peter Osterland: Very helpful. And then just as a follow-up on TT. Just on your announcement of the TiO2 price increase effective in December, what gives you confidence that this will be implemented given that global demand conditions are still pretty weak? And I guess, by region, are there specific areas where you think market conditions are relatively more or less likely to support a price increase? Denise Dignam: Yes. Actually, I feel really good about it. We've talked about our strategy being to maximize value and focusing on the fair trade markets. We've seen -- throughout the year, we've actually seen price stability in these markets. There's obviously stuff going on at the end of the year. There's onetime issues. They're temporal, right? So you have liquidation of inventory from a Western player that's unable to continue operations. You have liquidation of inventory from CPs, Chinese producers. There was uncertainty in tariffs that was introduced by India, but that's going to get resolved. And if you look at the value chain, there's destocking from the value chain. We're confident that our customers are going to be restocking in the first quarter. That ADD is going to be resolved in India, and we're going to start seeing the impact of the other areas, in Brazil and Saudi Arabia. So we're confident moving forward. As I said, we've seen stability in the fair trade markets we play in and in particular, in EMEA and in North America. So we're confident moving forward. Operator: Our next question comes from the line of John Roberts from Mizuho. John Ezekiel Roberts: How are you thinking about the replacement market for HFOs? How fast do you think that develops? And does it become financially material in the next 18, 24 months to sort of move the overall HFO numbers? Shane Hostetter: John, as we look ahead, we gave perspectives around '26 that we see double-digit Opteon growth into the first part of next year. Obviously, that is driven by the HFO market. As we look at growth into '26, we gave a guide just overall growth in sales and earnings and cash flow for TSS, and that's going to be driven primarily by that HFO transition, both in the OEM side and the aftermarket. Operator: Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Arun Viswanathan: I guess maybe I'll start with TT. So when we go back about a year or so, it looks like we were thinking that the segment would be maybe in the $300 million or so range for EBITDA, and then you're significantly below that. And similarly for the company, we were kind of in the $875 million range. Now you're in the $750 million range. So I guess as you look back on this year, would you say that the main shortfall has been in TiO2 demand and -- or would you cite something else as well? And it's just -- because we went in this year thinking that the Pathway to Thrive would add maybe $100 million or $125 million of cost reductions. And it seems like the demand weakness has more than offset that. So maybe you can just comment on what kind of played out in TiO2 this year, and if it was worse than what you expected. Denise Dignam: Yes. Thanks, Arun. Definitely, demand played a part in TiO2. Also some of the -- I'll say, the shakiness with the tariffs and the duties implementation as well as these -- as I talked about these onetime operational issues, we are very confident in our $125 million cost out. You can see it in many places already, disguised in some -- but I'm going to turn it over to Shane to give you a little bit more color on that. Shane Hostetter: Yes. Thanks, Arun. As we look coming into this year, I don't think we expected the $100 million -- close to $100 million in operational impacts in the year, certainly a step back, as well as the impacts on TT, whether it be the destocking areas that we've seen or as Denise mentioned, some of the operational impacts of just overall lack of demand in slow markets. Now on the flip side, right, I think we are really pleasantly surprised on the impacts of TSS and really what they've driven in the year from a solid performance. So I just really wanted to applaud that group as we're looking at some of the decreases in the year, but also we've had really solid performance in our TSS business. Arun Viswanathan: Great. And I guess maybe I can just ask a follow-up on TSS. So maybe you can kind of give us some of the drivers for that growth that you expect next year. Again, it seems like we're coming off a pretty strong step-down year as well as shortages that maybe drove some pretty robust pricing. So when you look into next year now that Corpus is running up, would that be a contributor, maybe the chiller adoption, does that get you into kind of double-digit growth? Or how should we think about TSS, especially in light of some of those HVAC inventory OEM overhangs? Shane Hostetter: Yes. Thanks, Arun. As we look ahead to '26, one thing to note, as you look at the OEM transition, about 75% has transitioned in. So we still have that runway going in as well as we believe the aftermarket will grow somewhat as well. We feel confident in our commercial execution. If you look at what happened in '25, we really think just looking ahead that our commercial group is primed to continue the growth in TSS given the transition aspects. The other area there, as you look at just cost out and controlling what we can control, you mentioned the expansion of Corpus Christi. We do believe that will be a tailwind going into next year as we drive further cost optimization. And then lastly, we did have some higher onetime costs related to our next-generation refrigerants as well as our liquid cooling venture, which we don't anticipate to recur. I put that is -- this year, it's going to be roughly about $40 million, and we believe the annual run rate is going to be in the $20 million range. Arun Viswanathan: Great. And just as a quick follow-up. So when you think about -- again, when you think about this year and how it played out, there were a number of operational disruptions. There were, again, weak demand. How do you kind of foresee the next year? I mean, do you think those operational disappointments are kind of in the rearview mirror? What can you do to not necessarily have those kinds of disruptions impact you next year and really kind of show that growth that we know that the portfolio can achieve. It's just been a little bit disheartening at times when we know that the growth is there. It's just not kind of -- it's just getting offset by some of these factors that some of which appear to be somewhat in your control. So maybe you can just address what you're doing to really tighten that up. Denise Dignam: Yes, definitely. I completely agree. And this has been a #1 focus. Our first pillar is operational excellence. And we've made a lot of investments. We talked about the manufacturing COE in leadership and operations and just investments in really how we work and our processes. And I feel really good about that. I agree. It's something that we look at, is in our rearview mirror. Operator: Our next question comes from the line of Josh Spector from UBS. Joshua Spector: I had a few follow-ups on TSS. I'll just weave together. First, just to confirm on the liquid cooling investment, the $22 million versus the targeted $5 million. That flowed through EBITDA, correct? And just what exactly drove that delta versus your expectation? Shane Hostetter: Yes. Thanks, Josh. It did flow through EBITDA, yes. And what drove it was as we're continuing development of the liquid cooling venture and thinking through that side, there are areas that we continue to develop specific to the charge related to an intermediate, related to the product development side that we had to essentially take a charge off for. So it's a onetime area. It's not something we anticipate going forward. Joshua Spector: So is that something you spent money on, that you're writing off related with liquid cooling? Or is that some other investment? Shane Hostetter: No, it's a noncash item. As we look ahead, we do anticipate value coming out of that. It was more of an accounting-related area. Joshua Spector: Okay. And then secondly, with the whole TSS moving parts of what you've had. So if we look at what you reported in 3Q and 2Q, you beat your expectations that you put out there by about $20 million. I mean, if we then add back this item that we're discussing, that's maybe $35 million in the third quarter. I guess if you separate the pieces, we know your competitor had some issues with sales, and you guys benefited in the aftermarket. How much of that is sustainable, and that you've won share, you keep it? How much of that would you characterize as potentially temporary due to the supply constraints and just the dynamics within 2Q, 3Q that do not repeat into next year? Denise Dignam: Josh, thanks for the question. Yes, I mean, we feel confident in our commercial capabilities. Certainly, there's a little bit of a competitive aspect, but we really delivered, and we know the customers and the value chain appreciated it. We also have other levers, as Shane talked about relative to margin with the scaling up of our Corpus facility and the continued growth in the aftermarket segment where we've demonstrated a lot of strength. Joshua Spector: But I guess to be clear on that last point, scaling Corpus helps you maybe $20 million, $30 million. Does that offset some of the shift that you would expect, and therefore, that's neutral? Like is that rough framing about right? Or would you characterize it differently? Shane Hostetter: Yes, Josh, I'll go back to the guidance we provided, which is, we anticipate earnings growth going in from '25 to '26. That's inclusive of the Corpus expansion, but also inclusive of where we believe our top line revenue is going, as I indicated, sales, we're going to grow. As you mentioned, right, we've had some really good performance in Q2 and Q3. We believe we can hold on to that performance and in the material amount and going into '26 as well. Operator: Our next question comes from the line of Duffy Fischer from Goldman Sachs. Patrick Fischer: Could you help size for me, as we've kind of pushed the Chinese out of Europe with ADD, Venator liquidating, how much opportunity or how much volume does that open up for you guys to go after? Same thing for Brazil and India. And then relative to your market shares in those markets, would you expect to be below kind of at your market share or above your market share in winning the business that's kind of foregone by those actions? Denise Dignam: Thanks, Duffy. Yes, I mean our strategy is to grow our share in the fair markets. And we expect about 800 kilotons around, if you think about all those areas, Europe, India, Brazil. So yes, it's a great opportunity for us, and we expect to be focused on growing share. Patrick Fischer: Okay. And then could you size for me on your ore inputs, how important is Rio's African operations? As you know, publicly, they've said that they're looking at that. You don't know what hands those could end up in, potentially maybe a Chinese competitor. So how important is their ore in your operations? And if that fell into the hands of somebody who is a competitor, what would be the needed steps you'd take to offset that? Denise Dignam: Yes. I mean we have -- our strategy is really around, as we've talked about in the past, a really large portfolio of ores that we can accept and the diversity of the way we're able to run our manufacturing plants. So we don't see that as having any material impact on us. Operator: Our next question comes from the line of Hassan Ahmed from Alembic Global Advisors. Hassan Ahmed: A question around the near-term Q4 sort of TT guidance you guys gave. If I read correctly, you guys are guiding to sales declines in the high single digits to low teens. I'm just trying to reconcile that. From the sounds of it, it seems you're looking for sort of maybe low single-digit volume declines. And I'm just trying to reconcile that with one of your larger sort of Western competitors talking about 3% to 5% volume increment sequentially in Q4. I mean, is this a geographic footprint thing? Is this a market share thing? All of the above? I would love clarity around that. Denise Dignam: Yes. Thanks, Hassan. I mean we have -- obviously, from our -- from different competitors, we have different customers. We have strength in different regions. This is what we see where we are, and it's also the strategy that we're executing. Hassan Ahmed: Understood. Understood. And as a follow-up, just your thoughts on anti-involution. I mean, since 2023, it seems 1.1 million tons of titanium dioxide capacity has been shuttered. And if I sort of take a look at some of these older subscale facilities, in China, they amount to maybe around 700,000 tons. So I mean, what's your thought process around potential shuttering of those 700,000 tons of capacity in China? Denise Dignam: Yes. I mean our current belief is that -- based on the research we've done, is that at least 300 kilotons will be permanently shut down. I would expect that more would shut down, especially as the duties really come into play. I mean we've seen it in the U.S. We've seen it in Europe. With that -- with the duty structure, it really does protect the Western players from the dumping of the Chinese producers. So at least 300 expected to be more. Hassan Ahmed: And Denise, just to clarify, that 300 would be incremental to the 1.1 million that's already been announced, correct? Denise Dignam: No, it will be inclusive. Operator: Our next question comes from the line of Laurence Alexander from Jefferies. Laurence Alexander: Could you roll up the comments around destocking and give some perspective as you look back on the year? How much of a net headwind do you think those kinds of dynamics might have had, so that we can think about level-setting for 2026 and 2027? Denise Dignam: Yes. I mean from the destocking standpoint, it really is on both sides, right? So it's on the producer side as well as on the -- I would say that is really more kind of third quarter-ish, going maybe a little into the fourth quarter. And then from a customer value chain perspective, really seeing, in the markets where we serve, going into the fourth quarter. But I'll let Shane maybe add some color around the numbers. Shane Hostetter: Yes. Thanks, Laurence. I mean, obviously, we've seen a volume impact this year since '24 to '25. I think there's a balance there between the destocking we saw in the beginning part of the year and going into the end of the year, but offset by some really good diligence with the commercial team and gaining share. So quantifying such, I'd rather not get into at this point. But really, it's a balance between the share gains and really the destocking decrease on the other side. Laurence Alexander: And secondly, just on the TT side, can you give sort of an update on how important architectural coatings are to the overall profit pool for you? Denise Dignam: Yes. I mean architectural coatings are very important for us. It's about, I would say, 70% of our TT business. Laurence Alexander: And then on the refrigerant gases, can you give us a sense for kind of what the next wave after Opteon Refrigerants might look like? And in particular, I guess I'm curious if there's eventually going to be fluorogas that is also sort of engineered to self-destruct, sort of to deal with the -- to basically -- like are there ways in fluoropolymers and fluorogases, to deal with the forever chemicals, by sort of crafting ones with the same functionality, but also kind of vulnerability in certain environments. Denise Dignam: Yes. I mean I would say our work around our next-generation refrigerant, I mean, at this -- in this business, we continue to kind of reinvent the category, and our next-generation refrigerant is along those lines, and we're going to continue to innovate even beyond that. Operator: Our next question comes from the line of Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: When you look at titanium dioxide market, is there price erosion in the United States, as you see it? Or is it really confined to the other geographies? Denise Dignam: Yes. I mean I can really -- talking about our portfolio, as I said, we've had actually stability in pricing in 2025 in the U.S. Year-over-year, there has been a decline. But as we said, this year, we've seen stability, and we're moving forward with a price increase. Jeffrey Zekauskas: And in India, do you think that a ruling on the stay of the duties will come in the fourth quarter? Or will it take till next year? Or really nobody can tell? Denise Dignam: Our current intelligence and thinking is that it will happen by the end of the year. Operator: Our next question comes from the line of Vincent Andrews from Morgan Stanley. Vincent Andrews: Denise, you sort of referenced earlier in TT that Pathway to Thrive is sort of being obscured by the challenging demand environment in terms of your profitability. So if you could just bridge us, let's assume that the assets run reliably for a full year. Where -- how much volume growth do you need before you think we would see sort of the full blossoming of Pathway to Thrive in the TiO2 segment from a margin perspective? Denise Dignam: Yes. I mean I think that even if you just look at where we are now, I think a modest increase in demand will actually get us on track. We've had some operational issues, which have hindered us in 2025. So we're feeling positive about it going into 2026. Vincent Andrews: Okay. And then, Shane, if I could ask you, you mentioned the real estate strategy. So I don't know how significant this could be. If you want to tell us about some assets you have that maybe you could completely monetize? Or are you just looking to do sale-leaseback kind of things and just get stuff off your balance sheet? But -- maybe just a little detail on that. Shane Hostetter: Yes. That was really one of a couple of things that I pointed to as we think about looking at our portfolio and our assets and our infrastructure and just thinking outside the box to unlock value, right? So I pointed to, obviously, our portfolio optimization pillar, the critical minerals, which Denise just mentioned during the call as well as the real estate portfolio as we look at strategic areas. I didn't want to get into the specifics, but I do think there's areas there that can help us from a cash flow perspective going forward, so as not to disrupt our current cash flow. Operator: Our next question comes from the line of Roger Spitz from Bank of America. Roger Spitz: Can you give us a sense of the impact on industry pricing and volumes when Venator Materials, sort of, is liquidating their inventory, which we understand has impacted materially Q3. And I'm thinking it's going to take a lot longer than 1 quarter, I presume, for them to liquidate their inventory. I mean is this something that's going to take them several quarters, that we'll see this headwind? Shane Hostetter: Thank you. We don't anticipate several quarters. We really see this probably kind of coming through in the current quarter from that perspective. I would say just pricing and volume impacts, obviously, was a material impact to us and to the market as we saw in Q3. I don't really want to get into the specific numbers, though, Roger. Roger Spitz: Got it. And I know you don't know either these two technologies, but you are very good with chloride process TiO2. So you've got this announcement of Lomon Billions buying Venator's chloride process TiO2 in the U.K. And I'm wondering if you have -- guys have any sense of how different or similar the effectively ICI chloride process technology is to the Lomon Billions who's using, I understand the PPG's chloride process technology, like Lomon Billions is trying to improve that PPG operations. Is getting their hands on the ICI chloride process technology something that will help them operate better in China? Denise Dignam: Yes. I mean first of all, this is still hasn't been settled, right? And there's many questions around that transaction. All I can say is, we understand the technologies in the industry. Our technology is really the premium technology. And from a competitive standpoint, we don't see that as an issue. Operator: Our next question comes from the line of Aaron Rosenthal from JPM. Aaron Rosenthal: I guess I was looking at the 10-Q, and I noticed the commentary on the government shutdown was pretty interesting. It seems like a lot of moving pieces. But is there any risks that implicate anything tied to the HFO transition or anything on the EPA front, maybe as it relates to TSS broadly or even in the context of addressing the legacy environmental liabilities? And then maybe if you could also help us frame the magnitude of the potential, call it, cash payments or collections that are at risk tied to existing government contracts and maybe where exactly within your portfolio, this would be relevant to? Denise Dignam: Thanks, Aaron. Yes, relative to the government shutdown in TSS and HFOs, we see basically no impact. The is market already transitioned, and we don't see that coming -- that changing. Really from the comments around the EPA, I mean, we've talked about it before, our fourth pillar around strengthening the long term, a lot of it is about advocacy. And we've had an open door talking with various agencies within the government. And for us, with it being shut down, it's kind of slowed that down a bit. So we're really excited and hoping that they reopen soon so we can really continue to advance that pillar of our strategy. Shane Hostetter: Yes. And your last point there as it relates to government business and any perspectives around accounts receivable or cash flow, we don't see any material impacts due to the shutdown. Aaron Rosenthal: Okay. And then maybe just taking a look at the balance sheet and the upcoming maturities. So following the USD term loan being extended, you still have the euro piece out there and then the 27 unsecured, which presumably will be addressed 12 months out from the May '27 maturity. Will you be approaching these refinancings piece by piece or all at once? And I guess, is there any willingness to issue new secured debt to refinance the existing unsecured bonds? Shane Hostetter: Yes. Thanks. Obviously, we were out in the market extending the term loan B on that side recently, pretty proud of where it closed just given the hard market that we were facing. I think as we look at other expirations and coming up on that side, we'll continue to be opportunistic when we hit the market, if it allows on that side. I would say with the near-term notes, right, you mentioned refinancing that 12 months out, we will look for differing structures to ensure that those do not come up for -- to be current. So that's kind of where I will leave that, from that perspective. Aaron Rosenthal: Great. And then if I could sneak one more in. If you could just remind us what your current secured debt capacity is maybe following that term loan exercise? Shane Hostetter: Yes. We feel very good about the headroom on our secured side, this side. We have at least 2x turns on that side. Operator: Thank you. We have reached the end of our question-and-answer session. Thank you for joining the Chemours Third Quarter 202 Results Conference Call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2025 Third Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025, at 11:00 a.m. Eastern Time. I will now turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead. Emma Murray: Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton's Chief Executive Officer; Haytham Hodaly, President; Curt Bernardi, EVP Strategy and General Counsel; Vincent Lau, Chief Financial Officer; Wes Carson, VP Mining Operations; and Neil Burns, VP, Corporate Development. For those not currently viewing the webcast, please note that a PDF version of the slide presentation is available on the Presentations page of our website. Some of the comments on today's call may include forward-looking statements. Please refer to Slide 2 for important cautionary information and disclosures. It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. With that, I'll turn the call over to Randy Smallwood. Randy Smallwood: Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton's third quarter results of 2025. We are pleased to announce that our portfolio of long-life, low-cost assets has once again delivered strong results this quarter, enabling us to achieve record revenue, earnings and operating cash flow for the first 9 months of 2025. This performance underscores the streaming model's unique ability to generate predictable levered cash flows while maintaining a deferred payment schedule, an advantage not offered by the traditional royalty model, which requires full upfront payments and lacks embedded leverage. And of course, 100% of Wheaton's revenue comes from streams, providing a competitive advantage amongst others in the space. As a result of strong performances by key assets, including Salobo and Antamina, coupled with the ramp-up of production at Blackwater and Goose, we recorded production of 173,000 gold equivalent ounces this quarter and are firmly on track to achieve our 2025 production guidance of 600,000 to 670,000 gold equivalent ounces. And with over $1.2 billion in cash and undrawn $2.5 billion revolving credit facility in Accordion and strong growing projected cash flows, the company remains well positioned to meet all funding commitments and pursue new accretive opportunities continuing to grow our -- and continuing to grow our competitive dividend. Based on this strong financial foundation, Wheaton also continues to invest in innovation across the mining sector as well as community initiatives alongside our mining partners. During the quarter, Wheaton launched its second annual Future of Mining Challenge, which this year focuses on advancing sustainable water management technologies. Following the close of expressions of interest phase, 17 proposals have been selected to advance with the winner to be announced at the PDAC conference in March of 2026. And with that, it is my pleasure to now turn the call over to our President, Haytham Hodaly. Haytham Hodaly: Thanks, Randy, and good morning, everyone. Alongside strong performances from our producing assets, Wheaton's growth profile was further derisked through continued progress across 6 key development projects scheduled to come online over the next 24 months. Notably, several of these projects have announced accelerated time lines or expansions, reinforcing confidence in our previously forecasted 40% production growth by 2029. Furthermore, recent joint venture announcements marked significant progress for Copper World and Santo Domingo, further derisking both projects. We are pleased to have announced 2 new streaming transactions over the past 2 months, one with Carcetti on the Hemlo mine and another with Waterton Gold on the Spring Valley project, for which Neil Burns will share more details later in this call. These announcements reinforce our disciplined approach to capital deployment as we remain focused on identifying accretive opportunities that are thoughtfully structured to deliver meaningful and lasting value for all stakeholders. With a solid foundation of organic growth that continues to strengthen, the company is well positioned to pursue opportunities that align with our long-term strategy and uphold our commitment to quality as we have demonstrated with our most recent transactions. And with that, I would like to now turn the call over to Wes Carson, who will provide more details on our operating results. Wes? Wesley Carson: Thanks, Haytham. Good morning, everyone. Overall production in the third quarter was 173,000 ounces, a 22% increase from the prior year, primarily due to strong production at Salobo and Antamina, coupled with commencement of production at Blackwater. In Q3, Salobo produced 67,000 ounces of attributable gold, a 7% increase from the last year, driven by higher throughput grades and recovery. Vale reported that by the end of July, Salobo III had fully ramped up and the entire complex is now operating at full capacity, consistently delivering strong operational performance. Vale continues to advance a series of growth-focused initiatives to enhance efficiencies and support long- and medium-term production growth across the Salobo complex. Constancia produced 19,500 ounces of attributable GEOs in Q3, a 9% improvement from last year, primarily driven by 19% higher gold production resulting from higher grades, partially offset by an 11% decline in silver output due to lower throughput. On September 23, 2025, Hudbay Minerals commented on the ongoing social unrest in Peru, where Constancia was impacted by local protests and illegal blockades. The mill was temporarily shut down as safety precaution, while authorities addressed the situation. On October 7, 2025, Hudbay announced that operations had resumed and throughput has since returned to normal levels. Penasquito produced 2.1 million ounces of attributable silver in Q3, up 17% from last year, primarily driven by higher throughput and partially offset by lower grades as mining transitioned back into the Penasco pit, which contains lower silver grades relative to Chile Colorado. In the third quarter, Blackwater produced 6,400 ounces of attributable GEOs supported by higher-than-expected throughput and grades. Production for the year is expected to be weighted to the fourth quarter with higher mill throughput rates and feed grades expected compared to Q3 2025. Artemis has also announced a 33% increase to Phase 1 processing plant capacity, raising the nameplate from 6 million tonnes per annum to 8 million tonnes per annum with a targeted completion date by the end of 2026. In addition, Artemis is nearing completion of front-end engineering and design work for an optimized and accelerated Phase 2 expansion with an investment decision expected before year-end. In Q3, Almina restarted production of the zinc and lead concentrates at the Aljustrel mine, resulting in the resumption of attributable silver production to the company. During the quarter, Goose transitioned from commissioning to commercial production, which was announced on October 6. As reported by B2Gold, open pit and underground mining rates at the Umwelt deposit have continued to meet or exceed expectations during the 30-day commercial production period. B2Gold has also reported that gold recoveries have been in line with expectations and are expected to average higher than 90% through Q4 of 2025. Wheaton's production outlook for 2025 remains unchanged with -- and we continue to believe that we are well on track to achieve our annual production guidance of 600,000 to 670,000 GEOs. At Salobo, attributable production is expected to remain steady through the remainder of the year, supported by solid mining rates and consistent plant performance through Salobo I, II and III. At Penasquito, attributable production is forecast to be in line with budget and slightly down from Q3 due to steady mill performance and planned mine sequencing within the Penasco pit. At Antamina, attributable production is anticipated to strengthen in Q4 as the mine continues processing a higher portion of copper zinc ore. As mentioned by Randy, we remain confident that our catalyst-rich year is progressing as expected, with initial contributions from Mineral Park, Platreef and Hemlo still forecast by the end of 2025. That concludes the operations overview. And with that, I will turn the call over to Vincent. Vincent Lau: Thank you. As detailed by Wes, production in Q3 was 173,000 GEOs, a 22% increase from last year due mainly to strong production from Salobo and Antamina, coupled with the commencement of production at Blackwater. Sales volumes were 138,000 GEOs, an increase of 13% from last year, driven by strong production from the second quarter, partially offset by a buildup of produced but not yet delivered or PBND, due to timing differences between production and sales. At the end of Q3, the PBND balance was approximately 152,000 GEOs, which is about 2.9 months of payable production. We expect PBND levels to stay at the higher end of our forecasted range of 2 to 3 months for the remainder of 2025, partly due to the ramp-up of new mines forecast in Q4. Strong commodity prices, coupled with solid production led to record quarterly revenue of $476 million, an increase of 55% compared to last year. This increase was driven mainly by a 37% increase in commodity prices and a 13% increase in sales volumes. 58% of this revenue came from gold, 39% from silver and the rest from palladium and cobalt. With silver recently outpacing gold and reaching record highs, our substantial silver exposure sets us apart from our peers and positions us well to benefit from the current pricing momentum. Net earnings increased by 138% from the prior year to $367 million, while adjusted net earnings increased by 84% to $281 million. Operating cash flow increased to $383 million, a 51% increase from last year. These gains outpaced the increase in gold and silver prices during the same period, highlighting the leverage from fixed per ounce production payments, which made up 76% of our revenue. During the quarter, we made total upfront cash payments for streams of $250 million, including $156 million for Koné, $50 million for Fenix and $44 million for Kurmuk as our portfolio of development assets continued to advance toward production. During the quarter, CMOC exercised its 1/3 buyback option under the Cangrejos PMPA in exchange for a $102 million cash payment, resulting in a gain of $86 million and delivering an impressive pretax IRR of 185% to Wheaton. Overall, net cash inflows amounted to $151 million in the quarter, resulting in a cash balance of approximately $1.2 billion at September 30. For the Hemlo stream, we expect to make the entire $300 million upfront payment at deal close in Q4 2025 and begin recording production immediately thereafter. For the Spring Valley stream, the total upfront payment of $670 million will be paid in installments as various conditions are satisfied. This structure reflects our disciplined approach to providing funding throughout construction while ensuring the project remains adequately financed and on track at each stage. When these 2 streams are added to our existing stream funding commitments, we expect to disburse approximately $2.5 billion in upfront payments by the end of 2029. This reflects growth that we have seeded but not yet funded and demonstrates a highly efficient use of our capital. With $1.2 billion in cash and expected annual operating cash flows of $2.5 billion over the next 5 years, we currently expect to fund these commitments without using debt. In addition, our fully undrawn $2 billion revolving credit facility, together with a $500 million accordion provides exceptional financial flexibility and positions us with the strongest liquidity profile amongst our peers to pursue additional accretive opportunities. This concludes the financial summary. I'll now hand things over to Neil to walk through the details of Hemlo and Spring Valley streams. Neil Burns: Thanks, Vincent. It's been a very busy few months for the corporate development team, and I'm delighted to provide an overview of our 2 most recent deal announcements, which further reinforce Wheaton's already sector-leading growth profile. On September 10, Wheaton entered into a financing commitment with Carcetti Capital Corporation to support its proposed acquisition of the Hemlo mine. Upon deal close, which is anticipated in the fourth quarter, Carcetti intends to change its name to Hemlo Mining Corporation or HMC. Wheaton's initial financing commitments included a gold stream of up to $400 million. However, following the strong success of its recent equity raise, which Wheaton supported with a lead order of $30 million, HMC has indicated its intention to proceed with a $300 million amount. In this scenario, Wheaton expects to receive 10.13% of payable gold until a total of 136,000 ounces have been delivered, after which Wheaton will receive 6.75% of the payable gold until an additional 118,000 ounces have been delivered, after which Wheaton will receive 4.5% of payable gold for the remaining life of the mine. These amounts would be adjusted proportionally if HMC were to elect a different stream amount. In return, Wheaton will make ongoing payments with gold ounces delivered equal to 20% of the spot price. Each of these drop-down thresholds will be subject to an adjustment if there are delays in deliveries relative to an agreed schedule commencing in 2033. If deliveries fall behind an agreed schedule by 10,000 ounces or more, the stream percentage will be increased by 5% until deliveries catch up in a mechanism that's aimed to mitigate timing risk. Assuming that HMC elects an upfront payment amount of $300 million, attributable gold production is forecast to average over 14,000 ounces of gold per year for the first 10 years of production and over 10,000 ounces per year for the life of the mine. Hemlo presents an opportunity -- a unique opportunity to add immediate [ attributable ] gold ounces from a politically stable jurisdiction backed by a long history of production and a very capable operating team. We are proud to support HMC in its acquisition of a mine that has long been considered a cornerstone in Canada's mining industry while also continuing to contribute to the momentum across the sector. Just yesterday, you will have seen Wheaton announced gold stream on the Spring Valley project located in Nevada and owned by Waterton Gold for cash consideration of $670 million. This represents a compelling opportunity to secure a significant gold stream while supporting an existing partner in the development of a high-quality, low-cost gold mine located in a prolific mining jurisdiction. Under the agreement, Wheaton will receive 8% of the payable gold until 300,000 ounces have been delivered, after which Wheaton will receive 6% of the payable gold for the remaining life of mine. In return, Wheaton will make ongoing payments for the ounces delivered equal to 20% of the spot price until the uncredited deposit has been fully reduced and 22% of the spot thereafter. Wheaton will also provide a $150 million cost overrun facility to provide further capacity to a project with an already conservative capital estimate. Attributable gold production is forecast to average 29,000 ounces of gold per year for the first 5 years of production and over 25,000 ounces of gold per year for the first 10 years, first production expected in 2028. This production profile reflects an optimized scenario that incorporates updated mineral reserves and resource estimates beyond the feasibility, which was published earlier this year. Located in a proven mining district, Spring Valley comprises an extensive land package of over 30,000 acres, very little of which has been explored. In fact, mining activities will occur on concessions, representing less than 5% of the total land package, leaving an opportunity for mine life extension with future exploration success. With its strong exploration potential, strategic location, proven leadership team, we believe Spring Valley aligns perfectly with our commitment to investing into high-quality assets in stable jurisdictions. We're excited to deepen our relationship with Waterton as they look to unlock the full potential of this asset. With that, I'll now hand the call back over to Randy. Randy Smallwood: Thank you, Neil. In summary, Wheaton delivered another strong quarter marked by several key achievements. We delivered solid revenue, earnings and cash flow, resulting in record year-to-date performance. We made notable progress on our near-term growth strategy with Aljustrel resuming production of its zinc lead concentrates and the ramp-up of production at both Blackwater and Goose, reflecting the continued momentum of our catalyst-rich year. Our growth profile was further derisked as construction progressed across key development projects, including Mineral Park, Platreef, Fenix, El Domo, Kurmuk and Koné. In addition, joint venture agreements were announced for both Copper World and Santo Domingo, further derisking these projects. We also announced 2 accretive precious metal streaming transactions located in low-risk jurisdictions. First, on the currently operating Hemlo mine located in Ontario and just yesterday on Waterton Spring Valley project in Nevada. We believe our 100% streaming revenue model provides significantly greater leverage to rising commodity prices, while keeping us insulated from inflationary cost pressures, resulting in some of the highest margins in the precious metal space. We take pride in being the founders of the streaming model, an optimal alternative to traditional equity financing. Streaming provides upfront capital at a fair valuation without further share dilution, resulting in a dramatically improved return on invested capital and superior long-term value creation for the shareholders of our mining partners. Our balance sheet remains robust, providing ample flexibility to pursue well-structured, accretive and high-quality streaming opportunities. And finally, we take pride in our community investment leadership amongst precious metal streamers and have always and will always support both our partners and the communities where we live and operate. With that, I would like to open up the call for questions. Operator? Operator: [Operator Instructions] Your first question is from Will Dalby from Berenberg. William Dalby: Yes. I have 2 questions. Firstly, on future growth. You've got a really compelling growth profile, but I'm just sort of wondering how you think your volume growth stacks up versus peers, both on an absolute and a risk-adjusted basis, sort of thinking in particular about some peers whose growth relies on restarts or on higher-risk jurisdictions. I'd be very interested to hear how you see your position in that context. Haytham Hodaly: Thank you. It's Haytham. Will, thank you for the question. From an absolute perspective and a relative perspective, I'll tell you, we've got growth close to 250,000 ounces a year between now and 2029. And that is certain growth, that's growth that's actually been permitted and a majority of that, I would say, almost more than 90% of that's actually in construction and heading towards development towards production. In the next 2 to 3 years, there's 2 projects starting this year, a couple starting next year and another 1 or 2 starting over the next couple of years after that. So it's a very, very strong growth profile. In terms of the actual number of ounces, we're generating close to an additional 250,000 ounces, which is probably almost double what our next closest peer is actually generating in terms of growth over the same period. So we're very excited about that. And that excludes a lot of the growth that you're seeing here with these latest transactions as well, where with the Hemlo transaction, with the Waterton transaction, but not to mention a significant number of our peers have also announced expansions, optimizations, et cetera, between now and then, which are also not included in that number. So we're very optimistic and very excited about going forward. William Dalby: Very clear. And then just a second question. If we rewind a bit, say, 10 years ago, your capital was largely going into repairing balance sheets. 5 years ago, it was mostly sort of funding gold projects. Looking ahead, do you see the next 5 years is more about deploying capital into larger-scale copper projects given the current supply shortage there and the need for new mines to come online? Haytham Hodaly: Yes, definitely. I mean the large porphyry copper gold systems that we're seeing in the high sulfidation epithermal systems that we're seeing through some of the diversified base metal producers, those are definitely an area of future growth as they require billions of capital, not millions or hundreds of millions, but actually billions of capital. So streaming naturally should play and likely will play a part in the overall financing packages. There are still lots of opportunities we're seeing outside of that space as well, though, Will, I would say, with commodity prices where they're at, specifically, you look at silver as an example. Silver has had a nice run that is prompting many to consider what their silver is worth within their existing portfolio. So for the first time in a long time, we're seeing more -- not more silver, but are we see more silver opportunities, not more than gold, but we're seeing additional silver opportunities that we previously hadn't come to the market. So we're very excited about that as well. Operator: Your next question is from Josh Wolfson from RBC Capital Markets. Joshua Wolfson: I had a question first on Spring Valley. Some of the technical information out there is a bit light. I know there's a 2014 43-101 and then a feasibility study earlier this year, at least a summary of which I noticed that Wheaton provided some of its own interpretations of what the mine will look like. I guess just maybe drilling down on some of the assumptions, would Wheaton be able to provide some perspective on how it sees the asset in terms of what the underlying assumptions or changes in its perspective was versus the updated feasibility study? And also what we should think about recoveries? I noticed there's a big difference between the original 2014 report and what's -- what was issued earlier this year. Neil Burns: Sure, Josh. It's Neil Burns here. Waterton did put out a feasibility study earlier this year, which was done not surprisingly with much lower gold prices. I believe the reserve pit was [ done ] at $1,700 gold. If you look on Salobo's website, they've updated their R&R. And I believe the reserves are at $1,800 and the resources perhaps at $2,200. They do model the recoveries, and they have updated those. Those are detailed in the footnotes of those R&R tables, and they do them separately by the Redox state of oxide transition and sulfide naturally with decreasing recoveries as you get into the sulfides. And they split it between the ROM and the crush. So I think that's a spot where you can get some additional color. And that was just updated, I believe, earlier this week. Randy Smallwood: Josh, I mean, Spring Valley is so similar to hundreds of different operations down in Nevada, right? You're looking at a heap leach operation that's going to have crushed components. It's always going to be focused on the highest grade portion of whatever is coming out of the pit and then run of mine. And one of the areas of upside that I see in this -- that we see in this asset is the fact that, as Neil mentioned, the pricing for the reserves and even the resources are about half of what the spot price is right now. And the waste dump is about the same distance away from the pit as the heat pad. And so the ROM processing capacity, the decisions as to where that truck dumps that ore as it has lower grade material, but it's still economic because the spot price is of $4,000. I think there's incredible upside on this asset to even see more production than what's being forecast by Waterton. Just in terms of operational flexibility, it's a simple project. It's -- the highest grade of the day will go through the crusher and everything else. It will be a choice as to whether you put it into a waste dump or put it into a ROM heap leach pad and push it forward. So I just -- they're pretty simple Nevada. There's lots of capacity for heap. It's a big flat area just to the east of the ore body that has all sorts of expansion capacity. And so it's a classic Nevada operation that we see as it's going to be going for [indiscernible]. Just we're excited about what the real potential is here. And then the expiration over and above it, as Neil highlighted during the talk, so little of this property has actually been poked at. It's right north of the Rochester operation, which continues to shine for core. And of course, Florida Canyon is to the north. And so it's right in a corridor that's got a lot of mining history. And we do think that this asset is well set up to deliver. Joshua Wolfson: Got it. One more question. I know we've talked about some of the Nevada premiums that are out there. This might apply in that situation. When you look at the value opportunity here in the valuation paid, how would you assess this in comparison to some of the public consolidation opportunities that could be out there depending on prices, obviously? Randy Smallwood: Yes. I mean, consolidation, when I look at -- I mean the biggest comment I'd have on the consolidation side is that what we found is that a lot of the smaller companies have had to give up structural weaknesses, structural flaws in their agreements to try and get scale. And we've seen some pretty large-sized examples of that recently with deals scale of $1 billion with 0 security backing it. And so we just see issues with the value of some of those assets within the M&A side. And so as we like to say, we're -- we think there's no stream as good as a Wheaton stream. We invented the model and we continue to try and perfect it. I think Hemlo was a real step up in terms of how to actually deliver value not only to our shareholders, but to our partners in terms of support and strength all the way across and trying to find that great balance of satisfying both sides of the spectrum. And so the acquisition side, most of those companies do trade at a bit of a premium to NAV. And we -- whereas when it comes to going out and looking at new assets, we can find leasings at NAV or less, slightly less than that. It's still attractive compared to an equity financing or to other alternative forms of financing for these companies that are looking for capital. So as Haytham and now Neil, the team has done a great job of continuing to put the capital back to work, looking at opportunities like this. And I think Spring Valley is a great example of that. It's a lower-risk jurisdiction. It's our first real footprint into Nevada, which is a jurisdiction we've looked at for a long time, but we have seen some incredibly expensive transactions in our eyes -- take place in Nevada. This one we feel is attractively priced, especially when we go over the upside that we -- that I just finished describing to you. And so we're pretty excited about having this one. And we like this path. We're always looking at the M&A side. And if we do see some opportunities in that space that make sense, we would act. But to date, we're doing -- we find better value in just sourcing new opportunities. We are blessed with an industry that always needs capital. So that's our business, supplying capital. Operator: Your next question is from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: Some of them have been answered already. Maybe, Haytham, for you, as I think about the environment, the opportunities out there, one of my questions was on silver. I just -- I think you touched it a little bit, you're seeing more on the silver side than previously. Are we seeing some big silver opportunities? Haytham Hodaly: That's interesting, Tanya. It's funny you asked that question. There are some larger silver opportunities that are out there, but we're being very proactive to go out and find those. With that, I'm going to turn the mic over to Neil to just tell you a little bit about the current environment for growth. Neil Burns: Thanks, Haytham. Tanya, in terms of volume, we continue to be as active as we've ever been. We have literally over a dozen active opportunities in the pipeline. From a stage perspective, it's interesting because we've seen an increase in operating opportunities, which is great to see. It's something we hadn't seen for a number of years. And it's also been driven by an increase in M&A activities with the major selling off some noncore assets. Metal mix, which you already touched on, is probably 60-40 gold, silver, I would say, at the time -- at this time. In terms of size, the majority are in the $200 million to $300 million range. But we also have a couple of exciting $1 billion-plus opportunities, but those are a bit longer lead time. Randy Smallwood: The one thing, Tanya, that I would add on the silver side, your question is specifically on silver. Keep in mind that most silver is produced as a byproduct, actually from base metal operations. And the one thing that we're hopeful is that with the strength that we've seen in silver prices of late that perhaps some of those base metal operators would like to crystallize some of that value and help strengthen their own balance sheets and fund their own growth. And so that does fall into an opportunity set with this strength that we've seen where we may be able to pick up some, as Neil said, some operating access to silver streams on operating assets. So we're out there pounding the pavement. And with these kind of silver prices, there's definitely an interest in terms of learning more. So stay tuned. Tanya Jakusconek: Yes. It's just I've been hearing more on the silver side. And so I just wondered if -- and I've heard of some of the big ones like $1 billion silver deals, and I just wondered if those were something that you were focused on. Randy Smallwood: Yes. You know me well enough, Tanya, that I've always liked silver a little bit more than gold. So if there's opportunities in the space, we're definitely trying to track that down. Neil and the team are doing a great job on that front. Tanya Jakusconek: And when you mentioned the $200 million to $300 million range, were those mainly on the gold opportunities? Neil Burns: A mixture, actually. There is -- I would say, probably an even mixture between gold and silver within those $200 million to $300 million opportunities. Tanya Jakusconek: Okay. And are you also seeing because I am hearing, and I don't know if that's the same, that's there's probably more assets for sale within the senior gold companies than the market expects. Like yes, we've seen Newmont sell out their Newcrest assets and Barrick's cleaned up their portfolio somewhat. But I'm hearing that there's also more coming out of the senior space than expected. Is that what you're seeing as well? Haytham Hodaly: Maybe I'll answer that, Tanya, just with regards to divestitures from -- of noncore assets from senior producers. I will say that we did see a lot of that over the last 12 to 18 months, for sure. Right now, it has declined quite a bit. But obviously, with changing management teams, changing focus of various companies, we do expect that to start again. We haven't seen a lot of it yet. Tanya Jakusconek: Okay. So you're expecting more of that to come? Haytham Hodaly: We hope so. We'd love to be able to support another acquirer of some of these high-quality assets. Keep in mind, a lot of these assets when they were within these senior companies, they're being valued at a reserve base of, call it, Neil mentioned one $1,700, Barrick was doing theirs at $1,400 previously. You start using numbers of $2,100, $2,500, you go from a 6-year reserve life to a 20-year reserve life. So I think a lot of that is probably something we're going to see here in the near term. Tanya Jakusconek: And just your Spring Valley acquisition, if you assume that all of the resources get converted and you can mine out 4 million ounces mineable, let's say, would it be fair to say at spot that you'd be in that sort of 4%, 5% internal rate of return, like in line with the cost of capital? Haytham Hodaly: Well, based on our analysis, I can tell you our numbers are higher than that based on exploration upside that we've seen, based on expansions in the existing pit dimensions, based on the higher/lower cutoff grades, we are getting a higher rate than what you're quoting there. I will leave it to you to figure out what your actual rate is based on how many years of additional exploration upside you want to add on top of that, but we're pretty optimistic that eventually this will get to double digit. Randy Smallwood: I will add, Tanya, that the resource is still limited. It's -- there's plenty of exploration potential, wide open mineralization. And so it's the drill data that's actually the limiting factor on the resource, not the economics. Tanya Jakusconek: Yes. No, no. I mean I just looked at it on a 4 million-ounce mineable scenario. Okay... Randy Smallwood: I've seen enough of it down there to think that there's probably even more than that. Tanya Jakusconek: Yes. As I said, it's in the good camp. So those camps go on for a while. Maybe if I could ask just a modeling question. I saw the updated DD&A in the portfolio. Can someone just remind or reguide us on your depreciation and guidance for what you expect for 2025 and maybe 2026 with the new portfolio updates? Vincent Lau: Sure. Tanya, it's Vince here. We did update our depletion on a normal course. Not a big change. Antamina, we saw a bit of a drop because they had some tailings lift there. Stillwater, a little bit higher just because of the change in mine plan. But all the detailed depletion rates, we've now put into the financials and in the MD&A. So you can see exactly what has happened there and help you out on the modeling front. Tanya Jakusconek: All right. I forget what the guidance was corporately beginning of the year. But yes, I'll go back and... Vincent Lau: I think net-net, it's not going to change materially going forward. So I would roughly say it's at the same levels going forward. Tanya Jakusconek: Okay. And then my final question is maybe a reminder. I've seen a lot of the other companies sell out investment portfolios of equity interest. Can you just remind me what's left within yours? Haytham Hodaly: Yes. There's -- we've got -- I don't have the list in front of me, Tanya. I can tell you, and it's listed on -- I think, on our -- at least some of it's broken down some of the larger positions, but we have about a USD 260 million equity book right now. I can tell you, we're not looking to divest any of those positions. Those positions are all with our existing partners that are ramping up operations. And we are going to continue to be strong supporters. Eventually, there may be some liquidity events where we can actually get off our positions. But at this point in time, we're -- if nothing else, we'd be helping our partners as they need it going forward to continue to strengthen their balance sheets. Operator: Your next question is from Martin Pradier from Veritas Investment Research. Martin Pradier: In terms of Antamina, I noticed that the depreciation dropped in half almost. What happened there... Neil Burns: On depletion drop, yes. So... Martin Pradier: Yes, the depletion... Neil Burns: Thanks, Martin. Yes. So that really is, as Vincent mentioned, it's because of the tailings expansion. So right now, Antamina marks their reserves with tailings capacity. And in Q1 this year, Antamina managed to secure the permits for further expansion of the current tailings facility, and that increased the reserves dramatically, which then drops that depletion rate down. So that's the reasoning behind that. Randy Smallwood: Essentially, what happened was the tailings capacity doubled, which meant that the -- with that much -- the depletion -- that much more -- the reserve doubled because of that excess capacity because with that tailings capacity, then you could class it as a reserve. And so it's -- the resource there is very, very high geological confidence, but Antamina's approach is that it's not a reserve until it actually has permitted tailings capacity. And so the fact that it went up just meant that we had a substantive increase in reserves, which means the depletion rate drops. Martin Pradier: Okay. Perfect. I understand. And in terms of Salobo, should we expect a strong Q4? I thought that there was like a little bit higher grade in Q4. Haytham Hodaly: Salobo is reasonably flat in Q4. So we're expecting -- we've seen very strong performance through the year this year. And we were just on site at the end of September there. And really, they are planning to continue on as they have for the rest of the year here. So reasonably flat for Q4. Randy Smallwood: I think they moved forward a little bit of preventative maintenance that was scheduled in Q4 into Q3. So that should help a little bit on the Q4 side. There was a short stint in Q3. So... Operator: Your next question is from George [ Ity ] from UBS. Unknown Analyst: Nice update here again. Can I ask about the Spring Valley stream? And sorry, I joined a little bit late, so I may have missed this, but the payment profile can you remind me of the various conditions for the payment and the profile of time line, please? Haytham Hodaly: Yes, you bet. I mean, still, I would say, of the $670 million, the majority of that will go in during development. There'll be a small amount that goes in upfront, approximately, I would say, $310 million over the next -- well, close to $310 million over the next 6 to 12 months, I would say. And then the remainder will go in alongside the company's equity investment. So we put in $120 million, they put in $120 million, and we do that a couple of times until we get to the $670 million number. Randy Smallwood: It's strip fed over the construction other than a small amount ahead of construction starting just to get some equipment orders in and stuff like that, but it's trip fed over the construction, which is expected to start shortly. Unknown Analyst: Yes. Okay. No, that's great. And then just talking before about all these asset opportunities coming up, some large ones, like that $900,000 per ounce -- sorry, the [ $870,000 ] rather GEO profile by 2029. Is it fair to assume there's potentially a bit of upside here with new streams like Spring Valley given the environment is so strong right now? Do you think that [indiscernible] is a bit of... Randy Smallwood: Yes. Not only that, a lot of our existing operations and start-ups have announced accelerated plans for start-up and for expansions. We've got Blackwater moving forward with expansions. Platreef has accelerated their ramp-up in production over that 5-year period. Salobo itself also is fine-tuning in terms of trying to improve throughputs and recoveries. And so we -- even the existing portfolio without the new acquisitions has made that forecast look very conservative and gets us even closer to that 1 million ounce number sooner than later. Thank you, George, and thank you, everyone, for your time today dialing in. Our record-breaking performance over the first 9 months of this year underscores Wheaton's position as a premier low-risk choice for investors seeking exposure to gold and silver. Recent transactions in low-risk jurisdictions underscore the quality of opportunities we're pursuing. Our corporate development team continues to see strong demand for streaming as a source of capital, and we are excited about the pipeline of opportunities that lie in front of us. With our high-quality operating portfolio, 100% streaming revenue, sector-leading growth profile and unwavering commitment to sustainability, we offer shareholders with one of the most effective vehicles for investing in precious metals. We thank all of our stakeholders for their continued support as we enter this exciting period of sustained organic growth. We look forward to speaking with you all again soon. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
Antonio Alonso-Muñoyerro Hernández: Good morning, everybody, and welcome to TR's 9 Months 2025 Results Presentation. It is going to be conducted as usual by our Executive Chairman, Juan Lladó; and our CEO, Eduardo San Miguel. It's going to last approximately 20, 25 minutes. And afterwards, you will be able to post your questions after our Chairman's final remarks. And now I leave the floor to our Chairman, Juan Lladó. Juan Arburua: Hello, everyone, and thank you, Antonio, and good morning, and thank you for joining us today on our 9 months results presentation for this 2025. As always, Eduardo San Miguel and I will guide you through the most relevant issue that have taken place this first 9 months of the year. First, Eduardo will summarize the main highlights from our very recent Investor Day. And second, I will dive a little bit into our current commercial pipeline. And I will be followed by Eduardo, who will guide you through our financial results. And as always, again, I will wrap up the presentation with some financial remarks and our financial guidance. And now Eduardo, you have the floor. Eduardo San Miguel Gonzalez De Heredia: Thank you, Juan. Good morning, everyone. I know well most of you are aware of the contents we covered in our October Investors Day. But for all those that could not attend the meetings, let me devote now a couple of slides to summarize the key messages. Let's start with Services and Power. Regarding our new business line of engineering services, we are already halfway towards our 2028 target of EUR 500 million of revenues. In fact, we expect this year to have around EUR 230 million in revenues and over EUR 300 million of awards. We are prioritizing our engineering service business line because of 2 reasons. First, because it delivers higher margins and has a lower execution risk. The 30% margin we announced in Abu Dhabi when we launched our SALTA strategy is aligned with our actual results. And second, because through value-added engineering services, we are repositioning Técnicas Reunidas in the market. Clients perceive us as long-term partners that contribute to design together with them their future investments. In the Power business unit, we have significantly raised our ambition. Between 2020 and 2024, annual revenues averaged around EUR 300 million. Now looking ahead for the next 4 years, we are targeting over EUR 1 billion per year. This shift is driven by a combination of secure contracts, backlog and a strong commercial pipeline. There is a huge demand for electrification. Both artificial intelligence and governments seeking for a cleaner energy are pushing this demand. Our expertise, our track record, the geographical footprint and the close relationships we have with the EOMs are solid reasons to believe our EUR 1 billion target of revenues per year shouldn't be a major challenge. If we move to North America, my message is we are making solid progresses in the region. A key milestone achieved has been the signature of a strategic alliance with Zachry. This partnership with a company that highly complements our capabilities will unlock opportunities in the LNG and power segments in the United States. But also, we have signed engineering framework agreements with most of the major U.S. oil and gas players. Through those frame agreements, plus the project co-development we are already involved in and the FEED conversions, we expect our first big projects to come in the U.S. late 2026 or early 2027. When it comes to decarbonization, Técnicas Reunidas is more than ready for the future. Very few projects have been launched this year. But if there is one that deserves a very special attention is the Yanbu Green Hydrogen cluster that will FEED the green corridor of hydrogen between Saudi Arabia and Europe. This project will require the construction of the largest ammonia plant in the world. And the FEED and potential rollover to EPC has been awarded by ACWA to Técnicas Reunidas together with our partner, Sinopec. And finally, through artificial intelligence, digitalization and robotics, we are unlocking a new source of revenues and also improving our competitiveness. Our goal is 1% of cost savings by 2028. I'm confident that this goal will be achieved, thanks to over 150 professionals with extensive engineering, procurement and construction experience that today integrates the digital team. And now Juan will analyze our current pipeline. Juan Arburua: Okay. Let's move into the next slide, the pipeline. This slide has a lot of information, numbers, maps, bars. So let's just see if we can make good sense out of it. The first and important message is that we have a very strong pipeline, EUR 36 billion -- I mean, EUR 86 billion, sorry. And EUR 86 billion is split into EUR 84 billion, which is EPC or EPC related, and that can be clarified, and EUR 2 billion on pure services, okay? That's one tranche of the pipeline. And we have to remember that pipeline are where we're bidding, where we're going to bid, where we have been selected or invited to bid, or even a rollover from FEEDs that will become EPCs or similar to EPCs in the near future. Those are jobs on which we're participating and we're close to the -- with the customer, which is important. And let me start with North America because North America, I do believe is a star. And why you do I believe it's a star because we would not have been in this slide 2 years ago. So the fact that we have 33% of the pipeline in North America, I think, very much reflects TR's strategy, transformation and repositioning, which is very important and reflects focus and a clear mind and a clear strategy. But we need some clarification as well because when we're talking about 33% of EUR 86 billion, don't think that it's pure EPC lump sum. That's not the way we do work, and that's not the way that the North American market works. It's going to be a mix of engineering services or engineering and procurement lump sum with construction management services. So it's going to be a mix that, in any case, would not be a pure lump sum EPC as we have understood or you may understand that we do in other parts of the world, more so in the Middle East. That is very important. That's why I wanted to start by North America. We have opportunities, as Eduardo has said, in all the fields, opportunities in LNG, opportunities in power and opportunities in important jobs related with decarbonization. And now let's move into the Middle East. Middle East is -- this is where we're strong. This is where we have a strong presence. And this is -- and it's a place that we like to be. We like to be because our quality and our presence allow us to be selective and allow us to be selective and focus on the jobs and on the customers with whom we want to work for. And what you have seen on the awards over the last year, we have been successful, very successful with very important customers on the upstream offshore business that we wanted to be. We have been extremely successful, as Eduardo has just reflected, on transition energy, green ammonia plants. And we have recently been very successful, which very much reflects our successful strategy on services. So in the Middle East, the pipeline is strong, is resilient and is growing. So it gives us a level of comfort for the near future. And Europe has been always less important to us. Today, it continues to be important. It's very much important on power. We'll talk about that later on. And obviously, on energy transitions where we have a very important presence. So this slide, I think there is a lot of information, but it is very important. It is where we are today and what is going to be our near future on 2026 and 2027. And let's move to the next slide. It is in the pipeline, but not in the backlog, some of the jobs that have been awarded to us, which are related to services, services that have been contracted on pre-FEEDS and FEEDs, but they have a natural -- and that's what we have agreed with the customers. They have a natural rollover as the project progresses into detailed engineering, procurement services and construction supervision. And that is going to happen. That's very important in North America, but also in other parts of the world and in the Middle East. Our repositioning into services translates and again, it's not in the backlog, that is in the pipeline into natural growth into more than $400 million on services, on jobs that we have -- we are already working. And we'll have to slowly roll over into detailed engineering into real projects. And in power, same story. And in power and very specifically, the best example would be power, although there are other products. It is Power Europe and more specifically, Germany and RWE. We have signed and the last one has been recently announced, 3 contracts with RWE, the main generation -- power generation company in Germany. The contracts are signed and the contract -- that means they have been signed by ourselves and by our partner. The first 2 is Ansaldo and the last one, we'll talk about that later on, is GE. That means that we have a contract signed, early activities have to start. Early engineering has to start as well. Engineering has to do for the balance of plant and the coordination, and pre-engineering has to be done with our partner, Ansaldo, in some of the cases, and GE in the last one. And eventually, when the full contract comes into force, it will become -- we'll have the backlog. Now its pipeline larger than EUR 1.4 billion. So that's better clarified on this slide because we have just announced it last week with the last award. And this last award that I just talked about a little before, it is with GE. We have been selected again by RWE for a hydrogen-ready combined cycle. What does it mean? It means that it will be a combined cycle that initially you could operate on a 50-50 mix of natural gas and hydrogen, and then moving forward, if needed, to 100% hydrogen. The contract has been awarded. Again, we have already started to work with them and with the GE on early activities and early engineering. It's not included in the backlog, and it will be included in the backlog when the contract comes fully into force. So this, again, shows both the good strategy, a successful strategy on the Service and Power that Eduardo has introduced to you a few slides ago. And now, allow me to pass the floor to Eduardo with the financial results. Eduardo San Miguel Gonzalez De Heredia: Okay. We closed the third quarter with EUR 1.8 billion of sales, 29% higher than the second quarter. This massive increase as announced in our Investor Day is due to the acceleration plans we are currently implementing all across our portfolio in the Middle East, plus the growth of our revenues linked to the Power division. EBIT of the period closed at EUR 84 million with an EBIT margin of 4.5%. It is the 12th quarter in a row that EBIT margin keeps growing. Moreover, this third quarter EBIT, EUR 84 million is 78% higher than the EBIT we had a year ago. I'm proud to repeat it, 78% higher than the EBIT we had 1 year ago. We are not blind. We're not blind. Existing market is giving us good opportunities to improve our margins. But I would like to emphasize also this strong performance is the result of 2 key factors: first, an outstanding project execution across our backlog; and second, the implementation of solid risk mitigation policies. Overall, these results reinforce our confidence in the trajectory we've set for Técnicas Reunidas. We are not growing for the sake of growing. We are growing with clear targets and efficiently. And let me repeat today my Investor Day message, the best is yet to come. And eventually, these are our balance sheet figures. Our net cash remains at EUR 427 million, a level that has proven to be more than enough to allow us growing and manage efficiently our business. You are well aware, our policy is to channel as much liquidity as possible to our suppliers and subcontractors. And regarding equity levels, we ended September in a robust position of EUR 698 million. So both equity and cash figures allow us to repay in advance the full SEPI PPL and the ordinary loan next December 1 as announced a month ago. And now let me give the floor back to Juan. Juan Arburua: Okay. My final remarks. Okay. I do believe it has been a short presentation, but a very important presentation. I think our pipeline and obviously, our year-to-date results, it fully reflects the success of our TR strategy, the strategy of transformation and the strategy of repositioning. As Eduardo has said, we're growing, but it's a quality growth. We're not growing for the sake of growing. We're growing with a focus and would target growth, and very important, a quality growth. A quality growth that allows me, allows TR, allows TR's team to present to you a guidance for 2025 with revenues above EUR 6.25 billion. keeping a 4.5% margin, which will result on an EBIT number in the neighborhood of EUR 280 million. And for 2026, which is next year, again, our revenues will be north of EUR 6,500 million with a margin above 5%. And with these numbers, with this presentation, we open the floor now to any questions you may want to post. And thank you very much for listening. Operator: [Operator Instructions] And your first question comes from the line of Kevin Roger from Kepler Cheuvreux. Kevin Roger: I have two, if I may. The first one is related maybe to the phasing of the backlog. You increased implicitly once again the top line guidance, while a month ago, it was already massive, thinking about the midpoint, plus 17%. So can you just give us a bit of more detail on why the top line is once again accelerating for the full year, now seen as EUR 6.25 billion versus EUR 6.1 billion a month ago, just to understand the dynamic here? And the second one is more broadly -- and tell me if I'm wrong, but I have the feeling that in the press release and in the comment that you made today, you are even more optimistic than a month ago with quite some strong quotes in the press release, in the presentation that you provided today. So just also, first, am I wrong saying that you are even more optimistic today than a month ago? And if it's true, what has, in a way, maybe changed? Is it the official award for RWE that is coming? Just to understand also the tones that you have today in my view. Eduardo San Miguel Gonzalez De Heredia: It's Eduardo. Thank you for the questions. Very good questions, both of them. The first one, I don't know if you're asking about the numbers. We had a backlog, it was EUR 3.5 billion. I think we have delivered EUR 1.8 billion. And we have added to that backlog volume. I don't know exactly the number. I think it was around EUR 0.6 billion that has to do with those acceleration plans, extension of times we were talking in the Capital Markets Day or Investor Day here in Madrid. But I think my -- your question is good. Why you are delivering more revenues than expected 1 month later? My answer for you is I have to tell you about my last two travels, one to Abu Dhabi and the other one to Saudi. I went to Saudi 3 weeks ago and to Abu Dhabi 4 weeks ago. And the message in both cases with the clients have been, there are another 2 projects we want to accelerate. And those projects that are already accelerating have to move faster. So we will see. It's a bit difficult for me to predict now the immediate figures because the pressure we are suffering from our clients to accelerate and to finish the project is huge. It's huge. So it wouldn't be crazy to see again the fourth quarter being very similar to the third quarter in terms of revenues. And also, you have to bear in mind that the U.S. dollar is stronger than it was 3 months ago. So it will have an impact both in the revenues and in the cost side, but it will finally increase the volume of revenues as well. So this business is alive. Every week, things are changing. And I have to be very honest to you, I feel huge pressure from my clients to accelerate more than feasible in any case. I mean we are doing the best to achieve very strong targets, very hard targets. So we will see how the figures -- the revenue figure will evolve in the forthcoming 3, 6 months. And regarding the optimism, maybe, Juan, do you want to... Juan Arburua: I think it's true. I've tried on the couple of slides that I presented to transmit optimism and probably more than I have done before. And probably more than I have done before because it's true that we're traveling a lot. As we do, our presence in North America starts to consolidate the conversations, the frame agreements, the invitations to bid, the success of the pre-FEEDs we are ready of finishing and moving into FEEDs. The FEEDs that we are finishing with our customers, they're moving into real projects. They will be moving into real projects, which means detailed engineering, procurement and construction one by one. I'm talking about North America. Power business, our invitations to bid, the size of the market, the strong relationship that we have with our customers, the market that we have to face in front of us, our position in a very important area that sometimes was criticized because some people would say that we had too much risk. Once we are well positioned, I'm talking about the Middle East, our capacity to grow in the Middle East with whom we want to grow, to move and to grow in services and to grow in transition is very important just that we have gotten in transition and power in the Middle East. And again, with whom we want to grow and allow us -- everything is paying off and allow us to be optimistic. We see end of 2025 this year, but we see 2025, 2026 and 2027 with far more optimism than we had. I'm not going to say 2 years ago, definitely 2 years ago, I'm saying that even 3 months ago. Operator: And your next question comes from the line of Juan Cánovas from Alantra. Juan Cánovas: I have two questions. The first one is how do you manage to carry out those project acceleration? How does it affect your costs, if you could give us some detail about that? And then just to make sure, is this contract in Germany with RWE and perhaps also some of the services pipeline expected to be signed into contract and add to the backlog during the fourth quarter of this year? Juan Arburua: Regarding the acceleration of the project, Basically, we can really accelerate this in the procurement phase and in the construction phase. In the procurement phase, we have been doing a lot of work in the last 6 months to be ready for the moment that the client finally decides to go ahead with the acceleration plan and compensate it. So that's the reason why you see such a quick acceleration in such a short timing because we have done a lot of job previously that now it is paying off. If we -- I'll give you an example. If I have fully designed a specific equipment and I put it in the market in 1 day, the job has already been done, but the effect that has this design in the progress of execution of a project is very relevant. very relevant. So we have a lot of job that you couldn't see before, but now it is being reflected in our accounts. So the acceleration cost has to do -- sorry, the acceleration of price has to do with accelerated procurement. So you also have to pay your suppliers to construct the equipment faster. And obviously, they need more resources. They need to procure the raw materials faster. So you need to advance them a lot of money also, but it is the way it works. And when we talk about construction, basically, the idea is what is being done by 1,000 people is double what can be done by 500 people. So what you need is more people, more people. So the idea is we are talking with all our contractors. We are telling them to increase as much as they can the human resourceables -- sorry, the human resources available at the sites. And when they don't have the capacity, we are talking to other contractors that will adapt the needed capacity. So we are splitting the scopes of the original contractors into different new contractors. So it's the way it works. I mean, we have also to multiply the size of people from Técnicas Reunidas supervising the construction. Everything has a significant cost, and that's what the clients are paying. I mean that direct cost for Técnicas Reunidas and for our contractors and suppliers. Regarding Germany and other service projects, are they going to be signed in 4Q 2025? No. No. Finally, no. It will be in the second or third quarter of 2026. Operator: And your next question comes from the line of Robert Jackson from Santander. Robert Jackson: A question related to the North American market. Are you seeing any signs of changes in sentiment regarding investments related to the energy transition projects compared with the last 6 months? I mean you've been talking about acceleration, especially in the Middle East, of your more traditional projects. But is there any significant improvement or are things the same as they've been this year in North America because there's still concerns about the impact of the tariffs on certain investments? I don't know is there -- can you just give us more visibility on the North American market? Joaquin Perez de Ayala: Robert, this is Joaquin. Let me say, in the low-carbon business, what we -- you know that we have always said that the opportunities that we are following have very good fundamentals and have -- are being supported by the strong partners, okay? So the first message would be that the opportunities that we are following are still being ahead, okay? And I would say, even reinforced because in the last weeks, we have seen, I would say, strengthening of the message of the partners that we work with, okay? That will be the main ideas. It is also true that some of the recent developments in the regulations are going to be clarified in the coming weeks, okay? And this is going to give, from our point of view, additional support to the projects that we are following. Robert Jackson: What about the timing of your services activity and your potential opportunities in North America? We expect -- could we expect in first half of next year or more towards the second half of the next year in terms of your pipeline in the U.S.? Joaquin Perez de Ayala: I would say that we will see good developments of our projects by the second half of the year for sure. Eduardo San Miguel Gonzalez De Heredia: And regarding the tariff... Juan Arburua: Let me, again, speak on this. I mean, obviously, this is -- I mean, the tariff business here is one day is one thing and next day is another. So I mean, I cannot do a very intelligent analysis of what's going to happen with the tariffs. But I can give you some feedback of what our customers have said to us. Eduardo and I, we were in the U.S. last -- Houston last week, and we were working on some projects, and we were studying with the customers some projects. Those projects have to be modelized. And they were saying that despite tariffs, which they are uncertain, the jobs are going to go through and models, they're going to be done, very large part of them, outside the U.S. And even with tariffs -- even if they happen with tariffs, it will be more competitive. So the message is with or without tariffs, the jobs will go ahead. That was the feedback that we got with the 3 customers that we sat last week in Houston. Operator: And your next question comes from the line of Mick Pickup from Barclays. Mick Pickup: A couple of questions, if I may. Just on the acceleration of the projects, how do you get paid for that? Is that bonuses if you get these done on new accelerated time frames? You just talk us through that. And secondly, you're talking about growth in the Middle East. Obviously, I've just come back from ADIPEC, and it's the first time in 5 years, I've not seen an E&C contract signed. I can see one bidding in Abu Dhabi and not much in Saudi Arabia. So can you just talk about the growth in the Middle East over the next 12 months, what we should be looking at there, please? Eduardo San Miguel Gonzalez De Heredia: How do they pay us as they used to? I mean, they have put a lot of pressure on us trying to accelerate. We have agreed the compensation, but they are not that generous in terms of schedule of payments. But it is a fact that in every case, we are receiving a kind of down payment. I mean they are advancing some money because the only way to accelerate is to put the money on the table to our suppliers and contractors. But being honest to you, I mean, this is not going to be much sooner. Antonio is suggesting me to tell you that it's going to be a pari-passu. I do not agree with him. I'm afraid we are going to advance some money to our suppliers, and then we will collect the money from our clients. But that's common. I mean the whole business is working in that way. There's nothing extraordinary in those acceleration plans. Regarding Middle East... Mick Pickup: Can I just add? So when the project is late, your client holds your feet to the fire and it costs you money. When you accelerate a project for a client, they don't end up paying you bonuses if you do it early. Eduardo San Miguel Gonzalez De Heredia: Sorry, I couldn't understand the question. Now I understand it. In some cases, what we have negotiated with the clients is that there would be an extraordinary compensation in case we achieve certain milestones in certain moments. But give or take, the overall agreement has more to do with, okay, we need to complete that in this period of time, and this will be the global compensation that has to be add up to the original value of the contract. So there are no significant differences in the way they treat the payments, okay? And the second question, Juan, maybe you want to... Juan Arburua: Yes, Mick, let me talk about the second question. I mean, in the very short term, we have in some countries. In the Middle East, we have presented bids, and we have good expectations. In some other countries, we're getting ready and sitting with the customers to prepare bids within the next 3, 4 months related to the upstream and even offshore business and where we have positioned ourselves quite strongly in some of those countries. In some other countries, again, the power bidding continues and positioning continues. I don't want to say country, but some other countries, what we call the growth in gas treatment out of nonconventional sources, again, is growing and is continually growing and they have big investment plans, and they have to continue growing to provide gas for the development of the country. So I mean, there is not a lot of noise of immediate bidding, but there is a lot of noise of big investments coming up in the very short term on both -- on power upstream and gas. I mean, offshore, I mean, upstream oil and gas. And let me tell you, we're better positioned than we have ever been. Operator: [Operator Instructions] And your next question comes from the line of Filipe Leite from CaixaBank. Filipe Leite: I have just two questions, if I may. The first one on working capital. And if you can give us more visibility regarding the working capital consumption of this third quarter? And how do you see working capital evolving in the next quarter? And last one also on cash flow, in this case, prepayments, and if you can give us the amount of prepayment booked by TR on 9 months?. Eduardo San Miguel Gonzalez De Heredia: Filipe, sorry, there are problems with the line, and we cannot hear you clearly. But we have listened working capital and prepayment. So I can imagine the question. If something happens, Técnicas Reunidas is a huge discipline that has to do -- with everything that has to do with cash, that's what's the definition. As you can imagine, being the CFO of this company for 20 years, the way I try to manage the company is with the highest discipline. Saying so, I know perfectly every euro is relevant for a company. But when you analyze the big picture that the company has grown its revenues compared to a year before around -- well, I told you 80% -- 78%, the total volume of revenues. When you see that our balance sheet, the balance sheet has grown. I mean, the account receivables and accounts payable around 30% compared to the figures we had by the end of year 2024. And it amounts around EUR 3.5 billion, I mean, of account receivables and of accounts payable. When you see how it works in business that milestones from time to time for a specific project are very separate one from the other. So it takes a long time to be invoicing your clients and then collect the money once you have already delivered -- sorry, not delivered. You have already been incurring the cost and from time to time, you have been forced to pay the contractor. I mean, it's a very difficult business, and it's of a massive size. So when we analyze the working capital quarterly -- on a quarter basis, every little movement, I don't know how much reflects our performance. I have to be honest with you. I do really believe that the quality, the way we manage our cash is the best possible. We have a clear philosophy that the money has to be, if possible, in the hands of our suppliers and subcontractors. And obviously, it has an impact in the working capital quarter after quarter. But believe me, if there is anything here is discipline with the cash. That's very clear to me. And you asked something about prepayments. Well, last project awarded to TR was the project in Abu Dhabi 7 months ago. So the inflows coming from prepayments this year have not been that relevant, and a large part has already been consumed. I don't have a figure with me now. But again, you used to ask me about prepayments, but you don't ask me about the withholdings of the clients, the retentions they do and they pay at the end of the project. You don't ask me about the prepayments I do to my subcontractors. You are missing many questions. And probably, we need to make a more complete analysis. But in terms of prepayments from our clients, it's a fact that there has been only one relevant prepayment this year. It happened 6 months ago, and a large part has been passed to our suppliers. Operator: [Operator Instructions] There are no further questions at this time. Please proceed. Juan Arburua: Okay. There are no further questions. So we can finish this presentation. Thank you very much for listening. Thank you very much for posing questions. It clarifies many things to all of us. And we'll be talking again, I guess, with the final year-end results by February. So see you all or talk to you all in February. Thanks again.
Operator: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust Third Quarter 2025 Conference Call and Webcast. As a reminder, this conference call will one. I am Jennifer Suess, senior vice president general counsel, ESG and corporate secretary of RioCan. Before we begin, Jennifer Suess: I am required to read the following cautionary statement. In talking about our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objective its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plan estimates, intentions, and similar statements concerning anticipated future events results, circumstances, performance, definition prescribed by IFRS and are therefore unlikely to be comparable similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows and profit RioCan's management uses these measures to aid in assessing In making these forward-looking statements, together with details on our use of non-GAAP financial measures, can be found in the financial statements filed yesterday and management's discussion and analysis related thereto as applicable, together with RioCan's most recent annual information form, that are all available on our website and at www.sedarplus.com. I will now turn the call over to RioCan's President and CEO, Jonathan Gitlin. Jonathan Gitlin: Thank you, Jennifer, and good morning to everyone joining us today. We are pleased to share our Q3 2025 results. RioCan's operating momentum accelerated this reflect con Q3 retention ratio of 92.7% highlights the value tenants place on space in RioCan assets. This demand translated into strong performance with commercial same property NOI up 4.6%. RioCan is operating from a position of strength. Our performance is driven by a number of factors but relies heavily on our focus on tenant quality and disciplined asset manage from top-tier necessity-based retailers. These retailers are not just getting by. They are focusing on growth. They are proving out their strength and ability to thrive in any economic backdrop. These tenants exemplify the caliber of retailers that can comprise RioCan's portfolio. This supply-demand imbalance is most acute where RioCan's assets are concentrated. Our properties are in Canada's major markets with an average 277,000 people and a $155,000 household income within five kilometers. Our strategy is straightforward. We optimize our portfolio by selling For the current environment, and we are pleased though not at all surprised, to see our portfolio and tenants performing exceptionally well. This is the benefit of a tenant mix that features necessity-based retailers with strong balance sheets, that provide everyday needs. Canada remains an attractive market for our tenants, and our centers are ideally located to support their growth. RioCan's leasing spreads remain at record highs. We There are 10.7 million square feet of leases coming up for renewal at a relatively consistent pace over the next three Combined with our at the same time, we are retaining strong established tenants to reduce downtime and capital requirements. high-quality tenants for our properties. When opportunities emerge, we Alternatively, we also like to help our reliable established tenants expand their existing footprints within our assets. We put our platform to work and we help those tenants by seeking out opportunities in adjacent and surrounding space and help them execute on the enhancement and expansion of existing space. We are excited to share a number of examples to demonstrate this strategy at work later this month at our Investor Day. Our strong quarterly performance beyond the numbers. It reflects the quality of our portfolio, and the discipline behind our strategy. We previously indicated our plan to repatriate Interest in six Based on the quality and desirability of our RioCan Living assets, we are highly confident in our ability to continue to monetize these assets and to put the capital to work accretively in the numerous capital allocation opportunities we have at our disposal. Our business is rooted in a well into the future. I will wrap up in a moment. But before I do, I would be remiss if I did not mention that our commitment to excellence was further validated by our impressive performance in the 2025 GRESB assessment. Among other recognitions, we maintain regional sector leader status in The Americas under the retail sector and the first rank among North American retail peers in the standing investment assessment. So as we look at our outlook remains aligned with the guidance we provided in the first quarter. FFO per unit of $1.85 to point eight Quality. Necessity-based retail space, and Canada's major markets. Our leasing strategies are fueling organic growth, and our disciplined capital management is amplifying my growth now and for the future. We are excited to share more at our Investor Day on November 18. Our team is energized. Our strategy is clear and our portfolio is positioned continued success. Thank you for your time today. I look forward to your questions. And This increase was driven by 4.6% growth in same property income in our core commercial portfolio the benefit of unit buyback. Partially offset by high interest expense. Total FFO was also impacted by the following items that are not compared with Q3 2024. Lower fee and interest income due to residential inventory completions had an impact of 1%. Reduced NOI and fee income related to the former HPC locations had a combined FFO impact of 2¢ per unit compared with Q3 2024. It is a $148 million of net fair value losses We have a significant amount of long-term debt potential in our portfolio. However, given the stagnant land and development market, it is important to ensure that we are maximizing income from the existing retail on our properties. As such, freeze. Removes any ambiguity related to these sites. Freeing up our leasing team to maximize retail rents by offering longer lease term to our tenants. The second category attributable to a significant totaling $25 million relates to assets that are high quality but with lower growth potential proportion of fixed renewals so relates to three large Toronto-based residential rental buildings. We have seen weakness in rent growth and occupancy in submarkets where there is high competition from condo delivery. We have reduced the stable was $24.19. Which is approximately 29% above the current unit price. Going forward, we will focus on compounding NAV by and for the four HBC locations. With asset plans for 12 of the 13 location. As previously we will only participate in stated, assets where we would expect strong return on capital. And Actual provisions record recorded. This chapter is substantially With a 186 thousand square feet delivered, With approximately $70 million remaining to be spent for the balance of the year, and our committed capital for development construction in 2026 of only $15 million we will have significant flexibility going forward to invest capital where it is most accretive. In addition, we have delivered 61,000 square feet of retail infill development. This is an area where we invest in our core portfolio to drive attractive returns through growth in NOI and NAV growth. And will be a continued area of focus. We expect approximately $1.3 billion to $1.4 billion of capital We are repatriating a significant amount of capital to our balance sheet. from the sales of residential rental buildings and pre-sold condos over the course of 2025 and 2026. So far this year, we have brought in nearly $500 million of capital. $314 million in total asset sales, of which $250 million has been from the sale of five residential assets sold so far this year. Bringing the total sold to six buildings. With the sale of a number of others in process. A hundred and sixty-three million is from condo closings, resulting in the repayment of a $128 million of construction loans point three million of guarantees. and the removal of three hundred and We expect the remaining condo units at the end of the year to be valued at approximately a 100 continue to improve. Our adjusted spot debt to adjusted EBITDA improved to 8.8 times solidly within our target range of eight to nine times. Our unencumbered asset pool grew to $9.3 billion. Our ratio of unsecured debt to total was 64%. Our liquidity was $1.1 billion. Our balance sheet provides us with financial flexibility take advantage of opportunities as they arise. As I conclude my remarks, is important to mention that our result are driven by our best in class platform. This includes our team of very talented and hardworking people. ERP system migrating our systems to the cloud, and employing analytical reporting and tools. This ensures that our teams have the best information analysis available as they execute our strategy. Whether it be negotiating a lease, investing in a retail infill project, or buying and selling assets, we ensure that the relevant data is available and the collective knowledge of our organization is brought to bear. We apply a continuous improvement mindset to ensure that we the tools available to our people driving efficient processes and effective decision making. With that, I will turn the call over to the moderator for questions. Operator: Of course. We will now begin the question and answer session. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset Our first question comes from the line of Sam Damiani with TD Securities. Sam, your line is now open. Sam Damiani: Thank you, and good morning, everyone. next couple of years. Lots going on here at RioCan, and it is exciting to see you in next I just wanted to start off. I think, Jonathan or Dennis, one of you mentioned in numerous capital allocation opportunities in front of you right now. I wonder if rate quite a bit more on that at our investor day. So I do not want to, put too much emphasis on it today, just leaving something to talk about when we see you next in two weeks from now. But I will give you the most obvious ones. Right now, the opportunity that are highly accretive and also beneficial scope. So really looking at properties that we own are infill development, in our retail where there is existing retail, and we can make it better through the creation of additional retail pads and strips. And we are now at a position where the rents justify the, the expense of building out those those, additional square footage. And then the other is obviously NCIB, which we have participated in the past given where our stock or where our units are trading. Relative to NAV and, you know, what we we feel is an immediate FFO Return on for that? Dennis Blasutti: No. I think that is right. And I think what is also important is to just note what what Jonathan did not mention, which is you know, we are we are winding up our mixed-use development program. That is just not a priority for us. Right now in terms of any large construction at scale. So yeah, I would agree. Putting money back into our own portfolio, retail portfolio is a is a great use of capital right now, and it is hard to ignore the stock price. Sam Damiani: Okay. Great. And I look forward to, November 18. Next my second question is on, I guess, the fair valuing or the fair value changes you detailed on the quarter. Just Want to be clear. The the 90 odd million dollars take taken on the on the density asset Footage? Dennis Blasutti: I am just gonna go into it here. Math quick here. It is just call a little over $500 million of total density value still on the balance sheet. When you kinda put that against you know, almost 20 million square feet of of zone density It is a pretty low value on a per square foot basis. Sam Damiani: That is great. Thank you, and I will turn it back. Jonathan Gitlin: Thanks, Sam. Thanks. Operator: Thank you for your question, Sam. Our next question comes from the line of Brad Sturges with Raymond James. Your line is now Brad Sturges: Renewal rent spreads. Continue to improve even with a higher proportion of fixed rate auctions. Do you think you you kind of hit a peak at that point? Or how do you expect your rent spreads to trend over the next few quarters? Jonathan Gitlin: You know, we preached in the in the prepared remarks about the sustainability of the conditions. I cannot predict precisely where our renewals spreads will be, but we do think it is gonna be a strong market for landlords like RioCan given the strength of our portfolio going forward. I do not see a catalyst to change these conditions in the near or medium term simply because there no new supply, and we recognize that the tenants that we are dealing with are typically very much in, in in growth mode. So we really do see the ability to continue achieving solid rent spreads. We are not providing specific guidance at this point, but we have said in the past mid-teens, and that is, again, a a pretty comfortable spot. And so I think it is, it is you know, the if you look at also the opportunity said, as I mentioned in my prepared remarks, we have got over ten million square feet that will be up for renewal over the next three years on a pretty consistent basis. And there is a significant mark to market. I mean, if you look at the rents that we wrote Q3, they were over $29, and that compares favorably to the average rents we have across our portfolio, which is in the $22.50 range. So that is about a 30% range that we feel very capable of bringing in through a a strong renewal process. Brad Sturges: Sounds good. And just a follow-up to that. Just with respect to next year's expires, is there anything that stands out in terms of anomalous or would be unique or would be pretty similar to what you experienced in 2025? And and know, kinda see that consistent results going forward. For next year. Jonathan Gitlin: Yeah. I mean, beauty of scale, Brad, is that we really, we have so many properties with so many tenancies. And even if there is one or two larger renewals coming up that might be like a Walmart renewal with flat, with a flat provision, It is offset by so many other renewals that do not have flat provisions or they go to market. So there might be one or two larger or three or four larger tenants that will come the scheme of things, they will not change our guidance or outlook. for renewal that might be a little bit flat. But, again, I will look to John Ballantyne just to see if I have missed anything there. John A. Ballantyne: No. You have not, Jonathan. And, I would also add, you know, again, we are gonna sound like a broken record, but we are going to unpack this a little more in our Investor Day in two weeks. is in our existing leases. Namely, you know, where we think the mark what the actual mark to market And how that is gonna unfold in the same property revenue over the next, three years. Brad Sturges: Okay. That is great. I will turn it back. Appreciate it. Jonathan Gitlin: Thanks, Brad. Operator: You for your questions. Our next question comes from the line of Mario Saric with Scotiabank. Your line is now open. Mario Saric: Hi. Good morning. Just a really quick one on each HPC and specifically the Ottawa location. Seems like it is the one asset where plans are still forthcoming. Do you have a sense of, the timing of clarity on that asset? Jonathan Gitlin: Thanks, Mario. Good morning. There there is no defined timeline at this point. We have got a few different options that we are exploring, and we endeavor to keep everyone apprised of how those unfold. But, you know, again, as we have always unless there is committed, we are not gonna put any significant capital into these assets a logical return that competes with our other capital allocation opportunities. Mario Saric: Okay. And then, shifting gears you know, some institutional interest coming into the multifamily space. So as it pertains to RioCan Living or something, any incremental demand how does that change the timeline in terms of so so I do not know if the acid. Jonathan Gitlin: Timeline is still intact. I would say that the demand for our new builds, rent control, limited CapEx Residential portfolio has been consistent throughout. I do not think there has been significant ebbs and flows. Flows in the in the demand for them. In terms of the profile of buyers, we have not really seen much of a change. We have had a pretty wide spectrum of buyers or interested parties thus far, and that has not changed So the the timeline both institutional and private. We remain confident in our goal. Mario Saric: Right. Oh, and so just last question. As it pertains to the Investor Day, I am asking what you may disclose. But is the retail environment today your confidence level in the portfolio today such that you feel comfortable disclosing one year, three year targets on some of the key metrics? Such as FFO, same store NOI, etcetera. Jonathan Gitlin: Yeah. We are we are gonna give some pretty thorough outlooks. I think it would be a letdown at Investor Day if we did not. So we we will certainly leave you with a good outlook on the next, few years. Okay. Promise not to this point. Alright. Thanks, Mario. Operator: Thank you for your questions. Our next question comes from the line of Michael Markidis with BMO. Your line is now open. Michael Markidis: Thanks, operator. Good morning, guys. Congrats on the strong core portfolio results. Thanks, Just wondering if you could help us think about property management and other service fees and interest income have been a fairly significant contributor to your your business on the earnings side over the last couple of years, and it is starting to moderate. How should we think about the trajectory those two line items going forward? Jonathan Gitlin: I will start an In terms of property management fees, co-owned, and we are always the manager for we have a, a a set of of properties that are those. Whether the number of co-properties increases or decreases, I think would be a marginal marginal component of those fees going up or down. So I do not think they will be much much to add there. But we are an entrepreneurial organization. We are always looking at ways to continue to use the strengths that we have. And one of those strengths is a very strong platform here at RioCan. And so we will look to at opportunities to utilize that to create fee income. But it is it is hard to predict at this point what exactly those will be and how much they will be for. So I I think I think, you would be a to speed. Be pretty level. On that one. Michael Markidis: Okay. And one of the other fee a little bit as well. Because it was there there was a layer somewhat to development. We do occasionally do mortgages on behalf of properties that are co-owned. Which will add a bit of fees here and there. But not I do not see that as a meaningful contributor going forward. Michael Markidis: Okay. That is helpful. Thanks so much, guys. Jonathan Gitlin: Thanks, Mike. Operator: You for your question. Our next question comes from the line of Matt Kornack with National Bank of Canada. Your line is now open. Hey, good morning. Matt Kornack: Good morning, guys. I was wondering if you could just help a little bit on bridging kind of the current quarter more in line with to future quarters in terms of HPC kind of any incremental capital deployment related to the, I guess, three assets that you own? And the NOI generation, what would maybe be in this quarter versus what will be in future quarters considering your more of those income-producing assets. Jonathan Gitlin: Dennis? Dennis Blasutti: Yeah. Sure. So on the three assets that we are backfilling, we had given a a guidance range of about a 100 to a $120 per square foot. Equates to approximately $25 million. In total for capital outlay on those. So that is that is the the number there. You know, we had messaged that we would see you know, we had about 8¢ of FFO coming in you know, from from HBC. For you know, in total, that that was gonna go away. We will claw back some of that with the acquisition of George and and Oakville and and the backfills. Probably about a penny in in 2026. And then about 2 pennies in 2027 as the tendencies ramp up. Matt Kornack: Okay. That is helpful. And then just on the nonrecoverable operating costs, they have been a little elevated this year starting in, I guess, Q4 2024. Is that onetime in nature? Or is that a change in kind of the portfolio Just trying to understand where those should head over. The next year. Jonathan Gitlin: John, do have a thought on that? John A. Ballantyne: Yeah. I actually do not, Matt. We will, we will take a better look at that and get back to you with an answer. Matt Kornack: Okay. Fair enough. That is it for me. Thanks, guys. Jonathan Gitlin: Thanks, Matt. Operator: Thank you for your questions. There are no questions registered at this time. So as a reminder, it star one to ask a question. Alright. I am showing no further questions at this time. I would now like to pass the conference back to President and CEO Jonathan Gitlin. Jonathan Gitlin: Thank you, everyone, for dialing in. We will look forward seeing you at our Investor Day. Coming up in two weeks. Operator: Thank you for your participation. You may now disconnect your line.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to HEI Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mateo Garcia, Director of Investor Relations. Sir, please go ahead. Mateo Garcia: Welcome, everyone, to HEI's Third Quarter 2025 Earnings Call. Joining me today are Scott Seu, HEI President and CEO; Scott DeGhetto, HEI Executive Vice President and CFO; Shelee Kimura, Hawaiian Electric President and CEO; and other members of senior management. Our earnings release and our presentation for this call are available in the Investor Relations section of our website. As a reminder, forward-looking statements will be made on today's call. Factors that could cause actual results to differ materially from expectations can be found in our presentation, our SEC filings and in the Investor Relations section of our website. Today's presentation also includes references to non-GAAP financial measures, including those referred to as core items. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. We will take questions from institutional investors at the end of this call. Individual investors and others can reach out to Investor Relations. Now Scott Seu will begin with his remarks. Scott W. Seu: Aloha kakou! Welcome, everyone. For today's call, I'll start with an update on our continued progress on initiatives to improve our company's financial strength and resilience. I'll also touch on the ongoing implementation of our wildfire safety strategy and update you on the tort litigation settlement. Scott DeGhetto will walk through our financial results, and then we'll open it up for questions. In the third quarter, we continued to take actions to ensure that we're best positioned to serve the communities in which we operate for the long term. We had a successful quarter progressing the initiatives we've talked about for much of the last 2 years, implementing wildfire safety improvements, advancing the Maui wildfire tort litigation toward final court approval and laying the groundwork for a successful second multiyear rate period under our performance-based regulation, or PBR framework. We also improved our liquidity and financial flexibility through a successful debt issuance and the upsize and extension of our revolving credit facilities, which Scott DeGhetto will discuss. In February, and as we had requested, the PUC issued an order establishing that Hawaiian Electric's target revenues should be rebased ahead of the second PBR multiyear rate period set to begin on January 1, 2027, and that a general rate case type proceeding is the most efficient means for doing so. In August, we requested PUC approval to pursue an alternative non-rate case process to rebase rates. The innovative process would involve collaboration with the existing PBR working group parties to develop a rebasing proposal for the PUC's review and approval, and it would avoid the time, cost and resource burden typically required for a formal rate case proceeding. If successful, the process could result in rebased rates before the next multiyear rate period begins. We also made this proposal in recognition of the multiple resource-intensive processes that the PUC and other interested parties are and will be undertaking related to the newly enacted Act 25. These include a wildfire recovery fund study due by the end of 2025, securitization financing and a rule-making process to determine utility liability limits for catastrophic wildfire claims. In l ate September, the PUC granted our request directing us to collaborate with the PBR working group parties to develop a rebasing proposal by January 7, 2026. If this process does not result in an approved rebasing proposal, Hawaiian Electric will file a 2027 test year rate case sometime in the second half of 2026. In that scenario, the PUC will determine whether the start of the next multiyear rate period will be pushed out beyond January 2027. Turning to Slide 4. We continue to see progress toward implementation of the Maui wildfire tort litigation settlement agreement. The process to obtain final court approval is advancing with the parties working through remaining administrative steps required for the settlement to take effect. These include final approval of the class settlement agreement and a formal dismissal of the subrogation insurer claims. We expect the court to hold a hearing on January 8, 2026, to consider final approval of the class settlement agreement. And last week, we filed a summary judgment request to dismiss the subrogation insurer claims. In sum, the settlement is on track and progressing as expected, and we still anticipate that our first payment will be due no sooner than early 2026. Turning to Slide 5. We continue strengthening our utility operational risk profile, which we believe has greatly improved since the 2023 Maui wildfires. In the third quarter, we advanced implementation of the enhanced wildfire safety measures outlined in our wildfire safety strategy. We fully deployed all weather stations and AI-assisted high-definition video cameras outlined in our strategy ahead of schedule. For the first time, the utility now has its own in-house meteorologist, part of the utility's newly created watch office that will help us better predict and prepare for potential dangers from severe weather events. These are just a few examples of the many advancements we've made to help ensure the safety of our communities. We'll continue to make these kinds of critical investments as laid out in our wildfire safety strategy which is currently under review by the PUC. As we discussed last quarter, recently enacted legislation allows for securitization to finance these investments, ensuring these safety improvements can be implemented at a lower cost to customers. In summary, we continue making significant progress toward resolving the wildfire tort litigation, improving our operational risk profile and laying the foundation for a strong long-term outlook. I'll now turn the call over to Scott DeGhetto. Scott Deghetto: Thank you, Scott. I'll start with our financial results for the quarter on Slide 6. In the third quarter, we generated net income of $30.7 million or $0.18 per share. Quarter's results include $4.5 million of pretax Maui wildfire-related expenses net of insurance recoveries and deferrals. Approximately $3.6 million of these expenses was recorded at the utility. Excluding these items, which we refer to as non-core, consolidated core net income was $32.8 million for the quarter or $0.19 per share. This compares to core income from continuing operations of $32.7 million or $0.29 per share in the third quarter of 2024. Utility core net income for the quarter was $39.6 million compared to $43.7 million in the third quarter of 2024. The decrease was driven by lower tax benefits from R&D tax credits, higher legal and consulting costs, which were deferred in 2024 and higher wildfire mitigation program expenses. Holding company core net loss was $6.8 million compared to $10.9 million in the third quarter of 2024. The lower core net loss was driven by lower interest expense due to the lower debt balance following the April debt retirement and higher interest income from holding company cash being held on the balance sheet primarily to make the first settlement payment. Turning to the next slide, I'll provide a few key updates on our liquidity and settlement financing plans. As of the end of the third quarter, the holding company and the utility had approximately $40 million and $504 million of unrestricted cash on hand, respectively. In addition, the holding company has approximately $519 million in combined liquidity available under its ATM program and credit facility capacity. The utility also has approximately $544 million of liquidity available under its accounts receivable facility and credit facility capacity. In September, we completed a successful $500 million unsecured debt offering at Hawaiian Electric, while also increasing our credit facility capacity at HEI and Hawaiian Electric by a combined $225 million. Proceeds from the Hawaiian Electric debt issuance will be used to finance CapEx and pay down debt. Both September transactions not only enhance enterprise-wide liquidity, but also show our readily available access to capital markets. Consistent with last quarter, the Hawaiian Electric's Board of Directors approved a $10 million quarterly dividend to HEI for the third quarter of 2025. Turning to our funding expectations for the tort litigation settlement. $479 million continues to be held in a subsidiary created for addressing the first payment. This is included in restricted cash on the balance sheet until we make the first payment, still expected not sooner than early 2026. We expect to fund the second settlement payment with debt and/or convertible debt and expect that payments thereafter will be funded with a mix of debt and equity depending on market conditions. Turning to the next slide. CapEx is projected to increase significantly in the coming years compared to historical levels. The higher CapEx will support key strategic objectives of reducing wildfire risk, increasing reliability and resilience and repowering firm generation. We expect to fund the higher spend primarily with retained earnings and proceeds from our recent debt issuance. As Scott Seu mentioned, we are working through the rate rebasing process with the PUC and PBR working group parties. We are also awaiting PUC approval of our utility wildfire safety strategy. In October, we filed an application to increase the total cost for the Waiau repowering project and the application remains subject to PUC approval. The results of these regulatory proceedings will impact our capital expenditure forecast. With those caveats, we are expecting 2025 CapEx to be approximately $400 million. We expect 2026 CapEx of $550 million to $700 million. Of this total, CapEx recovered under the annual revenue adjustment mechanism, or ARA, is expected to be $350 million to $400 million. EPRM recovered CapEx is expected to add roughly $150 million to $200 million. Wildfire and resilience CapEx, which we are planning to finance via securitization is expected to be approximately $50 million to $100 million. We expect 2027 and 2028 CapEx to increase further, driven by the Waiau repowering, the wildfire safety strategy and the Army privatization project. Roughly $1.8 billion to $2.4 billion in total CapEx is expected over the next 3 years from 2026 to 2028. This level of spend is subject to additional PUC approvals and further resource adequacy initiatives and analysis. With that, let's open up the call to questions. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Jamieson Ward: It's James Ward on actually for Julien. How should we think about the revenue requirement and timing under the alternative rebasing filing, the Gen 7 filing? What are the key elements that you're looking to align with the PBR Phase 6 modifications and so on? So just that revenue requirement and timing. Scott W. Seu: Well, let me address the timing first, and then I'll perhaps ask either Scott or one of our utility team to comment on some of our goals for the rebasing process. So as I mentioned, we are now -- we requested the PUC approval to enter into this alternate rebasing process. So the discussions with the PBR parties are underway. The proposal for rebasing is due to the PUC on January 7, 2026. And should that be successful, then we would go from there. If the proposal is not successful, then at that point, later on in the year, we would consider filing for a 2027 test year rate case. So that's just a high level in terms of what the timing is. And maybe I can defer to perhaps Joe Viola, who is our Senior Vice President at Hawaiian Electric Company, Head of Overseeing Regulatory Affairs. Joe Viola: James, again, yes, Joe Viola here. In terms of what we're shooting for, for the rebasing process, really the way I think to think about that is we're setting a new starting point for the second multiyear rate plan. So we want to put ourselves in a position that we have new target revenues that would allow us with efficient performance to begin to earn our authorized ROE. At the same time, we'll be developing potential changes to the next multiyear rate plan, we call that MRP2, scheduled currently to begin in 2027. So working on setting a new starting point and then at the same time, have changes to the PBR framework that can make it successful during MRP2. Jamieson Ward: Very much appreciated. Given that utility dividends have resumed, albeit in a small amount, but what's the sustainable cadence of utility to holdco dividends through the settlement years? And what are the gating criteria? Scott Deghetto: So it's Scott DeGhetto. So what we have been doing, and I think you're aware of this, is the utility dividend to the holding company, at least over the past year or 2 has been set based on what the needs are up at the holding company. I don't see that changing for the foreseeable future. Jamieson Ward: Got you. Okay. Just checking. That's very helpful. And the last one for me. really appreciate the CapEx guidance, which you obviously mentioned was a goal for you guys on the Q2 call. So well done, and thank you for that. As we look forward, how do you think about earnings guidance and ultimately, of course, EPS, which will have to include the financing element there. Could we see EPS guidance in the Q4 call? Or is that not something we should put expectations on? Scott Deghetto: So too soon to say. Again, we really have been looking at reinstituting earnings guidance, but we really don't want to do that until we get through the final settlement approval process and put that behind us. And so there's a possibility that it could be at that particular point, but I wouldn't count on it. It just all depends on when the final settlement will be approved, and then we'll take a look at how the business is performing on a steady-state basis and get back to you. Now keep in mind, going into the rate rebasing process, right, it's going to be hard for us to give guidance. We might be able to do it for a few quarters. But again, going into that process, we won't know the outcome of that process. And so what we don't want to do is give you guys guidance and then have to go back on that guidance or change it dramatically. Operator: Your next question comes from the line of Nicholas Campanella with Barclays. Michael Brown: This is Michael Brown on for Nicholas Campanella. Can you provide an update on the sale of the remaining portion of the bank? Scott W. Seu: You're talking about the remaining or 9.9% ownership on American Savings? Michael Brown: Yes. Scott Deghetto: Yes. So we're always looking at what's going on in the market. And as we've said on previous calls, we do intend to monetize that stake. We haven't really given a time frame on it. I would say certainly -- I wouldn't say certainly, but probably in the next 6 months or so, we probably look again pretty hard at that and see what it looks like. But we're not committing to a specific time line at this point. Michael Brown: Next question for me. What are the expectations of the commission's report on the wildfire fund going into the new legislative window? Scott W. Seu: Yes. So the Public Utilities Commission, they have been working on the study that is due to be submitted to the Hawaii State Legislature 20 days before the next legislative session starts. So that is on track. They have been working on information gathering, collecting stakeholder input. And they are -- as far as we know, they are on track to submit that report. Michael Brown: With the report, do you anticipate movement in 2026 on any key legislation? Scott W. Seu: It's -- I don't want to get ahead of the PUC. I'm not quite sure what will be in that report and whether they will recommend that legislation is needed next year. So too soon to say. Operator: That concludes our question-and-answer session. I will now turn the call back over to Scott Seu for closing remarks. Scott W. Seu: I just want to thank all of our shareholders, and a lot of our shareholders are our neighbors here in Hawaii. So again, thank you, Mahalo, for your continued investment in HEI. We're also very thankful to those of you who supported our successful debt issuance in September. Again, we just really greatly appreciate your support as we continue to help our communities move forward to a sustainable future. So thank you. Mahalo, everybody. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to AbCellera's Third Quarter 2025 Business Update Conference Call. My name is Cameron, and I'll facilitate the audio portion of today's interactive broadcast. [Operator Instructions] At this time, I would like to turn the call over to Tryn Stimart, AbCellera's Chief Legal and Compliance Officer. You may proceed. Tryn Stimart: Thank you. Hello, everyone. Thank you for joining us for AbCellera's Third Quarter 2025 Earnings Call. I'm Tryn Stimart, AbCellera's Chief Legal and Compliance Officer. Dr. Carl Hansen, AbCellera's President and CEO; and Andrew Booth, AbCellera's Chief Financial Officer, are also on today's call. During this call, we anticipate making projections and forward-looking statements based on our current expectations and in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially due to several factors outlined in our latest Form 10-K and subsequent Forms 10-Q and 8-Q (sic) [ 8-K ] filed with the Securities and Exchange Commission. AbCellera is not obligated to update any forward-looking statements, whether due to new information, future events or otherwise. Our presentation today, our earnings press release and our SEC filings are available on our Investor Relations website. The information we provide about our pipeline is intended for the investment community and is not promotional. As we transition to our prepared remarks, please note that all dollars referred to during the call are U.S. dollars. After our prepared remarks, we will open the lines for questions and answers. Now I'll turn the call over to Carl. Carl L. Hansen: Thanks, Tryn, and thank you, everyone, for joining us today. Last quarter, we completed our transition from a platform company to a clinical-stage biotech with the initiation of our Phase I clinical trials for ABCL635 and ABCL575. Both trials are progressing to plan and remain on track for readouts next year. I'm pleased to report that this quarter, we have also started activities at our new clinical manufacturing facility, and we have substantially completed our platform investments. We ended the quarter with approximately $680 million in available liquidity to execute on our strategy. And as we close out the year, we are confident in achieving all our corporate priorities, including advancing at least one more development candidate into IND-enabling studies. A highlight of this quarter was the appointment of Dr. Sarah Noonberg as Chief Medical Officer. Sarah is a physician-scientist with over 20 years of clinical drug development experience. She is a broad -- she has worked across a broad range of modalities and indications and has led programs through all stages of development from discovery through to approval. You can expect Sarah to join future earnings calls to provide updates on our clinical pipeline. With Sarah taking the helm, Dr. Geoff Nichol will be stepping down as our SVP of Development. I'd like to thank Geoff for his leadership in building development as we transitioned from a platform company to a clinical-stage biotech. And with that, I will hand it over to Andrew to discuss our financials. Andrew? Andrew Booth: Thanks, Carl. As Carl pointed out, AbCellera continues to be in a strong liquidity position with approximately $520 million in cash and cash equivalents and with roughly $160 million in available committed government funding to execute on our strategy. We are continuing to execute on our plans with a focus on internal programs and leveraging our CMC and GMP investments. Looking at our business metrics. In the third quarter, we started work on one additional partner-initiated program, which takes us to a cumulative total of 103 programs with downstream participation. With Phase I trials for ABCL635 and ABCL575 underway, we maintained the cumulative total of molecules to have reached the clinic at 18, including both our own pipeline and those led by partners. As we have stated previously, we view the overall progress of molecules in the clinic as a potential source of near and midterm revenue from milestone -- from downstream milestone fees and royalty payments in the longer term. Turning to revenue and expenses. Revenue for the quarter was $9 million, predominantly from research fees relating to work on partnered programs. This compares to revenue of approximately $7 million in the same quarter of last year. With respect to research fee revenue, as we have mentioned in the past, we expect these to continue to trend lower as we increasingly focus on our internal pipeline. Our research and development expenses for the quarter were $55 million, approximately $14 million more than last year. This expense reflects the focus on investment in our internal and co-development programs. The increase over the recent run rate expense levels in Q3 is largely due to specific investments of $15 million on 2 internal programs. In sales and marketing, expenses for Q3 were just under $3 million, a small reduction relative to the same quarter of last year. And in general and administration, expenses were approximately $22 million compared to roughly $19 million in Q3 of 2024. Included in these expenses are the ongoing expenses related to the defense of our intellectual property. Looking at earnings. We're reporting a net loss of roughly $57 million for the quarter compared to a loss of about $51 million in the same quarter of last year. In terms of earnings per share, this result works out to a loss of $0.19 per share on a basic and diluted basis. Looking at cash flows. Operating activities for the first 9 months of 2025 used approximately $97 million in cash and equivalents. Excluding investments in marketable securities, investment activities amounted to $49 million year-to-date. This is predominantly in property, plant and equipment, driven by investments in establishing clinical manufacturing, which are now substantially complete as we had expected. The investments in PP&E were partially offset by government contributions. And as a part of our treasury strategy, we have $413 million invested in short-term marketable securities. Our investment activities for the quarter included a $62 million net divestment of these holdings. Altogether, we finished the quarter with $523 million of total cash, cash equivalents and marketable securities. And as a reminder, we have received commitments for funding for the advancement of our internal pipeline from the Government of Canada's Strategic Innovation Fund and the Government of British Columbia. This available capital does not show up on our balance sheet. And with over $520 million in cash and equivalents and the unused portion of our secured government funding, we have approximately $680 million in available liquidity to execute on our strategy. In addition, we have available liquidity in our ownership of both Vancouver-based lab and office buildings as well as our GMP manufacturing facility, both of which have been financed off of our balance sheet. The operating cash usage for the remainder of 2025 will continue to prioritize advancing our 2 lead programs through their Phase I clinical studies and building a strong preclinical pipeline. With respect to our overall company expenditures, our capital needs are very manageable, and we continue to believe that we have sufficient liquidity to fund well beyond the next 3 years of increasing pipeline investments. And with that, we'll be happy to take your questions. Operator? Operator: [Operator Instructions] The first question comes from the line of Malcolm Hoffman with BMO. Malcolm Hoffman: Malcolm on for Evan. I want to ask how to think about partner-initiated programs in the clinic. These look somewhat stagnant since 2024. And to be clear, we appreciate the conversion to more AbCellera-led development. But just wanted to understand why these partner-initiated programs may not be progressing clinically. Is it just a timing issue? And then a second one about Dr. Noonberg and her new role as CMO. Can you comment on why you felt like now was the appropriate time to bring Dr. Noonberg in? And what do you think she uniquely brings to AbCellera that the company may have lacked before? Carl L. Hansen: Sure. So I'm happy to take that one, Carl Hansen here. So first, on the partner-initiated programs. So as you know, in the early stages of the company and through until 2023, our business was primarily focused on a partnership mode where we were doing discovery on behalf of partners and keeping a position in the resulting molecules, both in royalties and in milestones. We have handed off a large number of those. And as Andrew mentioned, I believe we have initiated about 103 programs to date. We do expect that some fraction of those are going to move forward into clinical development, and we continue to report on that. I would say that our experience has been that it takes longer than we had initially anticipated. So we have examples where programs that were handed off ultimately go into clinical development as much as 6 years later. So it's difficult to make an assessment as to what will be the number of those that ultimately make it into clinical development. But we do think that there is value there that's going to accrue over time, as mentioned by Andrew on his prepared remarks. Moving to the question of bringing Sarah on. Obviously, in 2023, we made the definitive decision to back away from that partnership business and to move into doing drug development on our own behalf. Over the past few months, we've succeeded in bringing the first 2 programs into clinical development. We have a robust pipeline coming behind that. And as the portfolio matures, we definitely thought it was time to bring in a senior executive with experience in clinical development and also that the company was at a position where we would be able to attract someone that was absolutely top-notch. So we're thrilled to have Sarah on board, and we look forward to working with her and with you over the coming years as the pipeline matures. Operator: The next question comes from the line of Andrea Newkirk with Goldman Sachs. Andrea Tan: Carl, I was just wondering if you might be willing to speak a little bit on the data disclosure strategy that you plan on taking for the Phase I 635 study, particularly given you do have the various cohorts, SAD/MAD dosing as well as the proof-of-concept section where you're evaluating efficacy. Just curious if this will all come within one disclosure. And then if you could help frame expectations for the profile you would deem supportive to continue advancing this further into a Phase II study? And then I have one follow-up following that. Carl L. Hansen: Thanks, Andrea. So to your first question, our expectation is to make a single disclosure after we have completed the proof-of-concept part where we have a double-blind, placebo-controlled evaluation of ABCL635 in the patient population that it's intended for. We do expect that will come sometime in the new year. I think we had said before around mid-new year, but give that a couple of months on either side for error bars. What we're looking for is that we have a safety signal, and we have efficacy that shows that we're in the game to have a competitive product against the other products that are now in the market. And the study is powered to do that. So somewhere around midpoint next year, we should know a lot about this program. So far, we're encouraged by what we're seeing. Everything is on track. And if that continues on track, then we're getting ready to be in a position to aggressively move it into later-stage trials. Andrea Tan: Got it. Okay. And if you do achieve your desired target product profile when you see the data emerge next year, how validating would that be for your platform and technology? And do you think there is read-through to the rest of your pipeline? Carl L. Hansen: It's a great question. So we have highlighted before that one of the areas where we've been investing for a long time and where I believe we have world-class capabilities is in making antibodies against ion channel and GPCR target. Obviously, NK3R is a GPCR target. So it's the first from that platform to move forward. I think that's strong evidence that the platform is working and that we can make highly differentiated molecules. Of course, evidence of a platform doesn't happen with a single asset, and our intent is to follow that up again and again with other molecules from that pipeline that we're equally excited about. Operator: The next question comes from the line of Stephen Willey with Stifel. Joshua Nickerson: This is Josh on for Steve. Is there anything you can tell us about how enrollment is going in the Phase I trial for 575 and maybe potentially some color on some of the doses you've reached in this cohort? Carl L. Hansen: Sure. So in terms of enrollment, as I mentioned, the program is going as expected. So everything is on track and at the pace that we anticipated. We are not disclosing preliminary results in terms of how far we got in dosing. But as I said, we're encouraged by what we're seeing. And so far, everything is as expected. Joshua Nickerson: Okay. Great. And then just another quick one. I know you said on the 2Q call, you were in line to declare a potential fourth AbCellera-led candidate by the end of this year. Are you guys still on track to do so? Carl L. Hansen: Yes, that's correct. I think I said that in my prepared remarks that we are on track before the end of the year to bring an additional development candidate forward, and that would be the fourth in the pipeline. Operator: The next question comes from the line of Faisal Khurshid with Leerink Partners. Faisal Khurshid: On 635, could you speak to us about whether there's a specific benchmark or bar that you would want to see on testosterone reduction in healthy male volunteers? Carl L. Hansen: Sure. So I wouldn't point out a specific level, but there is good literature out there disclosing testosterone levels from small molecules that were in development, particularly fezolinetant. And so we would, within the power of the study, look for something that shows that we're getting engagement that is at least as good as that to move forward. Faisal Khurshid: Got it. Okay. And then could you also discuss the risk of engaging this target with a mAb given it's a CNS target? Carl L. Hansen: Sure. That's a great question. I think it's one that I touched on an earlier call. So we believe that the pathway, the NK3R pathway is very well validated. And so that if we can engage NK3R in the relevant neurons, that it's highly likely to be an efficacious drug. The NK3R is expressed in KNDy neurons in the arcuate nucleus. And those neurons connect both to the endocrine system and also go through the blood-brain barrier into the thermoregulatory center of the brain. So we expect that we should be able to engage NK3R in the arcuate nucleus. And given our understanding of the biology, we believe that, that should be sufficient to be efficacious in treating VMS. But of course, we have not yet proven that. And so we need to wait for the proof-of-concept study and that readout to have conviction to move the program forward. Operator: Next question comes from the line of Steve Dechert with Key Corp. Steven Dechert: It's Steve on for Scott. I was hoping you could talk about what the benefits are of 635 versus existing hormonal treatment for hot flashes. And then as a follow-up, are there any molecules currently being developed that would compete directly with 635? Carl L. Hansen: Sure. So 635 is not being developed as a substitute for hormonal therapies. It's being developed as an alternative to menopausal hormone therapy. I think as I mentioned on a previous call, there are roughly 12% of women that have a strong contraindication against using menopausal hormone therapy. In addition to that, about 8% that end up discontinuing because of adverse events or tolerability. So there's a significant portion of women that have fewer options or cannot avail themselves of MHT, which is the first-line therapy for treating VMS. In terms of alternative therapies, of course, there are now 2 molecules that have approval. One is VEOZAH by Astellas and one is Lynkuet by Bayer. Those are both now on the market. We believe that we have -- we're in a great position to have these 2 products out there, providing good options for people that need these treatments and build the market for us so that we can come in with a molecule that we believe can be differentiated in dosing, in safety and potentially also in efficacy, depending on how we do a target engagement. Operator: The next question comes from the line of Brendan Smith with TD Securities. Jacqueline Kisa: This is Jackie on for Brendan. Just a quick one and maybe just to remind us, with earlier in competitors like DUPIXENT [ and Sanofi's assets ], what do you expect we need to see from the Phase I data for 575 to really solidify the drug's positioning within the pretty competitive landscape? Carl L. Hansen: Sure. So 575 is obviously coming behind amlitelimab and also rocatinlimab from Amgen. And our differentiation thesis when we began this program was really about less frequent dosing. What has happened recently, particularly with the readout in the COAST trial with amlitelimab is that they have shown that the class is efficacious, although not as efficacious as was expected -- as DUPIXENT had been on previous trials. So it looks like it's going to be approved as a second-line therapy. But they also showed that the 1-month dosing and 3-month dosing were relatively equivalent. So at this point, we have a drug that the data would suggest would allow for even less frequent dosing, perhaps 6 months. It's unclear how important that's going to be in a clinical setting. So our position in 575 right now is that we have a terrific molecule. The early readouts are going to show safety, obviously, but also PK and half-life that would support that dosing hypothesis. And probably the most important catalysts are going to come from outside of AbCellera, and they will be readouts on amlitelimab or the OX40/OX40 ligand class in other indications that are being evaluated by Sanofi and by others. Operator: There are currently no questions registered. [Operator Instructions] There are no additional questions waiting at this time. I would now like to pass the conference back for any closing remarks. Carl L. Hansen: Thank you, everyone, for joining us today. This is an exciting time for AbCellera, and we're moving into 2026 with some exciting progress in the pipeline, both in programs that are coming and what's in the clinic. And we look forward to updating you on future calls. Thanks so much. Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.
Operator: Hello, and welcome to Groupon's Third Quarter 2025 Financial Results Conference Call. On the call today are Chief Executive Officer, Dusan Senkypl; and Chief Financial Officer, Rana Kashyap. [Operator Instructions] The company has posted earnings materials, including earnings commentary on the company's Investor Relations website at investor.groupon.com. Today's conference call is being recorded. Before we begin, Groupon would like to remind listeners that the following discussion and responses to questions reflect management's views as of today, November 7, 2025, only, and will include forward-looking statements. Actual results may differ materially from those expressed or implied in the company's forward-looking statements. Groupon undertakes no obligation to update these forward-looking statements as a result of new information or future events. Additional information about risks and other factors that could potentially impact the company's financial results are included in its earnings press release and its filings with the SEC, including its quarterly report on Form 10-Q. We encourage investors to use Groupon's Investor Relations website at investor.groupon.com as a way of easily finding information about the company. Groupon promptly makes available on this website the reports that the company files and furnishes with the SEC, corporate governance information and select press releases and social media postings. In the call today, the company will also discuss the following non-GAAP financial measures: Adjusted EBITDA and free cash flow. In Groupon's press release and their filings with the SEC, each of which is posted on its Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. And with that, I'd like to turn it over to Dusan, to make a few opening remarks before we jump into Q&A. Dusan? Dusan Senkypl: Hello, and thanks for joining us for our first quarter 2025 earnings call. It's great to be with all of you today. Yesterday, after the market closed, we released our earnings and posted our earnings commentary on our Investor Relations website. Today, I will make brief opening remarks and then open up the call for your questions. For more details on our quarterly performance, I encourage you to read our full earnings commentary, press release and 10-Q. I'm pleased to report another strong quarter that demonstrates continued momentum in our transformation journey. Global billings grew 11% year-over-year, making our second straight quarter of double-digit growth. Our core local category continues to be the engine driving this growth with North America local up 18% and international local, excluding Giftcloud, up 15% year-over-year. Combined, our core local category now represents 89% of billings and grew 18%, reinforcing the scalability of our hyperlocal marketplace playbook. We delivered adjusted EBITDA of $18 million, ahead of our expectations, and our trailing 12 months free cash flow reached $60 million. This demonstrates our ability to generate strong profitability and cash flow while continuing to invest strategically to accelerate our top line. On the demand side, Q3 reflects the compounding benefits of systematic improvements across our marketing engine. We drove healthy growth in our paid market performance channels, supported by a modest increase in marketing spend and improving ROI. We added nearly 300,000 net new active customers quarter-over-quarter and 1 million plus over the last 4 quarters, excluding Italy, a strong signal for the overall health of our marketplace. On the supply side, our hyperlocal focus is working. All 4 major international markets delivered a second consecutive quarter of double-digit growth. In North America, our focused hyperlocal city strategy is paying off. Chicago is now our biggest city and growing at nearly double the rate of North America local overall. Things to do had an exceptional summer season with its seventh consecutive quarters of strong double-digit growth. On the technology front, our platform velocity is accelerating meaningfully. Deal page conversion rates improved 13% year-over-year in North America, and we are seeing faster development cycles and higher quality releases as our modernization efforts translate into tangible business capabilities. Looking ahead, our strategic priorities remain clear, accelerate top line growth towards our goal of over 20% billings growth while generating strong adjusted EBITDA and free cash flow. The momentum we are seeing across customer growth, category performance and platform capability gives me confidence that we are building the foundation to become the trusted destination for quality local experiences at unbeatable value. We are still in the early innings of a large opportunity to build a hyperlocal experience marketplace that combines trust, curation, quality and unbeatable value with the network effects and unit economics of modern marketplaces. I would like to thank our team. This is not an easy journey and their continued commitment to our mission and to our transformation has been really great. With that, let's open the call for questions. Operator: Our first question comes from Bobby Brooks from Northland Capital. Robert Brooks: Something that really caught my attention was the commentary that after allocating the focused sales resources to Chicago at the start of the year, it's now growing double the rate of North American local. So just a few questions on that. But first, is it right for me to then think that Chicago local billings was growing in the high 30s? And a follow-up, could you just discuss a bit more in detail what those focused sales resources look like and the notable actions they took? Dusan Senkypl: Yes. Thanks a little bit for the question. I can take it. So our Chicago efforts started already last year, where we reallocated disproportionately a higher share of our sales resources and sales team to Chicago. And at the same time, as we are developing our -- let's how we call it, marketplace understanding and deal books and curation for sales, which means that we are more prescriptive in the terms of what we are asking ourselves to come with. Chicago is always the first in the pipeline. So we are really focusing on it so that we understand the inventory. We understand what's missing. We understand how our customers are behaving in Chicago. We understand what they are searching on Groupon. And then we are asking ourselves to come specifically and close the gap. And obviously, it takes several quarters before the results are visible in the numbers. But with the compounding effect, we need a very strong -- we see very strong impact on Chicago results. And obviously, this is a big learning for us. It's not really a surprise result. We were expecting that this will come. So we are expanding our focus on more cities, which we already did 2 quarters ago, and we are also expanding our marketplace understanding across the board so that this becomes the new golden standard across the board for all sales processes within Groupon. Robert Brooks: Got it. That's super helpful color. And then -- so it seems like this is a playbook that you're already in the process of expanding to other metros. I guess just for like context, you mentioned how you initially put those sales -- increased sales resources in Chicago last year. So is it like maybe -- was that like 4 quarters ago, 5 quarters ago? I'm just trying to get a sense of then maybe when we see the impact of those other metros and now you're using that playbook with -- start to kind of flow through results because I get that it's a lag effect. Dusan Senkypl: Yes. We were iterating the process, but you can think about it that we started approximately 4 quarters ago. With all new metros, we would like to see results faster because we have learnings, and it was also a process where we were improving pretty much every quarter and changing and fine-tuning the approach. So it should be faster with other metros. Robert Brooks: Got it. That makes sense. And then one more for me is just clearly got the sense of you guys' focus of making a customer journey kind of match a customer in the prepared remarks last night, I think you guys used the example of someone wanting to take their kids to a water park is going to be different than someone looking for an oil change. And so I'm just curious like how do you plan on having Groupon kind of provide a different customer journey? And I'm just curious kind of what that different customer journey would look like? Dusan Senkypl: So we have -- I would split it into 2 parts. One is a mindset shift, which was happening in Groupon in the last 6 to 12 months because in the past, we were looking on the marketplace as one product, running plenty of tests across the board and then quite often being surprised that we don't see a result. Now especially in the product department with new leadership, we changed the approach, and we are looking really on the results and test per category. So for example, we have our new map feature, but simply the map is relevant on some categories and completely irrelevant in some other categories. In the past, if we would release new app, we would say it's not bringing the results as expected. So let's forget it and let's jump to something else because the overall impact would be probably 0 or around 0. Now we can see that, for example, when you are looking for oil exchange, then the map is very relevant and we can show it and there are some other categories where actually we should not be showing the map. So we have this very category-specific approach in product development, which is changing the customer journeys across the board. And then there is a second very important technological enablement project for us. This is CDP or let's say, CRM for customers. We are building, and we already have a live pilot in the U.K., a new technology, which will be able to customize the messaging because the old Groupon tech stack is very limiting in terms of how we can target customers, how we can do personalization? So this is something which we are changing, and we want to be pretty much optimizing based on the behavior of every single customer on the website. And every user journey will be pretty much fitting the profile of that user. When we were doing some internal demos and showing it, it should end up with Groupon looking completely different for each customer simply based on the profile. Operator: Our next question comes from Eric Sheridan from Goldman Sachs. Eric Sheridan: Maybe 2, if I could. Building on parts of the last answer, when you think about purchase frequency, which you call out the difference in behavior between newer cohorts versus older cohorts, can you go a little bit deeper in some of the initiatives aimed at improving frequency among the newer cohorts against the type of user growth you've seen over the last 12 months? That would be number one. And then number two, when you think about the next 12 to 18 months and the intensity around marketing, how do you think about striking a balance between more direct response marketing aimed at either user acquisition or behavior against scaling from the brand advertising you talked about in the shareholder materials, just so we better understand the combined effort on marketing intensity over the next 12 to 18 months? Dusan Senkypl: Thank you very much for both questions, Eric. We are kind of interconnected. And I will start with purchase frequency and will be building on the last answer. We were talking about purchase frequency as a focus for the company probably the last 3 or 4 quarters. Yet we are reporting that we don't see material improvements. Internally, we see improvements in the repurchase rate of the cohort of new customers when we compare customers which we were acquiring last year versus customers which we acquire right now and look and, which -- what percentage of them is doing the second purchase typically within 30 days from the first one, we see improvement. So we know that the activities and plans which we have are directionally right. What's holding us back is really the tech limitation of our platform. And that's why I was talking about the CDP project implementation, which we have up and running in the U.K., and we will be expanding it very soon to the -- mainly to North America, pretty much rest of the Groupon, which would really allow us to design the specific journeys based on what customer did because we see that we are simply category-specific rules, our customers are buying the stuff which can be predicted, meaning that if you buy all exchange now, we know that most likely you will need it in like next 9 months and similar. Right now, we don't have the targeting capabilities. So this technology enabler is, I would say last major big missing piece in the marketing stack, which we have, so that we can accelerate on a purchase frequency. And the second part on the brand advertising in general, it's very hard to predict how exactly we will be running it, but we simply have based on our experience, we know that the brand is part of the marketing mix and especially, nowadays when the world is moving towards like social media influencers, this is a channel which can drive business significantly. We were piloting and we have some great influencers promoting Groupon, I would say, last 4, 5 quarters, and we are successfully growing it. But now we are adding into it like the video advertising, YouTube and other channels where we will be pushing brand. It's very hard to say how it will be impacting ROIs. Overall, we don't plan to change our strategy that we want to grow contribution of profit in the company. At the same time, if we see that the brand is delivering more than we were expecting, we would be adjusting the budgets between performance and brand advertising. But we will come back with more data in the next earnings call because our brand campaign starts in 2 weeks. Operator: Our next question comes from Bobby Brooks from Northland Capital Partners. Robert Brooks: I just wanted to circle back on -- it was great to hear the shift in tone on how you're kind of looking at the buyback from the prepared remarks last night, comparatively from the second quarter call. So I was just curious if you could maybe give us a look or a bit more color on the factors you guys will be considering when -- of making the decision of when to be stepping in the buyback? Or just any more general color on how to be thinking about it or modeling it going forward? Rana Kashyap: Yes, Bobby, this is Rana. I can take this. So I think you rightly noticed our commentary in the script, which I think you commented on was a little -- was different than what we said in the past. What we said in the past was fairly noncommittal. And I think this -- what we've said here is we expect to be opportunistic. And so we are evaluating the factors to consider here you asked about. We are looking at our cash generation, our investment priorities, what the market conditions are like and of course, the trading prices of our shares. So we will be opportunistic on the buyback, and those are the factors that we'll be considering in evaluating how to allocate our capital with respect to this channel. Robert Brooks: Got it. That's helpful. And then I just wanted to follow up, Dusan. I think with the customer frequency of the new cohort, I just want to make sure I understood it right. You mentioned that the new cohorts added in 2024 -- or I should say, the new cohorts added in 2025, their purchase frequency is higher than the cohorts added in 2024, albeit that 2025 new customers is still below the legacy customers. And am I understanding that correctly? Dusan Senkypl: On the operational level, so that we can drive these projects in a very agile way, we are pretty much following the, let's say, repurchase rate in the next 30 days, meaning when a new customer makes an order, we are looking what percentage of these customers is doing the second order within the 30-day interval because it's a leading indicator for the purchase frequency. And we can see based on the changes in projects which we started already in Q4 last year that there is improvement in this group. So this makes me strongly convinced that like the projects which we have in place are the right ones that they will be working. It's by adding right inventory. We were talking about the WOW Deals, but it's also about the communication at the right moment, right time, which is typically when the customer is redeeming and using the service which typically means a very good experience with Groupon. They are more open to next purchase. So this is confirmed to ramp it up. And so it's converted in the overall user base. We simply need to also step up with better technology so that we can target and personalize in a more advanced way. Operator: Our next question comes from Sean McGowan from ROTH Capital Partners. Sean McGowan: Kind of following up on some of the things you've talked about there. You've been now doing for quite a while, the reminding consumers of expiring Groupons and encouraging them to redeem them. Can you talk a little bit about what impact you've noticed on their purchase patterns, how likely they are to purchase an additional Groupon? Dusan Senkypl: Thank you, Sean, for the question. I am not able to share the exact numbers, but our analysis are showing that when the customer redeems, we simply have a much higher rate of the second purchase. And this is a project which we were talking about since last year. It takes a little bit more time versus what we were expecting because of the way how some Groupons are redeemed because with some merchants, we don't even have a redemption signal. So we have to do plenty of background work to improve the system and collect more inputs and signals from our merchant partners. But this is one of the -- like the priority projects. We will be also improving and expanding our review section, which is very highly related to the overall topic, and we will expect that it will translate into repurchase rate overall for all Groupon customers. Sean McGowan: Okay. And Rana, a quick kind of housekeeping question. I think you mentioned in the prepared remarks that the ex-Giftcloud International billings were up 15%. Can you translate that into what the revenue growth would have been at ex-Giftcloud? Rana Kashyap: So ex-Giftcloud, our revenue growth in Italy -- ex-Giftcloud and actively our revenue growth in Q2 was up 7.6%, so I think about 8%. Sean McGowan: Okay. Then back to you, Dusan. Quite a bit in the prepared remarks about AI. Can you give a little bit more color on what some of the benefits you're expecting to see from greater use of AI. Dusan Senkypl: So there will be and there are benefits both on the -- like how we are running the company, but at the same time, we see opportunities with customers. So I can start with like, let's call it, SG&A opportunities. AI is and will be increasingly more one of the factors which will be improving conversion of our sales team. We are doubling down and expanding our lead generation capabilities. We have the system now which is connected with our -- I talk about it as marketplace understanding so that we are feeding our legion engine with information, which businesses, which deals we need in what areas. So we will be sending to our sales team better quality leads, which when will be converted, will generate higher revenue versus just some poor leads in general which we had in the past. We have AI included in the, I call it, warmup communication with merchants to present the Groupon. And overall, we are adding AI tools to the whole sales process. For example, we were talking about the AI deal creation where we see that when we can present merchants during the sales call, how the deal will be looking on Groupon, it not only speeds up the whole process, but it's also increasing conversion. We already have AI used in supply monitoring where AI is giving deal insights and like guiding salespeople what should be changed on the deal to improve it and generate more for the merchant and more sales for Groupon and for customers. Obviously, engineering, it's pretty much everywhere, higher efficiency, higher quality of outputs, finance, also higher efficiency and marketing is scale and conversions like going forward, I expect that we will be able to drive growth of performance marketing and social and influencer marketing with same or smaller team. And recently, also we introduced the chatbot for our customer service where we expect that until now, the chatbot was -- or the customer service of Groupon was more really like a service. But going forward, we want to look at customer service as an advertising marketing channel because it's a touch point with customers, and we already have AI-driven chatbot, which is handling the initial part of the communication and then advanced system where our agents are pretty much guiding AI, how we should treat the conversation with customer and taking over just part of the communication with heavy help of AI. So this is on SG&A side. And then on the customer side, I expect that -- and it will be slower than everyone probably predicts now like always with new technologies that there will be a change in behavior, how customers are looking for services. So we are closely monitoring and working with partners and with our teams how to be ready for AI apps, how to have the website easy to read and communicate with AI engines so that we can find it. We are analyzing what are the really keywords, which are driving the AI traffic so that we can provide better results. Like going forward, and again, it will be slower than everyone expect. We believe that people will change the way how we are looking for stuff, and it will be more conversational and Groupon will be part of it. Ultimately, I see Groupon also as a kind of gateway for small businesses because it's very hard to expect that all small businesses who have quite often tough time just to run the business will be ready to have the solution ready working with all the key players. We will be ultimately connect with the platform which will be bringing all local merchants and small businesses to AI world. Operator: We'll now pose written questions to management that came in through our Investor Relations press line. Investors who are live on the line, if you have follow-ups, please raise your hand and we'll head back to you. Our first written question is in regards to marketing efficiency. Marketing spend rose 14% year-over-year to 37% of gross profit as you leaned into acquisition. How are you measuring marketing ROI across channels? And what early learnings are emerging from your new brand campaign in key markets like New York and Chicago? Dusan Senkypl: I can take that question. So first, brand campaign is starting in the next 2 weeks. So we don't have a lot of learnings from our own. Obviously, we were doing the homework and we were looking on how other companies were running brand campaigns to take the learnings. So we have positive expectations of the outcome. And in terms of performance of our marketing channels, based on the numbers which we were reporting, you can see that our marketing channels and paid marketing channels are performing very well. We have very good ROI. We are not changing our ROI goal of like 100% return within the 7-day window for all our performance marketing budget. And with this setup, although based on the results which Google and Meta are posting, you see that we are able to monetize better their traffic. We are still able to grow and improve the marketing with the exactly same ROI, which I consider as a great result. And based on the additional AI opportunities, I believe we still have a way to go. We still can grow the video part, the social part of the marketing. So I believe that part of our future growth will be coming from this area. And maybe one additional comment on this. At the same time, we see a shift of behavior of customers. We see that the AI PCs mainly by Google are simply decreasing the traffic coming from SEO. At the same time, we see higher conversion. So SEO overall for everyone, it's not just a Groupon specific topic, is definitely kind of a headwind. But at the same time, we see that there are opportunities with conversion and opportunities with AI, which will balance it. Operator: Our next written question is in regards to platform modernization. Your new app remains at roughly 3% of traffic with plans for a full North American cutover by early Q1 2026. What KPIs are you watching to gauge readiness for the full migration? And what incremental uplift in conversion or engagement have you seen from early adopters? Dusan Senkypl: So I'm happy to report that in recent weeks, we see quite major improvements, and that's why we are more optimistic with the rollout of the platform. The biggest learning and takeaway which we have from the app is that new mobile next app users have 10% to 20% higher engagement, which means that because app is easy to use, we are simply coming back to the application, relaunching it, looking what's available on Groupon more than customers using the legacy application. At the same time, it's not converted yet into conversion. The monetization is pretty much on par. That's why we are just decided that we will be ramping up the distribution for new users already now in Q4, and then we will really accelerate it in early Q1 because we feel much more confident about the outperformance right now. And the second part to this question is related again to the CDP or CRM platform, which would allow us to deliver personalized messaging because this is a tool how to improve experience for customers, deliver them the push notifications and in-app messages, which will be more relevant, and we see this as an opportunity for us for next year. Operator: We have a follow-up question from Sean from ROTH Capital. Sean McGowan: Yes, I noticed that last quarter and this quarter as well, travel seems to be doing better. So can you talk about some of the things that you're doing in travel that seem to be working? Dusan Senkypl: Rana, do you want to take that question or should I? Rana Kashyap: Yes, I can take it. So Sean, you correctly noted, our travel business has been doing well. Our travel business is still relatively small relative to the market opportunity and our business. We have had success this summer working with several large enterprise brands in travel that really fit with our proposition. And so what we've been doing there, these are actually existing customers that we're growing faster with, and what -- we've been working closely with them to understand their needs and designing and want to understand what our customer needs are and introducing more room nights, better deals. And that's been really successful. These properties also overlaid with many of the outdoor activities for the summer. And so that also, let's say, lines up well with our platform offering things to do experiences. And so that's really what drove travel this summer. Operator: And another follow-up from Bobby from Northland. Robert Brooks: One more for me. So obviously, a lot of discussion on the AI initiatives and kind of where you see the opportunity there. But I guess I was just curious like from the customer-facing perspective, is there anything as folks are checking out the website and looking for deals in the coming months, are any of these kind of AI initiatives going to be -- able to be directly seen when browsing inventory on the website or maybe through the app, whether it's the legacy or the new rollout one? Just curious to hear that color. Dusan Senkypl: So one internal project which we are running in this area is also really updated version of search and relevance platform for whole Groupon, which would allow us to unlock better opportunities, more personalization in general, in line with what I was talking about in the CRM project also. And the plan is that when we will have this platform released, we will be adding the AI search also on the Groupon platform. Until then, we released the functionality, which is not like pure AI, but which is like helping customers when they are typing the search query that we are adding the better suggestions, we are adding the related stuff based on the previous results. This is what we are already piloting on that new technology, but we expect much more when we will have it. And at the same time, we have a very heavy stream when we are making sure that our website is able to talk with all AI platforms because like our observation right now is that not many customers are really using the apps in OpenAI and other platforms. It's more still the organic language, help me find the Groupon deals in New York, for example, the query, which is quite often used in OpenAI or find me the deals for, I don't know, for the bowling during the weekend. And we want to make sure that our website is providing the feeds for AI agents so that it's very easy to incorporate our results in that natural language flow there. But obviously, we are and will be ready also for the upward when we will see some better numbers coming. We have projects which are covering it so that we are ready. But from like impact perspective, I believe that the bigger value right now is about the compatibility of the website to talk with AI engines so that it's easy for them to show our results. Operator: We have one final written question. Can you give an update on the Italian tax settlement? Rana Kashyap: Yes, I can take that one. And there are more details on this in our queue. But the headline is we continue to see progress there. Our Italian entity received an update that the proposed settlement we had -- has received several approvals. So that's good progress. And now it's waiting to get a revised assessment that reflects the terms of the agreement. We also have an upcoming court date in December, and we are expecting to jointly seek judicial approval. So this is progress. We're hoping to resolve this ongoing matter and put it behind us. At the same time, it's been a fluid situation. And so we will continue to update you as we get more information. And maybe as a reminder, the remaining amount that would be owed under the terms of this agreement is approximately $15 million. So that's the latest update we have in Italy. Thank you. Operator: Thank you, Rana. Thank you, Dusan. There are no further live or written questions. So this concludes our call for today. Thank you, everyone, for joining. For additional information, please go to investor.groupon.com.