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Operator: Good day, and welcome to the Third Quarter 2025 Harvard Bioscience Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Taylor Krafchik, Senior Vice President at Ellipsis TA. Please go ahead. Taylor Krafchik: Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Third Quarter 2025 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer; and Mark Frost, Interim Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investor Relations section of our website at investor.harvardbioscience.com. Please note that statements made in today's discussion that are not historical facts, including statements on management's expectations of future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of Harvard Bioscience's management, and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied. Please refer to today's press release, the Harvard Bioscience Form 10-Q and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties and contingencies associated therewith. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to John. John, please go ahead. John Duke: Thanks, Taylor, and good morning, everyone. I'm pleased to speak with you again as we report our third quarter results and continue to execute on our 2025 priorities. This quarter reflects operational progress, consistent execution and tangible improvement in several key areas of our business. After being appointed CEO in late July, I outlined 3 priorities for 2025: number one, maintain financial discipline and positive cash generation; two, accelerate product adoption across our core growth platforms; and three, strengthen our capital structure through a successful debt refinancing. I'm encouraged to report that we've advanced meaningfully on each front. First, the financial results. We delivered revenue of $20.6 million at the high end of our guidance range and with a slight sequential increase in what historically is a cyclically soft quarter. Gross margin of 58.4% improved sequentially and exceeded our guidance range. This margin expansion reflects disciplined execution, operational efficiency and an improved mix towards higher-margin products. Adjusted EBITDA was also up sequentially to $2 million. Our cost structure remains lean, and we generated another quarter of positive operating cash flow. Customer engagement remains high across our platforms. Q3 marked the first time in more than 12 months that we saw a quarterly order growth on a year-over-year basis. Going into the fourth quarter, our backlog has reached its highest level in nearly 2 years as demand has picked up considerably heading into the end of the year. Turning to our products. The SoHo Telemetry rollout has expanded into additional key accounts, and we've begun to see increased recurring consumable demand. Our Biochrom amino acid analyzer for bioproduction continues to perform well, and we remain on pace to exceed last year's consumable revenue. This quarter, we announced the launch of the Incub8 Multiwell System, our new smart microelectrode array platform designed to bring real-time monitoring to organoid and cell culture workflows with precise environmental control. Incub8 further strengthens the growth of our existing electrophysiology portfolio by expanding our reach into high-throughput applications, including drug screening, safety pharmacology and disease research modeling research. Initial customer response has been positive as we have already received orders and shipped our first system. In addition, we expanded our distribution agreement with Fisher Scientific, significantly broadening access to Harvard Bioscience products across North America. This partnership deepens our commercial reach within academic and pharmaceutical research markets and enhances visibility for our full portfolio, particularly our cellular and molecular technology products through one of the most trusted laboratory distribution channels in the world. Adoption of our Mesh MEA organoid platform continues to build momentum, supported by regulatory initiatives promoting new approach methodologies. On our capital structure, we continue to make constructive progress and remain in active discussions with our lenders and advisers regarding our assessment of the potential options and proposals that we have received. The process remains on track to complete the refinancing or repayment of the existing credit agreement in the fourth quarter. Our operating performance and consistent cash generation have improved our position as we move toward completion. The management team and the Board of Directors are aligned and remain committed to strengthening the balance sheet and positioning the business for long-term success. NIH funding for the 2025, 2026 budget is taking shape. We're also monitoring the ongoing government shutdown, which may impact the timing of NIH funding distribution. In the coming weeks, we'll have more clarity. In China, orders were flat sequentially. The most recent developments in trade talks late last week give us optimism that the worst of the tariff disruption is behind us, and we'll see increased activity moving forward. We also saw a strong uptick in order volume in Europe, contributing to our increased backlog heading into the fourth quarter. Looking ahead, we anticipate continued momentum in the fourth quarter as product adoption and the demand uptick support revenues into the end of the year. Our priorities continue to be financial discipline, driving demand in our high-value products and strengthening our capital structure. Harvard Bioscience is a fundamentally stronger company today than it was to start the year, leaner, more focused and better aligned with long-term growth opportunities. Our third quarter results demonstrate solid improvement over the first half of the year, and we look forward to continued improvement heading into 2026. I'm proud of our team's progress and grateful for the continued partnership of our customers, shareholders and employees. We appreciate your support as we continue to execute our plan. And with that, I'll turn it over to Mark, who will go into more detail on the financials. Mark? Mark Frost: Thank you, John. I'll start my remarks with our third quarter 2025 financial results, the details of which can be found on Slide 4 of the earnings presentation that we posted to our IR site. Revenue was $20.6 million at the high end of our $19 million to $21 million guidance and below the $22 million we reported in the prior year's third quarter. Gross margin was 58.4% versus 58.1% in the third quarter of 2024 and exceeded our guidance of 56% to 58%. Operating expenses declined $1.4 million from prior year, driven by actions taken in 2024 and the first quarter of 2025 to: one, move to one U.S. ERP system; two, lean out our SG&A organization; and three, reprioritize NPI projects. These actions led to an improvement in adjusted operating income of $1.5 million versus $0.8 million in quarter 3 '24. Adjusted EBITDA was $2 million versus $1.3 million in quarter 3 '24, with the major driver being the reduction in operating expenses, which more than offset the volume impact from the lower year-over-year revenue. Now looking at Slide 5, I will outline the revenue results for the quarter by product family and region. Overall revenues in the third quarter showed a slight increase from quarter 2, finishing at $20.6 million compared to $20.5 million in the prior quarter '25. Notably, this is a positive trend as we historically see a decline from quarter 2 to quarter 3. Now turning to the geographical results, starting with the Americas. Revenue in the third quarter increased sequentially by 3.6% and was down 4.4% versus the third quarter of last year. As shown in the light blue on the slide, CMT saw sequential and year-over-year decline. Our preclinical sales increased sequentially and year-over-year due to increases in telemetry and respiratory product lines. Now moving on to Europe. Overall revenue in Europe in the third quarter increased 0.3% sequentially, reflecting stronger preclinical academic shipments. Compared to quarter 3 last year, European revenues were essentially flat. Cellular and molecular sales decreased sequentially 0.7% and year-over-year 13%. Now our quarter 3 preclinical sales increased sequentially and year-over-year. Now moving to China and the Asia Pacific. In the third quarter, we saw improvement in APAC, excluding China. With China, revenue was down sequentially 6.3% and year-over-year 19.6%. With last week's news, we expect tariff headwinds to subside going forward. Now cellular and molecular APAC products were flat sequentially and decreased year-over-year. Preclinical APAC products also declined sequentially and year-over-year. Now I'll move to Slide 6 to discuss further financial metrics. Looking at gross margin first. Gross margin during quarter 3 2025 was 58.4% compared to 58.1% in quarter 3 2024 and up 200 basis points sequentially from 56.4% in quarter 2 '25 despite the flat revenue. The gross margin expansion compared to last year quarter 3 was mainly due to better absorption of fixed manufacturing overhead costs and the leading out of our manufacturing cost structure. The sequential margin increase was due to improved mix of higher-margin revenue, in particular, telemetry as well as better absorption of fixed manufacturing overhead costs. Now if you refer to the top right graph, our adjusted EBITDA during quarter 3 increased to $2 million versus $1.3 million in last year's third quarter. Compared to the prior year, lower gross profit of $0.7 million was fully offset by the $1.4 million reduction in operating expense. And moving to the bottom left, where we show both reported and adjusted loss earnings per share. As I've mentioned in the past, typically, the difference between GAAP EPS and adjusted EPS are the impact of stock compensation, amortization and depreciation. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 10 and are all noncash items. Now moving to the bottom middle graph. year-to-date cash flow from operations was strong at $6.8 million compared to negative $0.3 million in the same period with $1.1 million of operating cash generated in the third quarter. The primary drivers for the improved cash flow from operations were working capital management and operating expense reductions. We expect to see positive operating cash again in the fourth quarter. Now net debt was down over $6 million from year-end '24 to $27.5 million from $33.8 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow. Now with respect to our credit facility, as John noted, we have made progress or in the process of reviewing the multiple proposals we have received. We are negotiating towards the most favorable deal for our company and our shareholders, and we expect to have resolution within the fourth quarter. We will provide more information when we are able to. Now I'll now move to Slide 8 to discuss our outlook for quarter 4. A key factor supporting our guidance is mid-single-digit order growth in the third quarter year-over-year and 4 consecutive months of year-on-year growth. This result has positioned the company with our strongest backlog since the first quarter of 2023. We are guiding to a range of $22.5 million to $24.5 million revenue, resulting in potentially flat revenue for the fourth quarter at the high end of the range. The lower end of the range reflects the potential risk of a prolonged U.S. government shutdown lasting through year-end. Now we expect a corresponding improvement in gross margin in quarter 4 from the higher volume and are guiding to a gross margin range of 58% to 60%. Improved demand and a strong backlog support our confidence to project continued sequential improvement in the fourth quarter. And I'll now turn the call back to our operator to take questions. Operator: Our first question comes from Lucas Baranowski with KeyBanc Capital Markets. Lucas Baranowski: This is Lucas on for Paul Knight at KeyBanc. First off, when we look at the uptick that was seen in preclinical systems during the quarter, was that primarily driven by CROs gearing up to run more studies? Or was it some other factor that was driving the uptick? John Duke: Thank you for the question. We benefited from broad uptick in demand for our telemetry products, and it was not just in one region, it was across regions as well as across different customer groups. Lucas Baranowski: Excellent. And in the press release, you had a comment about backlog being the highest in 2 years. When you look at that backlog, would you say the mix is similar to your existing product mix? Or is there a product like, say, Mesh MEA that's a disproportionate percentage of it? Mark Frost: Yes, Lucas, as John indicated, we had broad-based increase in orders across geographies and products. And we did see an improved benefit from all the NPIs we've launched in this year. So -- but it wasn't one specific product or region that drove the backlog. It was just uniform increase across our geographies and products. Lucas Baranowski: Excellent. And then maybe just one final question. Some of the larger tools companies have noted that they're seeing early signs of improvement in the academic and government market. What are you seeing on that front? John Duke: Yes, we have seen improvement, which is reflected in our Q3 results as well as in our strong backlog going into Q4. Now as we -- as Mark has stated regarding our guidance for the fourth quarter, some academic institutions are dependent upon NIH funding. And we have planned in our guidance depending upon how long the government shutdown goes and how that will flow through to our Q4 results. Operator: Our next question comes from Bruce Jackson with The Benchmark Company. Bruce Jackson: If we could just dive into the NIH funding a little bit more. So the guidance, do you -- are you contemplating an end of the government shutdown during the fourth quarter? Mark Frost: Yes, Bruce, this is Mark. We have built in to the lower range that if it does go to the year-end, that would be the potential benchmark, no pun intended, benchmark we would get to in the quarter. So we have assumed some impact from that in our guidance, Bruce. Bruce Jackson: Okay. And then if the funds don't get released in the fourth quarter, then would you anticipate getting that -- those funds flowing through sales in the first quarter of next year? Mark Frost: Yes, Bruce, yes, as you probably well know, the funds are not lost. It's a timing impact that it just moves out of quarter 4 into '26. So we would expect the orders. And depending when the orders come in, it would come in, in first quarter or second quarter next year. Bruce Jackson: And then last question on NIH. Do the customers have visibility on the funding? So do you feel like you've got good line of sight on the projects and that the customers also have line of sight on the funding? John Duke: It's customer-dependent. I mean, some customers have shared with us that there's no one even to talk to at the NIH right now. And so they're still trying to get visibility, whereas others do have visibility and they're just waiting for their funds to be released. Bruce Jackson: Okay. Great. And then if I may, just one question on the ERP project. Where are you in that project right now? And how should we be thinking about either the spending for additional ERP work or the flow-through from the benefits? Mark Frost: Yes. We actually finished the project in quarter 4 and moved to one U.S. platform. We actually did the same thing in Europe, which I didn't mention, and that was completed in quarter 4. So the benefits have started to roll through both our manufacturing side and our G&A side in '25, and it's contributing to why we've been able to reduce the expenses this year, Bruce. Operator: There are no further questions at this time. This concludes our question-and-answer session. You may now disconnect. Everyone, have a great day.
Operator: Good afternoon. Welcome to the Amprius Technologies Third Quarter 2025 Earnings Conference Call. Joining us for today's presentation are the company's CEO, Dr. Kang Sun; President, Tom Stepien; and CFO, Ricardo Rodriguez. [Operator Instructions] Please note that this presentation contains forward-looking statements, including, but not limited to, statements regarding our financial and business performance, our business strategy, future product development or commercialization, new customer adoption and new applications, our growth and the growth of the markets in which we operate and the timing and ability of Amprius to expand its manufacturing capacity, scale its business and achieve a sustainable cost structure. These statements involve known and unknown risks, uncertainties and other important factors that may cause Amprius' results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. For a more complete discussion of these risks and uncertainties, please refer to Amprius' filings with the Securities and Exchange Commission. This presentation includes a non-GAAP financial measure, which is adjusted EBITDA. This non-GAAP financial measure does not replace the presentation of Amprius' GAAP financial results and should only be used as a supplement to, not as a substitute for Amprius' financial results presented in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. A reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure is included in our shareholder letter, a copy of which is filed with the SEC and posted on our website. Finally, I would like to remind everyone that this conference call is being webcasted, and a recording will be made available for replay on the company's Investor Relations website at ir.amprius.com. In addition to the webcast, the company has posted a shareholder letter that accompanies these results, which can also be found on the Investor Relations website. I will now turn the call over to Amprius Technologies CEO, Dr. Kang Sun, for his comments. Sir, please proceed. Kang Sun: Welcome, everyone, and thank you for joining us this afternoon. On today's call, I will begin with a brief company overview. After that, our President, Thomas Stepien, will recap our third quarter performance and the key accomplishments. Next, our CFO, Ricardo Rodriguez, will discuss our financial results for the period. I will share some closing remarks before opening the call for questions. Let's begin. Amprius is a pioneer and leader in silicon anode battery space with over a decade of development experience and a proven track record of commercial success. At Amprius, we develop, manufacture and market high energy density and high-power density silicon anode batteries with applications across all segments of electrical mobility, including the aviation and light electric vehicle industries. Today, Amprius has the most complete commercially available portfolio of silicon anode materials system in the industry and commands performance leadership with its combination of battery energy density, power density, charging time, operating temperature range and safety. Across our battery portfolio, we believe we offer unmatched performance among the commercially available batteries. Amprius has been delivering commercial batteries to the market with up to 450 watt hour per kilo and 1,150 watt hour per liter, 10C power capability and extreme fast charge rate of 0 to 80% ste of charge in approximately 6 minutes, the ability to operate in a wide temperature range of minus 30 degree up to 55 degrees Celsius and safety design features that enable us to pass the United States military benchmark nail penetration test. Each of these performance parameters is critically important to real-world electric mobility applications. Not only do our batteries empower certain drones, satellites and vehicles to maximize performance, we also enable our customers to achieve their economic targets as well. In addition, Amprius has developed a 500-watt hour per kilo and 1,300-watt hour per liter battery platform that has been validated by an independent third party. It's our belief that there are no other commercial batteries on the market that can perform at this level today. In the third quarter, we continued to execute against our strategy of developing leading battery performance, converting that innovation into customer wins and scaling our manufacturing through a capital-efficient contract manufacturing model. With that, I will now turn the call over to our President, Tom Stepien detail the highlights of our record quarter, Tom. Thomas Stepien: Thank you, Kang. Amprius finds itself at a very fortunate point in time at the intersection of a fast-growing electric aerospace market with an industry-leading set of battery products. This advantaged situation, coupled with strong execution by our team, allowed us to achieve record revenue in the third quarter. We attracted new customers, continue to optimize our operations and release compelling new products. Let's start with updates on our commercialization strategy and share execution details. In the third quarter, we shipped batteries to 159 end customers, 80 of whom are new to the Amprius' platform. The remaining 79 are repeat customers. Now to be clear, we don't ship to every customer in every quarter. We do expect to gain new customers every quarter, albeit not always 80 new ones, but we expect to gain new customers nevertheless. Since the first quarter of 2023, Amprius has built relationships with hundreds of companies and ship batteries to a total of 444 end customers. This strong and expanding customer traction comes from the superior performance of our batteries compared to traditional cells. As we continue to move new customers through the qualification process, you're also seeing that we have plenty of room for expansion orders within our existing agreements. In the third quarter, our revenue totaled $21.4 million, a 42% increase from the second quarter and up 173% from Q3 2024 a year ago. Our second-generation SiCore batteries led the revenue charge in Q3 with a greater than 4x increase in shipments compared to Q3 2024. SiCore is a proprietary silicon anode that uses standard lithium-ion processing equipment. In August, I visited a couple of our contract manufacturing partners. At one, they were making conventional graphite cells in the morning and in the afternoon, they were producing our SiCore silicon cells. Same line same equipment. SiCore standardization helped us enable a second consecutive quarter of positive gross margin. Ricardo will provide more context here when he reviews our financial highlights next. Looking at our customer base, about 75% of our revenue in the quarter came from the aviation segment, led by unmanned aerial systems, or UAS, market. Remainder of our Q3 revenue was primarily derived from the light electric vehicle sector, which remains healthy but has a lumpier profile due to the customer's variant product introduction cycles. The LEV market tends to have short design in cycles, and we believe our drop in replacement batteries can help us succeed in gaining market share in this growing market. From a geography standpoint, 75% of our revenue came from outside the United States on a ship-to basis. Our strong customer diversification supports steady growth even amid uncertainty driven by U.S. tariffs and customer delays related to the U.S. government shutdown. One of our major wins this quarter was a $35 million purchase order from a leading UAS manufacturer, which we announced in September. This order is a follow-on purchase from the same customer that placed a $15 million order earlier this year. While we continue to grow our customer base across geographies, applications and budgets these kinds of large repeat orders underscore the built-in growth engine that we have within our growing customer base. It also highlights a proven performance at scale of our batteries. During the quarter, we also deepened our relationship with another key customer AeroVironment. As a part of the U.S. Army's xTech Prime program we shipped samples of our ultra-high energy cells for evaluation in a variety of applications. These cells reach up to 520-watt hours per kilogram and vastly improved endurance, payload capacity and mission economics for high-altitude platforms. Another key Amprius partner in the drone segment is Nordic Wing in Denmark. In Q3, they chose our SiCore cells to power their UAV platform after an extensive qualification and evaluation period. Their Astero ISR is a fixed-wing craft with a wing span of about 2.3 meters. In its standard configuration, it weighs around 4.5 kilograms. ISR is an acronym for Intelligence, Surveillance and Reconnaissance. In drone speak, intelligence is the collection, processing and analysis of information to support decision-making. For example, drone cameras will see the beginnings of the forest fire and the built-in smart analytics will make a decision to send a dispatch signal to the appropriate firefighting equipment. Surveillance is the systematic observation of an area, person or activity over time, continuous monitoring of a border or a convoy route, for example. Reconnaissance is a specific mission-focused gathering of information, usually short term and targeted. Is the fire really extinguished? The Astero ISR with the Amprius SiCore batteries flies 90% longer than with standard cells, 90% improvement, almost twice the flight time. Astero stays airborne longer, covers more ground and delivers real-time intelligence without interruptions. This enhanced endurance doesn't just improve performance. We believe it redefines what's possible in every mission and can mean the difference between success and failure. Looking a bit further out, we continue to make inroads in our relationship with Amazon. After being selected for the inaugural Amazon Device Climate Tech Accelerated (sic) [ Amazon Devices Climate Tech Accelerator ] cohort in July 2025, we successfully advanced to the integration assessment phase. This stage involves comprehensive testing of feasibility, customer value proposition, sustainability impact and supply chain readiness. We are excited about this opportunity to continue working with Amazon in this next phase, and we'll share further updates as we are able. All of these recent customer wins further demonstrate our ability to scale up to meet volume purchase orders, which we believe will continue to increase as we expand our customer funnel, and continue to extend the state-of-the-art that our cells provide. State of the art includes external testing. We rigorously test new products both internally and send them to external labs where they are tested against international safety standards. These include United Nations 38.3 standards maintained by the International Electrotechnical Commission and for our customers in India, the Bureau of India Standards. This quarter, we introduced 2 new SiCore pouch cells and 3 new SiCore cylindrical cells that are optimized for unmanned aerial systems high-altitude platform systems and the electric airplane duty cycles. We call these balanced power and energy cells. Electric aerospace platforms typically require balanced cells. You need high power, high sea rate, capability for takeoff and landings and you need the high energy to enable long range. Products like these balance cells further differentiate Amprius from traditional battery players. Many of our end customers participate in shootouts and fly-offs competing for their own contracts. They need to demonstrate best-in-class performance. We help them win. Our batteries give them more kilometers, allow additional kilograms and provide more watt hours that support their onboard intelligent components. We believe that the electric aerospace is on the cusp of a multiyear transformation propelled by defense and commercial demand for a new era of AI-driven autonomy. McKinsey estimates this market is $40 billion to $50 billion today, growing to $80 billion by the end of the decade. About 10% of that market and 10% of the drone's bill of materials is for batteries. Recent regulations and policy changes appear to be market accelerants. The U.S. executive orders over the summer that promote domestic drones is one piece of evidence. A second is the proposed changes to the Beyond Visual Line Of Sight rules that the U.S. Federal Aviation Authority is debating. BVLOS is a significant unlock for drones. We expect these policy actions will accelerate adoption time line and open new opportunities across the board. We've already experienced strong traction from the defense market and expect growing interest from these customers in the year ahead. Estimates show that the more than $10 billion from the One Big Beautiful Bill will be allocated to defense and unmanned systems, and we believe that we are well positioned to benefit from this increased funding. Anecdotally, we have already seen optimism surrounding the government funding translating to strong buyer intent. Last month, we exhibited at the AUSA Conference in Washington, D.C. where we met with dozens of defense contractors that are either interested in or already using our products for their drones. We also attended U.S. and international conferences. Commercial UAV Expo in Las Vegas, Defense and Security Equipment International in London and the DroneX Expo also in London. At all of these events, we heard a similar message, "drones are an important part of the future, and Amprius batteries are at the forefront of innovation to power them." As a key component supplier for unmanned drone systems, we have had our own success working with the U.S. government. As we discussed during our August 2025 call, we are working closely with the Defense Innovation Unit. Our DIU contract gives us funds to increase the capacity of our Fremont, California pilot line to 10-megawatt hours and expand our capabilities to support quick turn SiCore customer prototypes. Since our last update, we have received an additional $1.5 million follow-on contract, bringing our DIU contract total to $12 million. Our program mandate includes qualifying individual lithium-ion battery components from National Defense Authorization Act, NDAA, compliance suppliers, which will allow us to work more seamlessly with the DoD. This includes considerations of the anode and cathode-active materials electrolyte and separator. This effort is part of a large momentum shift to U.S. domestic production of batteries. As we work on building out an NDAA compliant supply chain and production capacity for our customers that require it, we have continued to utilize our contract manufacturers to support our rapid growth. As a reminder, we have over 1.8 gigawatt hours of capacity available to us through our partners, including our most recent added partner in South Korea. Let's put that 1.8 gigawatt hours in context. Our SA08 cell is our best-selling battery. It has an energy rating of 38-watt hours. 1.8 gigawatts over 30-watt hours works out to be about 50 million cells per year. We have tremendous headroom on our manufacturing capacity. This capital-efficient model provides production-grade calls for qualification today and supports our ramp to volume while still allowing configuration control and aerospace aligned quality systems. We are also opportunistically sourcing additional partners to provide us with greater geographic diversification and operating flexibility. As we head into the tail end of the year, we've carried our momentum into the fourth quarter. A few weeks ago, we announced that ESAero another leading UAS company, chose our SiCore SA08 cell to power the group 1 and group 2 UAVs that support defense, security, logistics and public safety applications. They chose us because in their words, "Amprius offered the best combination of advanced battery technology, production readiness and cost competitiveness to meet the program demand." We have talked extensively about our defense applications for our batteries. We see a large and growing opportunity in the public safety markets also. According to a Police1 article, more than 1,500 U.S. police departments have DFR programs, Drone-as-First-Responders. Their systems are tied into the 911 emergency systems and are dispatched to help find a lost child, monitors smash and grab suspects and understand if a fire is a spark or an inferno. We look forward to continuing to support the drone sector as it scales and evolves into more mission-critical and business-critical use cases. On a final note, we also made the exciting announcement that Ricardo Rodriguez has joined Amprius as a new financial officer. Ricardo has a proven track record of driving growth with financial discipline in high-performance markets, and you will serve as a valuable guide as we expand our commercial reach, scale global manufacturing and reinforce Amprius' leadership in the advanced battery technology. Since he joined on October 6, exactly one month ago, we have aligned on objectives, agreed strategies and developed plans. He is a tremendous addition, the right person at the right time. I look forward to working with and learning from him. Ricardo, it's all yours. Please share our financial results for the third quarter. Ricardo Rodriguez: Thank you, Tom, and good afternoon, everyone. I'm really happy to be on board and reporting our quarterly results on behalf of our team for the first time. After several weeks on the ground working in Fremont, getting to know our team, meeting some of our customers at AUSA and reconnecting with many familiar faces in the investment community that are interested in supporting our company and strategy, I could not be prouder of wearing the Amprius shirt. In the third quarter of 2025, we delivered $21.4 million of revenue. This translates into 42% growth over the second quarter, following the previous quarter's 34% quarterly growth. This is also a 2.7x multiple of the team's revenues during the same quarter last year. Echoing Tom's remarks, our revenue growth was driven by the addition of new customers combined with larger orders from existing customers. Within our customer base, only one customer accounted for more than 10% of our revenues in Q3. Going forward, we plan to continue adding to our customer mix to diversify our revenue base. And we believe that as we develop more diversified contract manufacturing capacity, additional demand can potentially be unlocked. At the end of Q3, we had $53.3 million of orders, including the $35 million order that Tom mentioned, to be fulfilled in the near term. This backlog is 83% higher quarter-over-quarter and it highlights our team's ability to drive demand. Our cost of goods sold at $18.1 million in Q3 did not increase at the same rate as our revenue, thanks to a favorable product mix and higher volumes. This, in turn, enabled gross profit margins of 15%, which is a significant improvement over our gross margins of 9% in the previous quarter. As I discover what makes our team unique, I continue to be impressed by its resourcefulness to make the most with what we have, and that is evident in our quarterly operating expenses of $8 million in Q3, which were down very slightly relative to the previous quarter. The year-over-year increase in quarterly OpEx of $1.9 million was driven by targeted investments in our sales and go-to-market efforts along with the reallocation of some R&D expenses from cost of goods sold to OpEx as development service agreements are completed. These expenses bring our operating loss to $4.7 million compared to an operating loss of $6.8 million in the prior quarter, shrinking our operating loss by over 30% quarter-over-quarter. Our GAAP net loss for the third quarter was $3.9 million or negative $0.03 per share with 126.6 million weighted share -- weighted average shares outstanding. Our adjusted EBITDA in Q3 was negative $1.4 million compared to negative $3.8 million in the previous quarter, thus reducing our adjusted EBITDA loss by over 60%. We define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation and other items that we do not believe are indicative of our core operating performance. In Q3, these adjustments included $1.2 million of depreciation, $1.8 million of stock-based compensation and $450,000 of interest income. As of September 30, we had 130.4 million shares outstanding, which was up by 5.4 million shares from the previous quarter. The change includes approximately 2.2 million shares issued from option exercises and RSU vesting along with 3.2 million shares issued under our at-the-market offering program. Now turning over to cash flow and the balance sheet. We ended the third quarter with $73.2 million in cash and no debt. The main drivers of cash flow in the quarter were $9.2 million used on operating cash flow, which was mainly driven by a near-term $11.2 million increase in accounts receivable at the end of the period due to our increase in sales, $400,000 of CapEx invested at our facility in Fremont, California and lastly, $28.7 million from financing activities consisting of $25.9 million from the issuance of common stock under our aftermarket sales agreement and $2.8 million of proceeds from option exercises. We still have approximately $20.1 million left available on the at-the-market offering facility as of September 30, 2025. Before I turn over the call to Kang, I would like to take a moment to discuss our outlook for the remainder of the year. We have made a decision to strategically invest in diversifying our supply chain and expanding manufacturing capacity within our Fremont facility to include electrode manufacturing. We are doing this in collaboration with the U.S. Government Defense Innovation Unit and have secured a contract for $12 million awarded in the third quarter of this year. With what we know today, we expect this funding to cover the majority of our capital investments over the next several quarters as we work to develop a growing and resilient source of supply in a dynamic trade environment. As we previously stated regarding the Colorado facility, the designs for the project are effectively complete and we are continuing to monitor the larger industry dynamics associated with building a factory in the United States. Changes in demand, supply, battery cost structure, government incentives, trade tariffs and other considerations, including the timing and availability of funding, will influence our decision on next steps and near-term timing. We have secured adequate capacity for the foreseeable future through our contract manufacturing network and plan to further expand that without deploying additional capital. We also believe that our current revenue levels and even slight improvements from these can put us on a path to mainly consume cash for working capital versus funding operating expenses in the near term. With that, I'm happy to turn the call over to Kang for his closing remarks. Thank you very much for your attention and continued support. Kang Sun: Looking ahead, we remain focused on delivering next-generation lithium-ion battery performance that raises the bar for energy density and the sustained power without compromising safety or reliability. We are also broadening our product portfolio to better align with the customer requirements and unlock new market opportunities, while converting a growing number of customer engagements into formal qualification and the deployment, particularly across mobility-centric platforms. As demand scales, we will continue to leverage our contract manufacturing partners' capacity to efficiently translate that demand into revenue with disciplined quality and minimal additional capital investment. We are excited about the future ahead and looking forward to meeting and reconnecting with many of you as we attend several upcoming investor conferences. Thank you for your continued interest and support of Amprius Technologies. With that, I will turn it back to the operator for questions. Operator: [Operator Instructions] And the first question comes from the line of Colin Rusch with Oppenheimer & Company. Colin Rusch: Congratulations on all the progress. Just on the U.S. capacity. Could you talk a little bit about the cadence of how that will come up and how much capacity it will actually be and where that electrode will ultimately end up getting turned into batteries? Are you looking at potentially qualifying some incremental contract manufacturing in the U.S.? Or will that electrode end up getting shipped overseas and return back to the U.S. as batteries? Thomas Stepien: Yes. Thanks, Colin, this is Tom. The answer is that we will have in the future, both a U.S. contract manufacturer and contract manufactures in what we are -- what are called NDAA compliant countries, and that includes Korea. We have a contract manufacturer already today in Korea. We announced that in May. So you will see over time both for pouch cells and cylindrical cells additional partners in this network as it continues to expand. Colin Rusch: That's super helpful. And then being able to qualify different configurations of performance, whether it's through different electrolyte or different balances within these cells is pretty substantial accomplishment. Can you talk a little bit about the cycle time and how much work you've done previously to be able to get some of those different battery configurations? And just so we have a sense of how quickly the platform is evolving from a technology perspective going forward. Thomas Stepien: Yes, to fully qualify the 11 major components that make up our battery, it will take us -- we've started that already. It will take us to next summer. That's largely being done in cooperation with the $12 million DIU contract that we have. We are turning up. As of today, we have 5 of those 11 components fully qualified NDAA compliant. We're turning the knob on the other 6, and we think we'll do that between now and next summer. Colin Rusch: And just one last one from me. Just in terms of the cadence of how you're moving customers through the sales funnel, as folks have had these batteries for a fairly substantial period of time here? And you guys have talked about kind of roughly 18-month qualification period sometimes longer, sometimes shorter for customers and you've been sampling now for about 7 quarters out of some of these facilities. Are you seeing folks move towards purchase orders a little bit faster than they have in the past or moved to larger purchase orders? Just want to get a sense of how we can think about some of this pipeline moving into backlog and production? Thomas Stepien: It's pretty distributed, some qualification happen within 2 quarters. Some take more than a year. It really depends on the complexity of the components at the end and some are larger, some are [indiscernible] per yacht and the other one. So it did across all the 400-some-odd customers that we have. Operator: The next question comes from the line of Mark Shooter with William Blair. Mark Shooter: Congrats on the great execution this quarter. The new customers was a big way and a nice jump. It's almost doubled the normal cadence in the past few quarters. So I guess I'd like to dial in on what led to that big step-up in new customers this quarter. Did we get a capacity or a yield breakthrough at the silicon supplier or your battery contract manufacturers that allowed you to ship to more cells? Or did you see an actual 2x increase in demand this quarter from last quarter? Thomas Stepien: We're definitely seeing an increase in demand as the awareness of Amprius gets out there as we attend more conferences, as we have more wins like we talk about. It gets the attention of other folks. The 80 that we have -- the 80 new that we added this quarter was a little bit of timing. Some of those seeds were planted, as I said to Colin's question, more than a year ago and now are coming through and turning into real purchase orders, other ones were planted earlier this year. So it's a combination of those factors that's leading to the uptick. Mark Shooter: Great. That's very helpful, Tom. Ricardo, one for you. Congrats on joining Amprius, especially this quarter. Ricardo Rodriguez: Thank you. Mark Shooter: I'm hoping if you could just -- of course. Question for you. I'm hoping you could shed some light on the gross margin. The improvement this year has been great, specifically this quarter. Going from 9% to 15%, could you try to break that down to maybe how you see the improvement if you put in the buckets? Is it -- and as I'm thinking about a higher revenue or product mix? Or are you able to maybe raise price in this quarter, seeing the performance of your batteries and the demand for your batteries in the marketplace? Ricardo Rodriguez: Yes. I mean I think mix was the main driver of the increase from 9% to 15% quarter-over-quarter. If you look at the 15%, I mean, it's in no way where we believe it needs to be, right? A lot of the battery peers even at higher scales are above 20% on the gross margin line. And our goal is obviously to get there and even higher. On pricing, I do feel pretty good about where the pricing levels were for the SiCore product. And that in combination with just a larger share of our revenues being SiCore is what drove the increase, plus, of course, the run rate itself contributed to that. But I think the biggest contributor was really mix because of our contract manufacturing model, right? Operator: The next question comes from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: My congrats to Ricardo as well. I'm just hopping on the call just now, so my apologies if any of these have been asked. The second-generation SiCore, what's the margin profile of that battery? Ricardo Rodriguez: We haven't laid out explicitly, but the goal is to get that north of 20% at closer to 80% of our capacity, which we still haven't reached, right? So -- but our goal is to just keep pushing that and we're, frankly, testing where that should be as revenue materializes. Derek Soderberg: Got it. And what are some of the trade-offs between the first gen and the second gen, what might slow down that path to 80% mix of the second generation? What are some of the trade-offs from your customers' perspective? Kang Sun: We refer first gen the SiMaxx -- SiMaxx is our first-generation product and SiCore is our second-generation product. We don't have... Derek Soderberg: Okay, so it's not second generation SiCore. Kang Sun: No, we don't have -- we keep improving. We could say we have second generation, but we may have a third generation already in the lab, but we don't separate it that way, okay? We consider SiMaxx is the first-generation Amprius product and the SiCore is a second generation. Derek Soderberg: Got it. Okay. That's helpful. And then could you just give us an update on the time line to cash flow breakeven? I think, previously, you guys were expecting that to happen sometime in 2026 potentially or maybe even early '27. But it feels to me like the company is growing faster than expected. You've got quite a bit of scale to work with here and it seems like the customer growth is quite a bit ahead of at least my expectations. Can you just provide an update on path to cash flow breakeven? Ricardo Rodriguez: Yes. I mean, I think it's tough to pin down a specific quarter for that. But if you take our results from here the most recent quarter, with another $10 million of revenues, we would have had positive EBITDA. And our EBITDA is a very good proxy for cash flow, right, given that it's pretty clean. D&A is not huge and in essence, only the stock-based comp, and we have no I and not T in there. And so it's really just a matter of time for us to get that incremental revenue. And at that point, we can be not just EBITDA positive, but also pretty closely behind cash flow positive as well. Operator: The next question comes from the line of Ryan Pfingst with B. Riley Securities. Ryan Pfingst: I'm jumping around calls, so apologies if anything repetitive. But on the margin side, Ricardo, another nice jump quarter-over-quarter here in the second quarter. Just curious if you could give some color on what you expect as we continue to see revenue expand on the margin side? Ricardo Rodriguez: Yes. I think it's again echoing my earlier point, it's really more driven by mix. We do believe that incremental revenue, depending on the mix of that and the customers that it goes to could be accretive beyond where we're currently at the gross margin level. I'd love to get the company 20% and above here as soon as we can, but obviously, understanding that there are quite a few puts and takes, especially as we look to make a larger portion of our revenues come from the SiCore product versus SiMaxx. So I think as we manage that transition, you'll see us pick up a couple of points of gross margin here. One thing to note is that this is -- this will be lumpy, right, given the not just the customer diversity, but also the product diversity. I do think it's -- we're not totally out of the woods of having fluctuating gross margins. And so I would caution here on modeling something that's just straight up into the right on gross margin as we pick up incremental revenue because there are quite a few puts and takes within it, mainly mix driven that we certainly keep in the back of our minds to make sure that these expectations are realistic, right? But kind of going back to what I said earlier, like, frankly, I'm more focused on the EBITDA margins. And even if gross margins stayed where they were with another $10 million of revenues, we would have had positive adjusted EBITDA, and that's very meaningful progress. And I think it puts us well ahead of our peers, well ahead of anybody scaling a similar product, and this is a testament to the team's focus on having the leanest cost structure possible at the OpEx level. Ryan Pfingst: Appreciate that detail. And then turning to your manufacturing capacity update, which I know you touched on in the prepared remarks. But curious how important it is to establish contract manufacturing capacity in the United States for certain customers, maybe on the defense side or otherwise related to national security. Does that make it more of a near-term priority for you guys? Or are you able to be patient here with establishing something in the U.S.? Thomas Stepien: It is important [Technical Difficulty] so they don't have again, sort of ahead of [indiscernible] certain data in 2026. But we know we're [indiscernible] domestic batteries and we [Technical Difficulty]. Kang Sun: Since you cannot hear from Tom clearly, let me elaborate a little bit more. Develop -- we have a fraction of the customer that demand the product made in United States. Currently, the driver for our activity in the United States, primarily from this DIU program. So the DIU program, the Department of War, grant up certain -- $12 million contract require us to build advanced battery silicon anode-based battery pilot line, okay? You can call pilot line, you can cause small production line by next summer. Majority of our customers still oversee customers. Operator: The next question comes from the line of Chip Moore with ROTH MKM. Alfred Moore: I wanted to ask maybe on the $53 million in orders, near-term orders. Maybe you could put a finer point on that? Should we think about next couple of quarters potentially on that? And then Ricardo, to your point, around mix and potential for some lumpiness or margin impacts, just anything to call out there? Ricardo Rodriguez: Yes. I mean, maybe I'll start with the second part of the question, if that's okay. I mean really nothing much beyond what I've already mentioned, Chip. I think we have to work through this backlog, obviously, and that will keep building up. But at the same time, we also need to have the supply in place to fulfill it, right? And that will ultimately be the decade of what the revenues can be in the near term. And on the gross margin side, I'll just echo what I said before, right? I think you can still be lumpy. We do expect progression as we sell more scores a proportion of total sales. And I mean if we would have had another $10 million of revenue that we could have fulfilled, we would have had a breakeven or slightly positive adjusted EBITDA in the quarter. Thomas Stepien: On the first part of the question, Chip, hopefully, I'm coming through here, is a -- the large purchase order is for a year. It's not necessarily in year that they don't want $35 million divided by 4 every quarter, but there's these different layers of revenue that we're building in, and the backlog is going in the right direction. So that's -- so we like to see that versus some of the quick turn purchase order comes in and we ship within the quarter. So we're building some customer-facing muscle, and we're getting into these longer-term contracts. And they're really synchronized with the customers' end use, right? They have deliveries to their customers of their crafts, and that's really what sets the rhythm of when we deliver cells. Alfred Moore: That's great. That's helpful. And maybe, Tom, just a follow-up there, sort of the flywheel effect of repeat orders. You had a nice 1 year. It feels like you're starting to hit critical mass. Just understanding things will still be lumpy, but how are you thinking about potential for these repeat orders to keep coming in and get bigger? Thomas Stepien: We are incredibly optimistic, right? I mean we have a great product. It's industry-leading. The market is strong. There's a number of data points there. So we feel good about what we've got. We feel good about where we're going. This is a tricky quarter because of Thanksgiving and Christmas here in the U.S. Next quarter, we'll have some lunar holidays. So we got to work through some of that, but we feel good about where we are. Alfred Moore: Perfect. If I could maybe ask one last one, related. I guess you talked about some funding anecdotally seen some interest out there on defense and drones. Just any more detail there and then government shutdown. Is that another thing you have to navigate that could slow things down? Thomas Stepien: Yes, we're seeing some announcements. One of our customers announced today that they won an Air Force shoot-out, and we're obviously very excited to hear that. So it's starting. And if you take apart the Beautiful Bill as a couple of analysts have, these numbers are 4x, 5x in 2026 budget on what they were in previous years. So that bodes well for the future, and we're trying to make sure that everyone is aware of what we got, doubling flight time, extending payloads, that all is very meaningful in the eyes of our customers. Ricardo Rodriguez: And if I may add just one last thing there, addressing your point on the shutdown, Chip. Our DIU contract has been getting paid on schedule even through the shutdown. So we feel confident about that. Operator: The next question comes from the line of Sameer Joshi with H.C. Wainright. Sameer Joshi: It was good color in the prepared remarks and some good questions as well. I would just like to dig into the pipeline -- dig a little bit deeper into the pipeline over the next, say, 4 to 6 quarters? And see whether it is mostly UAS-related or LEV is part of that mix as well? And then in relation to that, how does the margin profile -- the gross margin profile change? I know Ricardo, you had very exhaustive discussion about the lumpiness that we can expect over the few quarters. But does this product mix or end customer mix make a difference in the gross margins? Ricardo Rodriguez: Yes. So maybe I'll address that latter one, and then I'll let Tom address the points on the pipeline. I mean I think I would look at the current gross margin that we have as a good base to build on with much of the variations are happening above this level, especially if we're able to get incremental revenue. So we're not concerned on falling below the current levels on mix above the current revenue levels, right? But definitely, some of the longer, larger volume agreements have different pricing than shorter-term very specialized applications. And that's what will drive the potential fluctuation in the gross margins. And then at the same time, we're managing obviously a pretty dynamic tariff and logistics environment where fortunately, we're able to price for a lot of the stuff but that can drive lumpiness in this as well. Thomas Stepien: Yes. On the first part of your question about the complexion of the pipeline, it's strong, as we mentioned, and it's growing. This quarter, we said it was 75% aerospace, right? That includes these high-altitude platform systems, drones, electric aircraft, both the conventional wing and the vertical takeoff. That 75% was actually down a little bit on a percentage basis compared to Q2, but the revenue was up by the 42% that we talk -- that we spoke of. So I look at that as a better balance between some of the other segments that we're serving, especially light electric vehicles. So it will be similar, maybe a little bit higher, a little bit lower in terms of that 75% next quarter, but better balance, I think, would be my main message there on the pipeline. Sameer Joshi: And just to make sure, the margin profile for these 2 sectors is different, right? Or is it -- are you maintaining the margins for the LEV as well? Thomas Stepien: The margins are similar for the LEV as for the aviation market. Yes. Sameer Joshi: Yes. And then just a clarification or maybe a little bit color on this Amazon Devices Climate Tech Accelerator program, how significant should we consider this to be for you as a company going forward? Thomas Stepien: It's a multi-phase program that we're in, and we've made it to the second, third round. We're actually up in Seattle today, as a matter of fact, talking to them again. We think of it as having a seat at the table. It's sometimes hard to break into some of these large companies. But when you get invited in, as we have, you get quick access to the engineering folks and you're able to tell your story more efficiently. So look, we still got to do a lot of work, and we still have to win their trust and their business. But we have a seat at the table. Sameer Joshi: Ricardo, congrats on joining the company. Ricardo Rodriguez: Thanks so much. Happy to be working together. Operator: The next question comes from the line of Ted Jackson with Northland Securities. Edward Jackson: I'll try to run through a quick. I know we're coming to the end of the call. Just a housekeeping one. With regards to revenue, did you have any design service or government grant revenue in the quarter? And if so, what was it? Ricardo Rodriguez: The government grant was actually in our other income, and it was roughly $400,000. Edward Jackson: You introduced 5 new SiCore sales during the quarter. I mean the last time you gave any kind of color with regards to the number of SKUs the company had was at 14. Where are you at with the SKU count right now? Thomas Stepien: We have 20 SKUs, more coming, but the catalog today shows 20. Edward Jackson: You kind of backed into your capacity saying that you had about 50 million cells of capacity based upon your most popular cell which begs the question with -- I don't know if we could talk about the quarter, year-to-date, however, kind of what's your run rate with regards to that capacity? If you can make 50 million -- theoretical 50 million cells like your, call it, $21 million of battery products that you sold in the quarter, what would that be on an annualized run rate? Thomas Stepien: Yes, I don't think... Ricardo Rodriguez: Yes, that one is tough to pin explicitly because given the different SKU count, right, and the fact that... Edward Jackson: No, I'm asking if you assumed that it was just the same battery. You see what I'm saying like -- I'm just trying to get a sense with regards to you've got this much capacity, like where are you in terms of filling it, where we get to the thing that your margins are going to be north of 20%, you're at 80% of that capacity. You see where we're going in terms of the thought process. So how far -- where you are right now? How far are we to getting to that 80% because then it gets -- kind of when you think about well, that's where we can think about your margins. So I'm not asking -- I'm just kind of asking like if you assume that you were -- I don't know, but you keep on going. Ricardo Rodriguez: Yes. I mean it's a highly theoretical question because in reality, it's not working that way, but it would be a couple of hundred million dollars, right? Thomas Stepien: Yes. I remember we said -- Yes, I think we said, it was the Kang in our May call that if we actually utilize that 1.8 gigawatt hours of capacity, we'd be a $1 billion company. Kang Sun: Right. You use our ASP today times the capacity availability, we are going to be a $1 billion business. Edward Jackson: Okay. A little nuance question with regard to the gross margins. You're at the point now where you're taking a lot of your engineering work at a cost of goods and bringing it down engineering. It's just kind of part of the process of the growth of the company. That happened this quarter. Do we have to see -- are we going to see more of that in periods to come? And was that something that we're not going to see as much of an impact with regards to the margins? What kind of noise will we see with that in the coming quarters or the coming year? Ricardo Rodriguez: Very little. I mean, that adjustment here quarter-over-quarter was just a couple of hundred thousand dollars. It was not -- it didn't cross the $1 million line within our cost of revenue. Edward Jackson: Okay. And then I'll ask one more that's more front because these are all kind of little pivot ones. With regards to -- you're being funded to build a pilot line with this DIU contract. And then what's the end game with that? So then you have this pilot line that you put together, done a proof of concept for the government that you can make, what does they want? I mean is that something then that they have the process and then they're going to fund you to make a bigger factory that then they're going to go out and bid for someone else to do it. I'm saying like where does that -- what's the vision for that, assuming that it goes forward and you get success? Thomas Stepien: Yes. Let me take that. So the DIU, a couple of points here. First and foremost, it was a competitive solicitation. I think there were 7 or 8 other companies that took a swing and they chose Amprius. We have a pilot line in Fremont. The dollars that we have received helps increase the capacity of that pilot line. And then, as Ricardo mentioned in his part of the script, also the capability, we are adding electrode manufacturing. That part of the factory of our pilot line did not exist. Their interest, the DIU's interest is domestic batteries. And they see us as in the front of the pack, and they want to encourage us to make those available. There are certain sizes that are very popular. I mentioned the SA08, that's a very popular size. They want us to make those and the idea of a pilot line, of course, is that we have those capabilities for many of the defense customers and whether it's primes or the folks who the companies that serve those primes. Edward Jackson: But I mean like -- I mean a pilot line is still not making -- it's not a production level facility. I mean the goal is for them to -- goal that clearly is for them to develop a domestic battery production capability. I mean do you ever have any discussions with them with regards to what that might look like as they go forward with a larger factory? Does Colorado come into play? Would they -- if you go proof all this out, would they want you to go license your capabilities, you see them going like what's the kind of the longer end game with it? I mean unless you don't... Thomas Stepien: Sure. Yes. We're very close with the DIU and the DoD generally. Their interest is, as you say, domestic batteries. They have said publicly that there are solicitations that are coming out early in this fiscal year, probably delayed here because of the shutdown, but I think we'll see some specific additional solicitations related to domestic production. Edward Jackson: Okay. Well, it's 5 O'clock. I could keep going. Congrats on the quarter. Super exciting to cover you. So talk to you on. Thomas Stepien: Thank you. Operator: Thank you. At this time, this concludes our question-and-answer session. If you have any additional questions, you may contact Amprius' Investor Relations team at IR@amprius.com. And now I'd like to turn the call back over to Dr. Sun for his closing remarks. Kang Sun: Thanks again, everyone, for joining us today. As a reminder, you can find out more about our company, receive additional updates and learn about the upcoming events from the Investor Relations section of our website. We look forward to updating you on the exciting progress we are making in transforming the electrical mobility market. Finally, I'd like to thank our employees, partners and the shareholders for their continued support. Operator: Thank you for joining us today for Amprius Technologies Third Quarter 2025 Earnings Conference Call. You may now disconnect. Have a good day.
Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enhabit Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Bob Okunski, Vice President of Investor Relations. Please go ahead. Bob Okunski: Thank you, operator, and good morning, everyone. Thank you for joining our call today. With me on the call this morning is Barb Jacobsmeyer, President and Chief Executive Officer; and Ryan Solomon, Chief Financial Officer. Before we begin, I want to let you know that our third quarter earnings release and supplemental information are available on our website at investors.ehab.com. Additionally, we have filed a related 8-K with the SEC, and that is also available in the same location. On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth in the last page of our earnings release. During the call, we will make forward-looking statements, which are subject to various risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates and expectations are discussed in our SEC filings, including our annual report on Form 10-K, which is available on our website. We encourage you to read these documents. You are also cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information as well as our earnings release. With that, I'd like to turn the call over to Barb. Barb? Barbara Jacobsmeyer: Good morning, and thanks for joining us. Let me start by recognizing the exceptional Enhabit team. We're proud to share that Enhabit has been named as one of Fortune's Best Places to Work in health care. This recognition is a powerful testament to our commitment to a culture of excellence, strong leadership and an outstanding employee experience. It's that same team that has delivered another quarter of strong performance for our patients, partners and shareholders. I will address the 2026 CMS home health rule before Q&A. But first, Ryan and I will review the quarter results. Home health total admissions were up 3.6% year-over-year, with census increasing 3.7%. Normalized for closed branches, our admission growth was 4.3% year-over-year. Fee-for-service Medicare census continues to stabilize with census down 1.4% year-over-year versus the 14.1% year-over-year decline experienced in quarter 3 2024. Our non-Medicare admissions were up 10.4% and an appropriately managed payer mix resulted in a 2.8% increase in non-Medicare revenue per visit year-over-year. As mentioned on our last earnings call, we experienced disruption at the end of the second quarter, early third quarter in both admissions and census from the impact of renegotiations with a national payer that ultimately resulted in achieving a low double-digit increase in our per visit rate effective August 15, 2025. By late September, we have recovered our census with this payer and recent admissions are now at 120% of our weekly average. Our total patient census grew sequentially each month of the third quarter, and that sequential growth persisted into October. Our scale drives meaningful access to payer members and that access, coupled with our high-quality outcomes, continues to position us well for progress within our payer strategy. This was evidenced by another renegotiated national payer contract during the third quarter. This was the renegotiation of one of our first payer innovation agreements, and this one did not require disruption to patient access or to our census and resulted in achieving a successful update in our rates effective in November. The positive impact of our payer innovation team is ongoing as we continue to work with new and current payers on pricing that appropriately values our timely access to care as a scaled provider with strong outcomes. Our quality of care and our timely access are also part of our hospice strategy, and these strategies continue to drive strong results. We have now experienced 7 straight quarters of sequential census growth. Total admissions grew 1.4% year-over-year. Normalized for closed branches, admissions were up 3%. Census grew 12.6%. We have added 21 or 11% additional direct sales team members year-over-year to continue to broaden our reach to additional referral sources. We have the clinical capacity for growth and will increase our reach to diversify our referral sources. To complement our organic growth strategy, our de novo strategy is positively impacting total growth. In quarter 3, we opened 2 de novos for a total year-to-date of 6. We opened our seventh location in October and continue to be on pace for a total of 10 de novos in 2025. As evidenced by our organic and de novo focus, our admissions and census growth are a big part of our strategy. However, whether it is CMS pricing or continued shift to Medicare Advantage, we must be as efficient as possible to have necessary resources to strategically invest in people and technology. Therefore, our cost structure is critical to future success. As mentioned before, we believe advanced visit per episode management is a promising lever to mitigate uncontrollable and unanticipated rate disruptions like these. Our advanced visit per episode management pilot was initiated in mid-August in 11 branches. However, because a pilot case must start with a new start of care, the branch's full census was not impacted until the end of October. Early results are promising with a decline in total visits per episode in these locations from approximately 15 prior to the onset of the pilot to approximately 13 currently. 83 additional branches were rolled out throughout the month of October, and the rest are expected by the end of November. We anticipate adding 10 resources between our authorization team and our virtual clinical team to support the full company rollout. We will provide an additional update on our fourth quarter earnings call. As we navigate a dynamic operating environment, we remain confident that Enhabit is best positioned in the industry with our experienced leaders, high-performing teams and innovative technology to manage through challenges and continue growing market share. And now I will turn it over to Ryan, who will cover the financial results of quarter 3 and additional updates on our G&A cost management focused efforts. Ryan Solomon: Thank you, Barb. Continued strong execution in the quarter on our broader strategy delivered strong consolidated financial performance with both top line and bottom line EBITDA growth to the prior year in Q3, all while continuing to generate consistent free cash flow that we've used to improve our net leverage to levels not seen since late 2022 just following our spin. Our ability to deliver growth and profitability for the third straight quarter in what remains a challenging operating environment highlights the consistency in our operational execution and flexibility in our model. Even as payer disruptions created headwinds early in the quarter, our teams navigated the challenges effectively, ensuring that we built momentum throughout the quarter to deliver growth and position us well as we enter Q4 to finish the year strong. Before reviewing consolidated and segment detailed performance, a few Q3 highlights that demonstrate clear execution on our strategy include the following: Returning the business to consistent growth in 2025 was a strategic priority, and we are well on our way. With Q3 results, we have now delivered several quarters of year-over-year growth in both revenues and adjusted EBITDA. Improving the financial health of the business has been a focus in 2025 as well. With a return to consistent adjusted EBITDA growth, we have used the improved adjusted free cash flow to reduce our net debt to adjusted EBITDA leverage amount to 3.9x in Q3 2025, lower by over 1.5 turns compared to Q4 2023 when leverage was 5.4x. The improved leverage lowers our Q3 2025 annualized cash interest expense by approximately $19 million compared to Q4 2023. Improving the financial health of the business provides us with improved liquidity and an overall balance sheet flexibility for innovation and potential M&A. Hospice segment momentum continues to be very strong, delivering record revenues and profitability in the quarter with year-over-year segment adjusted EBITDA growth of over 70%, with substantial margin expansion on double-digit census volume growth of over 12%, driving overall revenue growth of 20% in Q3. Home Health successfully launched the visits per episode pilot in Q3, while delivering census growth of 3.7% to the prior year despite payer disruption early in the quarter, along with continued execution on stabilizing Medicare volumes and improving home health per patient day unit cost economics, which were lower by 2.1% in Q3 versus the prior year. Home office expenses improved $2.3 million sequentially, coming in at 9.1% of revenues in Q3 versus 9.9% of revenues in the prior quarter, as we focused on cost management initiatives, which lowered Q3 and run rate costs as we implement mitigation strategies in front of any potential CMS final rate rule headwind. Now shifting to the Q3 consolidated results details. Consolidated net revenue totaled $263.6 million, an increase versus prior year of $10 million or 3.9%. Consolidated revenue growth in the prior year was driven primarily by outsized growth in our Hospice segment with revenue growth of 20% on both census and unit revenue growth. Home Health revenue was relatively flat to prior year on census growth, offset by lower unit revenues related primarily to mix. Consolidated revenue growth in the quarter translated to improved profitability, both to prior year and sequentially, with consolidated adjusted EBITDA of $27 million in the quarter, an increase sequentially of $0.1 million or 0.4%, while growing to the prior year by $2.5 million or 10.2%, with overall adjusted EBITDA margin as a percent of revenue expanding to 10.2%, an increase of 50 basis points to the prior year. Now shifting to Home Health performance. Revenue was $200.5 million, lower than prior year by $0.5 million or 0.2%. We estimate that without the payer renegotiation disruption experienced early in Q3 and the loss of revenue from branch closures, the home health total revenues for the quarter would have been approximately $3 million higher, which would have resulted in growth to the prior year of approximately 1% in the quarter to prior year. Average daily census for the quarter totaled 41,451, growth to the prior year of 3.7%, while lower sequentially 1.6%, primarily related to the payer renegotiation disruption early in the quarter. While we were successful in replacing disrupted payer volumes early in the quarter and then building back volumes throughout Q3 post renegotiation, this did put incremental pressure on our unit revenue per patient day in the quarter, which was lower sequentially 2% and versus prior year by 3.7%. The lower unit revenues were partially offset by improved unit cost per patient day for the prior year of 2.1% as we maintained staffing productivity improvements in the quarter to offset typical incremental wage inflation costs. Home Health adjusted EBITDA totaled $33.9 million in Q3, reflecting a decrease to the prior year of $2.6 million or 7.1% and sequentially $5.4 million or 13.7%. The lower adjusted EBITDA sequentially reflects margin compression as unit revenues were lower 2% and unit costs were marginally higher by 0.7% on lower average daily census volumes of 1.6%, which created gross margin compression of 160 basis points. We saw this margin compression normalize late in the quarter as we built back volumes following the payer disruption. Two key items to highlight in Home Health outside of the broader revenue and adjusted EBITDA performance include the following: as Barb touched on, we continue to have success in slowing the rate of decline in our Medicare patient volumes, with Medicare revenue mix totaling 56.5% of total Home Health segment revenues, improvement sequentially of 20 basis points. In regards to the continued visits per episode optimization, our total visits per episode for Q3 of 13.4 is lower 0.3 visits sequentially and 0.7 visits versus prior year. A host of efforts in the quarter focused on providing the clinically appropriate number of visits to our patients, combined with successfully launching our pilot as previously outlined on our Q2 call in a small subset of branches with early results being promising, gives us confidence in our ability to use visits per episode as a key lever to continue to optimize while balancing quality to meaningfully offset potential rate reimbursement headwinds from CMS 2026 proposed home health rule. Now shifting to our Hospice segment performance for Q3, where continued execution by our Hospice leaders delivered a record performance for the quarter with revenue totaling $63.1 million, reflecting sequential growth of $2.9 million or 4.8% and exceptionally strong growth to the prior year of $10.5 million or 20%. Revenue growth was supported by continued strong momentum in census growth in the quarter of 3.2% sequentially and 12.6% to the prior year. Hospice adjusted EBITDA totaled $17.2 million in Q3, reflecting an increase to the prior year of $7.2 million or 72% on a double-digit volume increase combined with margin expansion as adjusted EBITDA margin as a percent of revenue improved 830 basis points to the prior year and totaling 27.3% as our operational leaders continue to create operating leverage on the increased volumes. Two key items to highlight in Hospice outside of broader revenue and adjusted EBITDA performance include the following: all of our 2024 hospice de novos are profitable and collectively generated $0.8 million of revenue and $0.3 million of EBITDA in Q3, demonstrating the ability to quickly ramp our de novo sites to profitability. Average discharge length of stay continues to remain relatively flat with Q3 coming in at 101 days versus the prior year of 100 days. Shifting briefly to our home office, general and administrative expenses for the quarter, which totaled $24.1 million or 9.1% of revenues in Q3 compared to $26.4 million or 9.9% of revenues in the prior quarter, delivering a sequential improvement of $2.3 million. This improvement primarily reflects the result of a focused G&A cost review completed in the quarter that generated savings in Q3. We saw an increase to prior year, primarily related to incentive accrual release in the prior year not replicated in Q3 and broader inflation, somewhat offset by cost initiative actions in 2025. Transitioning now to the balance sheet and cash flow. As outlined earlier, a key strategic priority in 2025 is using free cash flow to continue to delever our balance sheet. Adjusted free cash flow year-to-date totaled $64.8 million, which when normalized for 1 less payroll period in the quarter that we will see in Q4 would total approximately $45 million or an approximate 56% adjusted free cash flow conversion rate, which compares favorably to the full year 2024 by over 200 basis points. During the quarter, we reduced overall bank debt by $15.5 million, including amortization and prepayments. We ended the quarter with approximately $57 million in cash and available liquidity of $143.3 million compared to available liquidity in the Q3 period of the prior year of $94.1 million, an improvement of $49.2 million. Improved profitability, coupled with continued balance sheet improvements result in a net debt to adjusted EBITDA leverage ratio of 3.9x compared to Q3 of the prior year of 4.8x. Progress on reducing our overall bank debt continued in Q4 with us having already made an additional $10 million of debt prepayments quarter-to-date through October, which brings our total debt reduction to $100 million since Q4 of 2023 as summarized on our supplemental slides. We remain committed to strengthening our balance sheet and improving profitability. Let's conclude with briefly discussing updated guidance. Based on our consolidated year-to-date 2025 results and the momentum in the business, we remain confident in our strategy and full year outlook. We've updated our full year guidance as follows. We now expect full year revenue to be in the range of $1.058 billion to $1.063 billion. We are increasing our full year adjusted EBITDA guidance to be in a range of $106 million to $109 million. We are also increasing our full year adjusted free cash flow to be in the range of $53 million to $61 million. Thank you for the time today. I'll hand it back over to Barb for a few closing comments on the CMS rate rule before we open up for questions. Barbara Jacobsmeyer: Thanks, Ryan. As you're aware, the CMS 2026 home health final rule has not yet been published. We remain focused on our strategies to mitigate as much of the pricing headwind as possible in 2026 and are well on our way with the various strategies we have already deployed. More details will be forthcoming when we report full year 2025 earnings and 2026 guidance during Q1 of next year. As we noted in our comment letter, the proposed cuts, if finalized, will worsen the existing trend of reduced patient access to home health care. Home health is the patient preferred and most cost-effective post-acute care option and thus saves Medicare money. We urge CMS to reverse the temporary and permanent adjustments contained in the proposed rule to ensure adequate access to home health is restored. Operator, we can now open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Brian Tanquilut of Jefferies. Meghan Holtz: This is Meghan Holtz on for Brian Tanquilut. It's nice to hear some -- you guys had some additional payer negotiations that came out favorable for you guys. So can you kind of provide some color on the rate increase you received from that new one in November and then the pipeline of any additional payer innovation contracts that you have upcoming for renewal? Barbara Jacobsmeyer: Sure. So as I mentioned, this was our first payer innovation contract, national one that came up for renewal. So we were pleased with the update. Because it's already a payer innovation, we really won't disclose the update that we received. But I will say that we continue to work with those that we had negotiated. More of the regional type agreements will be coming up in the next year. The future national agreements, it will be more towards the end of next year, early 2027 before the additional national agreements will come up. Meghan Holtz: Okay. And then just a quick follow-up. You guys had nice improvement in the G&A line. Can you provide some color where that expense reduction is coming from? And then how much more runway do you have to reduce and remove some costs in that line? Ryan Solomon: Thanks, Meghan. Yes, so as we think about G&A, when we think about home office, more traditional back-office capabilities in the context of both internal and external related expenses. So a combination of some headcount reductions as well as some efficiencies that we're able to really in-source capabilities from third-party vendors while not impacting any of our capability. When you think about in the quarter, roughly $1 million to $1.5 million of that overall kind of G&A improvement sequentially, we think is durable and kind of how we think about things prospectively going forward. Operator: And your next question comes from the line of Ryan Langston of TD Cowen. Christian Borgmeyer: This is Christian Borgmeyer on for Ryan Langston. Last year, we saw a pretty big jump in hospice average length of stay sequentially from 3Q to 4Q. Should we expect a similar tailwind sequentially this year just as a product of seasonality? I'm just curious what seasonal factors drive that as we get to the end of the year. Barbara Jacobsmeyer: Yes, it's difficult because, obviously, last year, when you look, we're going to have some pretty big comps here both in Q3 and Q4. And so as you mentioned, there usually is some seasonality. It's why we've added some additional resources to make sure we can extend the outreach that we have. I would say that the holiday times tend to be a little bumpy within this segment. You do have folks that tend to want to wait to elect until after the holiday. So it's -- I would say it tends to be one of our more unpredictable times of year, especially as we go into the 2 upcoming holidays. Christian Borgmeyer: Got it. And then just one quick one on the payer innovation contract renegotiation. How long is re-contracting cycle typically? Is it annually? Or is it more contract by contract? Barbara Jacobsmeyer: Yes. It's by contract by contract. I would say the majority of our contracts are 3 year. We do have some that are 2 years, but I would say the majority tend to be around a 3-year time frame. Operator: [Operator Instructions] And we have a follow-up question from Brian Tanquilut of Jefferies. Meghan Holtz: As long as there's no other queues, I'll ask another follow-up. Can you guys just kind of speak to labor in the quarter, specifically if you guys continue to benefit from some of the peers that you saw changing pay structure and you're able to capture some labor there? And then how are you thinking about wage inflation in '26, if you could give some preliminary color there? Barbara Jacobsmeyer: Sure. So I would say we've seen a nice uptick continued in our applicant pool for nursing and for therapy. And so that has been nice to see. We've continued to see an uptick also in our headcount on the clinical capacity for Home Health and for Hospice. So are pleased with the results that we're seeing there. And then as it relates to wage, I would say, we're kind of, I would say, back to that normal merit around that 3% is what we're experiencing. There are markets that will pop up occasionally that are more challenging. We do handle those more at a market level. I would say we're seeing a little bit more of that right now in the therapy side of things, but we monitor that at a market level. Operator: And there are no further questions. I will now turn the conference back over to Bob Okunski for closing remarks. Bob Okunski: Thank you, everyone, for joining today's call. Please feel free to reach out if you have any additional questions. Thank you for your time. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Todd Seyfert: Good morning, and welcome Sturm, Ruger & Company's Third Quarter 2025 Earnings Conference Call. I'm Todd Seyfert, President and Chief Executive Officer. Before we get started, I would like to turn it over to Sarah Colbert, our Senior Vice President and General Counsel, for the caution on forward-looking statements. Sarah Colbert: I would like to remind everyone that some of the statements we make today will be forward-looking in nature. These statements reflect our current expectations, but actual results could differ materially due to a number of uncertainties and risks. You can find more information about these factors in our most recent Form 10-K and other filings with the SEC. We do not undertake any obligation to update these forward-looking statements. Todd Seyfert: Thanks, Sarah. This quarter's results reflect both the realities of a challenging market and the early progress we're making as we continue to execute the strategic plan we began earlier this year. The broader market continues to face headwinds from tariff and interest rate uncertainty, inflationary pressures and a softening job market, all of which are affecting discretionary consumer spending and manufacturing costs. The firearms market is experiencing similar pressures. The overall market trending down 10% to 15% this year, while NICS checks, often used as a proxy for the market, down roughly 4% year-to-date versus 2024. Additionally, the market continues to be influenced by the availability of used firearms at retail. Despite these challenges, I am pleased with our top line performance for the quarter where we achieved year-over-year sales growth. As we continue to make progress on our strategic plan, we are actively focused on key operational initiatives and innovation activities. As top line performance trends upward, these disciplined actions are critical to accelerating return to sustained profitability and enhancing long-term success. Now Tom Dineen, our Chief Financial Officer, will take us through the financial results for the quarter. Thomas Dineen: Thanks, Todd. Net sales for the quarter were $126.8 million and diluted earnings were $0.10 per share. For the corresponding period in 2024, net sales were $122.3 million and diluted earnings were $0.28 per share. On a pretax basis, the company lost $2.1 million in the third quarter of 2025, driven by $1.9 million of acquisition and operating costs at the new Hebron, Kentucky facility that was acquired in July, increased costs associated with material and technology and increased sales promotional expenses. During the third quarter of 2025, we revised our estimated annual effective income tax rate for 2025, and recognized a $3 million increase to our year-to-date income tax benefit. This increased third quarter net income by $0.19 per share. Without this increase, our EPS would have been a loss of $0.09 per share. For the 9 months ended September 27, 2025, net sales were $395 million, and the company lost $0.48 per share. For the corresponding period in 2024, net sales were $389.9 million and diluted earnings were $1.15 per share. In the second quarter of 2025, the company rationalized and price repositioned several product lines, reduced the number of models offered and implemented an organizational realignment, which adversely impacted the results of operations for the 9 months ended September 27, 2025. On an adjusted basis, excluding the impact of these nonrecurring expenses, diluted earnings for the 9 months ended September 27, 2025, were $0.65 per share. On an adjusted basis, excluding the reduction in force expense of $1.5 million incurred in the first quarter of 2024, diluted earnings per share for the 9 months ended September 28, 2024, were $1.22. On September 27, 2025, our cash and short-term investments totaled $81 million. Our short-term investments are invested in United States treasury bills and in a money market fund that invests exclusively in United States treasury instruments, which mature within 1 year. On September 27, 2025, our current ratio was 3.5:1, and we had no debt. In the third quarter, we generated $13 million of cash from operations. In the first 9 months, we generated $39 million of cash. Year-to-date, capital expenditures totaled $28 million, including $15 million for the Anderson acquisition in Hebron, Kentucky. The company expects capital expenditures to total $35 million for the year for continued investments in new product introductions, expanded capacity for product lines in greatest demand, upgraded manufacturing capabilities and strengthened facility infrastructure. For the third quarter, we returned $13 million to our shareholders through the payment of $3 million of quarterly dividends and $10 million through the repurchase of 288,000 shares of our common stock at an average cost of $34.33 per share. In the first 9 months of 2025, we returned $36 million to our shareholders through the payment of $10 million of quarterly dividends and $26 million through the repurchase of 731,000 shares of our common stock at an average cost of $35.60 per share. The company also announced that its Board of Directors declared a dividend of $0.04 per share for the third quarter for stockholders of record as of November 17, 2025, payable on November 28, 2025. This dividend is approximately 40% of net income. Now back to you, Todd. Todd Seyfert: Thanks, Tom. When I stepped into the CEO role earlier this year, we began a comprehensive assessment of our operations and a full review of our product portfolio. Those activities continued into the third quarter where we realized top line growth from many of the actions taken in the second quarter while identifying additional opportunities to strengthen our foundation moving forward. Operationally, we are executing several key initiatives designed to improve efficiency and profitability across the organization. This quarter, we advanced into the next phase of that work with a rigorous evaluation of product line performance, conducting detailed line-by-line reviews of our portfolio and assessing profitability facility by facility to ensure our resources are deployed where they create the greatest value. This includes realigning our manufacturing footprint to maximize efficiency and reduce costs by balancing production lines across facilities to improve delivery and resource utilization. At the same time, we continue our product line analysis and rationalization to ensure that every product earns its place in our lineup and every facility operates efficiently and accountably. A great example of this is our newest facility in Hebron, Kentucky, which we acquired in July of this year. Following our product line review, we identified the need for additional capacity to support our modern sporting rifle category. We purchased Anderson to provide that capacity, which in turn freed up capacity in Maiden for one of our most in-demand products, the second-generation Ruger American Rifle. With the additional resources in Hebron, we are actively working to in-source components that were previously purchased, a move that will improve our cost structure, shorten lead times and give us greater control over quality and delivery. Additionally, product innovation continues to be the most important factor in remaining successful in a tough economic market. As I've said before, our greatest opportunities lie in delivering new relevant products that resonate with consumers and position us for sustained growth. For the quarter, new product sales accounted for $41 million or 34% of net firearms sales, which reinforces the popularity of our innovative products. As always, new product sales include only major new products that were introduced in the past 2 years. These are high-demand platforms that continue to resonate with customers across a variety of segments, including the award-winning RXM pistol, a modular polymer-frame striker-fired pistol developed in collaboration with Magpul. The second-generation Ruger American Rifle, an update to the American-made rifle that has been the benchmark for accuracy, durability and performance in bolt-action rifles for over a decade. Marlin lever-action rifles, which remain a staple for collectors, hunters and traditional enthusiasts. The Ruger 10/22 with carbon fiber barrel, a lightweight model featuring a stainless steel tensioned barrel with a carbon fiber sleeve. And the fourth-generation Ruger Precision Rifle, refined through years of feedback from competitive shooters. With that said, our pipeline remains strong and demand for new products continues throughout the channel. In Q3, we made meaningful progress to position ourselves for success in the future. Already in October, we have reintroduced Glenfield Firearms, an iconic value brand that offers hunters of all experience levels with a no nonsense American-made rifle; expanded the second-generation Ruger American Rifle line with the Prairie and Patrol models, the first Ruger American Rifles featuring a heavy barrel; and broadened Marlin caliber offerings with the launch of the first-ever 10-millimeter lever-action rifle in the market. These launches build on our most successful product families, and we're just getting started. Looking ahead, the coming months will bring even greater opportunity, including building out the popular RXM pistol family with new grip frames, sizes, accessories and configurations; launching a new line of modern sporting rifles manufactured in our Hebron facility; and bringing back the classic Ruger Red Label shotgun, making us once again a full-line manufacturer of firearms. As you can see, Ruger is well positioned for continued success. We remain focused on building a stronger, more agile company, one that consistently delivers value to our customers, employees and shareholders. I'm encouraged by the progress we've made and excited about what's ahead. With that said, we continue to take a disciplined and thoughtful approach to capital allocation, ensuring that every dollar deployed serves a clear strategic purpose and creates long-term shareholder value. Our priorities remain unchanged: maintain a strong debt-free balance sheet, invest in core product innovation and operational efficiency and return capital to shareholders responsibly. This disciplined capital approach ensures the company has the flexibility to invest when opportunities arise while continuing to reward shareholders over time. Ruger's future success will be measured by improved returns for our shareholders, and we are taking the right steps to get there, building a company designed for long-term strength rather than short-term reactions. Thank you for your time, continued support and confidence in Ruger. Operator, can we please have the first question? Operator: [Operator Instructions] Our first question comes from the line of Mark Smith with Lake Street. Mark Smith: I wanted to ask first just about gross profit margin and what was kind of putting downward pressure on gross profit margin here in the quarter, if it was a mix issue or if there's still some of the transformation things that are putting some pressure on gross profit margin this quarter. Todd Seyfert: Before I answer that, just apologies. It sounds like we had some technical difficulties with the video this morning, which we encourage you to go to the website. It will be posted after the call today. But there's a lot of good content there. So again, apologies for the issues for those of you that couldn't access it or see it this morning. So with that, Mark, in terms of margins, really, it's a combination of things. I would tell you, it's not a lot of the things that we saw in Q2. It's more about some of the volumes. And really, the biggest thing I would say is the Hebron, Kentucky, the work that we're doing there to get that facility up and ready for production. And so we had about $1.4 million of costs associated with that facility without any revenue coming out of it. And so that's really the driver. We continue to go through our product line rationalization and our SKU consolidation, but you're not seeing a lot of that in the quarter. Mark Smith: Okay. And I did want to ask about Hebron on just kind of an update on where you're at in getting that facility up and running and production in that facility. Todd Seyfert: Absolutely. We're making great progress, Mark. Our goal was to be in production with firearms by year-end, and we're on pace for that target still. Mark Smith: Okay. Perfect. And then can you just talk a little bit about mix and price. As we think about -- it looks like sales price on orders received was down a decent amount as well as some of the items that were shipped, but very good production and units shipped. But I'm curious just kind of where your mix came in if RXM had maybe higher mix at a lower-priced item. And then I'd love to hear your thoughts on -- as we think about the new line coming out here of Glenfield and kind of your thoughts around mix and price and how that fits within the strategy. Todd Seyfert: Absolutely. So I think really the way to think about it in the quarter, Mark, was heavy LCP orders and shipments. We did do a program. And so that was a thoughtful program in terms of the quarter. And so that's really the driver within the quarter. When we talk about the Glenfield expansion, that's actually an opportunity for us in terms of the facility in Newport. What we did there, Mark, is, as you know, that the original American Generation -- American Gen I Rifle was produced in that facility. It's been produced for over a decade, fantastic entrance for Ruger into the bolt-action marketplace, affordable quality, value. As we pivoted to the Gen II Rifle, obviously, there was some confusion in the market, why are you still producing both. So a decision was made. Listen, when we bought Marlin, we acquired the assets and the trademarks for Glenfield. So what we did is we said, listen, we've got this opportunity, we've got this capacity. Let's go ahead and figure out how we enter at a new price point where Ruger hasn't played, round out the product offering, good, better, best, and that's where we came out with the Glenfield. And so that will be produced on upgraded machinery and equipment on the Gen I line, we're in production as we speak. And I will tell you that the acceptance in the marketplace has been fantastic. Mark Smith: Perfect. And I think the last one for me. Just curious about kind of steel and other input prices, where they're at and any pressure on margins that we maybe have seen from rising input prices? Todd Seyfert: Yes. I would say fairly flat. The good news is, is we had some -- we bought ahead in terms of supply, in terms of how much we had on hand, Mark, with some of the uncertainty. So that helped us a little bit. There is some noise around aluminum right now. Obviously, with the continued tariff uncertainty, we're positioning ourselves to be reactive to whatever is happening. And as you know, following this, it seems to be either by the day or by the week, we're seeing new information. And so we track it very closely, but not a significant amount of pressure on our costs to date. Operator: And our next question comes from the line of Rommel Dionisio with Aegis Capital. Rommel Dionisio: Two questions. One, if I could just follow up to Mark's question on the Glenfield line. How do you guys think about the positioning of that brand and that product line going forward to not cannibalize existing sales of like Marlin or the other products that you have in place? Is it more just a pricing issue? Or is there kind of a different demographic you're targeting with that new product line, or sorry, revamped or rejuvenated product line for Glenfield that's got a heritage brand there. And the second would be on the Patrol line you just announced. I wonder if you -- is that towards law enforcement? I wonder if you could just give us some granularity on the type of consumer you're targeting with those two products? Todd Seyfert: Sure. Absolutely. So back to Glenfield first, Rommel, really, the whole idea around Glenfield was as we stratify our product line, we have the Marlin at the top of the pyramid, we have Ruger in the middle, and we didn't really have kind of the "opening price point." And so that is where Glenfield will play. It will be kind of the first gun. It will be the value to get into the Ruger brand and the Ruger company. And so our thought there was, again, we didn't have products at that price point. And so we created a variant of the Gen I with improved features and benefits at a price point that the Gen II does not play at. And so really focusing on attracting a new segment of the market, that's where we're focused on. And we're not cannibalizing anything because we don't have anything else near that price point. And so to us, this is kind of greenfield new opportunity, white space in the market. When it comes to the Patrol rifle, that's really a name. It's really not law enforcement focus, Rommel. It's really a variant of the incredibly successful Gen II. We've never had a heavy barrel version of the Gen I or Gen II to date. And so this really opens up that product line into categories in the marketplace that we have not gone to yet in terms of the Gen II rifle. So it's really a new variant, not focused on law enforcement, really focused on kind of that Western hunting general all around consumer, if you will. Operator: Our next question comes from the line of James Kostell with Cuyahoga Capital. James Kostell: Sorry, we had a little technical problem there. Yes, two unrelated issues. Firstly, 1976 was the 200th anniversary of the Declaration of Independence. Next year will be the 250th. And '76, Ruger imprinted on the barrels made in the 200th year of Liberty. And will you be doing something, a similar promotion for next year? And it's my perception when I go to sporting goods stores that in the aftermarket, firearms with that imprint on them trade at a premium. And do you agree with that? Furthermore, if you're going to be doing a promotion of this sort and you compare it to what happened in 1976 versus 1975, can you give us an idea of what sort of increase in unit volume you saw back then and perhaps may see next year? Todd Seyfert: Well, first off, thanks for remembering what we did, and we're excited about it. So we're in the process right now evaluating what is possible across the product families. As you know, technology has changed, our volumes increased. And so we got to be thoughtful about how we would imprint and what lines. And so we're going through that analysis. There will be something. We're just not exactly sure which and how many. And then in terms of the premium that we see in the marketplace, we have seen when Ruger does special make ups or special builds that it does create a premium in the marketplace, and we believe that helps build the brand over time. And so we're very happy and very excited when we can do these things because it does give that consumer, that Ruger consumer that's used to these special types of firearms and other options to come in and buy another Ruger. So we're excited about that very much. In terms of kind of the other, the last question. It's a little bit more about -- we have to be a little bit careful about forward-looking statements and what we can and can't say. But I will tell you, again, we're very excited about next year. We're excited about the opportunity for the country and the brand and how we bring those two things together. James Kostell: Can you help me with what unit volumes did in 1976 versus '75 and kind of what happened there? Todd Seyfert: Gee, I can't off the top of my head to be honestly. I wish I anticipated this question and I could have helped you out. But I don't have those numbers at my fingertips. James Kostell: Okay. Second unrelated issue. You're going to reintroduce the Red Label. Do you -- I mean, is that somehow related to your new large shareholder, which is sort of the elephant in the room? Todd Seyfert: No, actually. It really is, for us, upon my arrival, we have really talked about the product families and where Ruger is and where Ruger wants to go. And it was really important to all of us in the company to become, once again, a full-line firearms manufacturer. And the one area that we were missing was the shotgun market. And so really, it's our way back to being the only full-line manufacturer of firearms, and that was the impetus for the reintroduction, as well as I'm a big shotgunner and I'm excited about it as well personally, so. James Kostell: Well, I mean, looking at it across the industry, SKB as an example, and Mossberg both import their target guns, I think, mostly from Turkey. I mean do you -- would you have a problem with somebody else manufacturing the gun and you're selling it under the Ruger name? Todd Seyfert: No, we wouldn't. Ours are U.S. made. So that's I think the differentiator for us and what Ruger is trying to do is we stand behind, we're very proud that we're a U.S. manufacturer of firearms and we'll continue to be that. Obviously, if an opportunity came up, it's something -- obviously, if it makes sense for the business and it makes sense for our shareholders, we would look at it. But our focus right now is building guns here in the U.S. James Kostell: So you think the Beretta interest had nothing to do with the Red Label? Todd Seyfert: That was -- these things happened way, way before the Beretta investment in Ruger. So this was on our road map. This is something that the company had been working toward, and we're at the point now where we're ready for it to launch, and we're ready to have guns, which we are launching here shortly. so. James Kostell: Would you have any update on the Beretta situation that you'd like to share with us? Todd Seyfert: I mean I think the answer is, listen, we appreciate their investment and confidence in our company. We reported in our press release last month that we issued a shareholder rights plan to kind of preserve the status quo, what we try to engage. And we're happy to engage with anybody that wants to have a conversation. And so we're a public company. We're always for sale, and we look forward to engaging with them when they're right. Operator: I'm showing no further questions. So with that, I'll hand the call back over to President and CEO, Todd Seyfert, for any closing remarks. Todd Seyfert: Thanks, everyone. We appreciate your attention. Again, apologies on the video. Please go to the website. The team did a great job putting that video together, a lot of good content. We appreciate your investment in Ruger and your trust, and we look forward to speaking to you next quarter.
Operator: Good morning, ladies and gentlemen, and welcome to the OR Royalties Q3 2025 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, November 6, 2025, at 10:00 a.m. Eastern Time. I would now like to turn the meeting over to our host for today's call, Mr. Jason Attew. [Foreign Language] Jason Attew: Good morning, everyone, and thanks for your attention today, as I know it is a very busy reporting week. Procedurally, I'll run through the presentation, and then we'll open up the line for questions. For those participating online via the webcast, you can submit your questions in advance through the webcast platform. Today's presentation will also be available and downloadable online through our corporate website. Please note that there are forward-looking statements in this presentation from which actual results may differ. Also, all amounts presented and discussed in today's call will be in U.S. dollars unless otherwise noted. I'm joined on the call today by Fred Ruel, the company's VP Finance and Chief Financial Officer, as well as my other colleagues as indicated on Slide 3. OR Royalties third quarter of 2025 was a straightforward one with sequential quarter-over-quarter improvement with respect to GEOs earned, cash margin, cash flows as well as our overall debt reduction. OR Royalties earned 20,326 gold equivalent ounces in the third quarter, a modest 3% improvement over second quarter of this year. Based on where we sit today after the first 9 months of the year, the company is tracking towards the midpoint of its previously published full year 2025 gold equivalent ounce delivery guidance range of 80,000 to 88,000 GEOs. And this would be based on normalizing for the higher-than-budgeted commodity price ratios. In other words, gold, silver, copper and gold year-to-date. More on this in a moment. Recall that we've been very specific -- explicit about the fact that due to sequencing at some of our major producing assets, including Mantos Blancos and ongoing ramp-ups at other assets like Namdini. The second half of the year was always expected to be a little bit stronger than the first half of 2025. Consequently, and at this stage, we think it's appropriate for outside observers to infer that Q4 2025 should be OR Royalty's strongest quarter of the year in terms of GEOs earned. And thanks to improved silver grades realized quarter-to-date, Mantos Blancos will be playing a key role in supporting what should be a very solid Q4 for us. Circling back on our gold equivalent ounce guidance for 2025 and commodity price ratios. It's worth noting that through September 30, 2025, and due to the higher-than-budgeted gold prices versus both silver and copper over that period, OR Royalties is tracking approximately 2,000 GEO to 2,100 GEOs lower than its original budget. In other words, these GEOs are "lost" when not normalizing for commodity price ratios. As a reminder, in February of this year OR Royalties applied a consensus commodity pricing and notably an 83:1 gold-to-silver ratio for its budgeted 2025 GEO delivery guidance. All else being equal and based on the current commodity price volatility, this number of "lost" GEOs could either grow modestly or potentially get smaller before year-end. The key message is that the same higher gold prices that have skewed the ratios versus our original budget affecting our GEOs earned have also more importantly, translated to record revenues and cash flows from operating activities for all royalties for both the third quarter and the first 9 months of the year. For context, the average realized gold price for the first 9 months of this year was $3,188 per ounce, which is over $900 per ounce greater from the same period last year. So as you can imagine, our shareholders should still be satisfied with the outcome associated with these year-to-date price movements. In addition, we are 65% of our revenues are directly derived from gold. And speaking of cash flows, we're once again happy to report cash margins for the period of just under 97%, in line with our budget for the year. OR Royalties ended the third quarter with $57 million in cash as at September 30. We are in a debt-free position for the first time in over 10 years as the company paid down the outstanding balance of its revolving credit facility during the period. And while members of our corporate development team remain extremely busy to this day, there were no major transactions announced by -- OR Royalties during the third quarter outside of our second $10 million milestone payment released to SolGold, given the ongoing progress the new management team there continues to make in advancing a new vision for Cascabel. With the rapid increase in already elevated precious metals, in addition to recent price volatility, I continue to espouse an internal culture of capital allocation discipline. where returns on new transactions must exceed our internal hurdle rates at what we believe internally to be more realistic commodity pricing scenarios as well as contract structures that must come with the appropriate security features. Here at OR Royalties, we have the fortunate luxury to be able to walk away from transactions that we can't work for any of these aforementioned reasons, thanks in large part to our already bought and paid for organic GEO growth profile over the next 5 years or 6 years. I'll spend a little bit more time on our growth profile a little bit later. With respect to our ongoing commitment to return capital to shareholders, the company declared and paid its quarterly dividend of $0.055 per share in the second quarter, marking its 44th consecutive dividend. OR Royalty's history of progressive dividend payment serves as a testament to the confidence we have in the consistency, predictability and the anticipated growth of the current and future cash flows underpinning our business. Now moving on to the company's financial performance for Q3 '25. Quarterly revenues of $71.6 million tracked 71% higher versus the same period last year, again, largely thanks to the increased commodity prices and deliveries. And it also represented a quarterly record for the company. Net earnings of $0.44 per basic common share for the period also marked a very significant year-over-year improvement, thanks again to higher commodity prices and deliveries, but also in part due to the fact that as of August 2025, OR Royalties is no longer accounting for its equity position in Osisko Development as an investment in an associate and instead will now flow through other comprehensive income. This change in the accounting treatment of the Osisko Development investment generated a noncash gain of $54 million in the third quarter, as a result of the revaluation of Osisko Development equity investment at fair value on the date of the loss of significant influence being mid-August, which was triggered by the ODV equity financings. Most importantly, Q3 saw sizable year-over-year improvements in both cash flow per share of $0.34 versus $0.19 in Q3 last year as well as quarterly adjusted earnings of $0.22 per basic common share, again, versus $0.11 in the same period last year. Next slide, please. During the third quarter of 2025, our GEOs earned came predominantly from Canada, and we derived approximately 95% of our GEOs from precious metals, the balance coming from our direct copper exposure through our copper stream at Harmony Gold's CSA copper mine in Australia. Some comments on specific mine performances during the quarter before speaking about a couple of our more material assets in greater detail. At Agnico Eagle's Canadian Malartic complex, it had yet another solid quarter with respect to GEOs earned. A reminder that historically, we've often seen strong fourth quarters at Canadian Malartic versus the other way around. And while that should bode well for our final quarter of the year, we are mindful of an announced 4 day to 5 day maintenance shutdown at the mine during the fourth quarter. At Capstone Copper's Mantos Blancos operation, Q3 production saw a significant year-over-year jump, thanks to a couple of things. First, much improved plant throughput, still largely holding consistent at a nameplate of 20,000 tons per day; and secondly, approximately a month's worth of improved silver grades contributing to our own third quarter stream deliveries. Recall that with the 2-month stream lag, our 2025 stream delivery year for Mantos Blancos started November 1, 2025 -- 2024, sorry, and ends October 31, 2025. As noted, throughput levels remained at or above the mine's nameplate capacity of 20,000 tons per day at Mantos Blancos. And our anticipation is that silver grades should stay higher and in line with OR's expectations through the final month of our stream delivery year, which was the October that just ended. And also, as indicated in last week's Q3 2025 update from Capstone, the Mantos Blancos Phase 2 feasibility study is still scheduled for 2026, which we believe will be in the first half of the year. Finally, we've recently been really impressed with the ongoing successful ramp-up at the Namdini mine in Ghana, which based on our GEOs earned and paid year-to-date, it is starting to hit its stride after a slower start to the calendar year. We're expecting continued improvements from Namdini going forward based on the most recently -- the most recent publicly available mine plan for the asset, which was the 2019 feasibility study completed by the former Cardinal Resources, to which we understand the current operator is adhering to. Moving to Slide 7. And as I mentioned earlier, the number of currently producing assets in our portfolio stands at 22. And while unlikely to be included in any of our GEOs received this year, the next asset expected to be added to this list will be Ramelius Resources Dalgaranga mine in Western Australia, with our partner recently having released a full integration plan for the high-grade underground mine, which includes some modest gold production out of the mine in the first half of 2026. So likely beginning early next calendar year, more on Dalgaranga a bit later. On our last call 3 months ago, we went out of our way to highlight the meaningful silver exposure provided by OR Royalties, which through H1 2025 was just over 26%. If we recall the same chart from the previous slide you'll have seen that silver represented over 30% of our revenues in the third quarter. Summing this all up, we are essentially flagging that OR Royalties can provide lower risk, higher quality and meaningful leverage to silver for investors that are looking for it, especially if silver prices continue to close the gap versus gold as it has done over the past month or so. Moving on to Slide 8, which many of you will have seen many times before. Our company continues to set itself apart from the rest of its relevant peers in 2 key areas. First, as it relates to lower-risk jurisdictional exposure; and second, as it relates to our peer-leading cash and gross margins. Starting with the former. Just a friendly reminder that OR Royalties is the unequivocal leader when it comes to both net asset value and gold equivalent ounces earned from what we define as Tier-1 Mining Jurisdictions, which include Canada, the United States and Australia. And we would think that with the recent explicit plans outlined for the first time by Ramelius regarding Dalgaranga as well as other recent development advances across -- advancements across our portfolio, this exposure could very likely grow in the near to medium term. Moving to the latter. Simply put, OR Royalty's peer-leading cash margins provide our shareholders with both transparent leverage to precious metals prices as well as unmatched downside protection. Switching gears to Slide 9 and focusing on our cornerstone asset. Our partner, Agnico Eagle, provided some relevant information relating to the Canadian Malartic complex along with its Q3 2025 financial results announced on Wednesday evening last week. As it relates to operations during the period, aggregate gold production of approximately 150,000 ounces to 157,000 ounces in the quarter was higher than planned, primarily as a result of higher grades at the Barnat pit at Canadian Malartic. The higher gold grades at Canadian Malartic were a result of the continued mining of mineralized zones near historical underground stopes in the Barnat pit that returned higher grades than anticipated. Flipping to Slide 10. The Odyssey underground gold production during Q3 was slightly ahead of plan at approximately 22,400 ounces, driven by higher ore mined of approximately 3,634 tons per day compared to the target of 35,000 tons or 3,500 tons per day. Regarding the development of Odyssey Underground, the third quarter of 2025 saw mine development advance ahead of schedule with a record 4,770 meters completed. The breakthrough of the ramp to the mid-shaft loading station at Level 102 was completed in the third quarter of 2025. And the main ramp towards the shaft bottom progressed to a depth of 1,059 meters as at September 30, 2025. As previously noted by our partner and firmed up during the third quarter, Agnico Eagle approved the extension of the shaft -- the first shaft by 70 meters to a depth of 1,870 meters amongst some additional loading station adjustments. This adjustment is expected to improve operational flexibility and efficiency in the early 2030s, reducing reliance on truck haulage and further unlocking the significant exploration potential at depth. And speaking of efficiency, the sinking of the first shaft is already 2 months ahead of schedule. Looking at exploration, Agnico continues to press ahead aggressively with 29 surface and underground drill rigs operating during the period. The drilling program at Odyssey targeted the upper Eastern, lower Eastern and lower western extensions of the East Gouldie deposit. The new Eclipse zone and portions of the Odyssey deposit near the Odyssey shaft. Our partner believes this area of East Gouldie has the potential to add indicated mineral resources and potential mineral reserves to East Gouldie by year-end. The drilling success should benefit the ramping up of the mining operations and provide additional flexibility in mine development at East Gouldie, including a potential second mining area in the upper part of the mine. We touched on the following subject in our last quarterly conference call, but I think it's once again worth time to reiterate that our partner, Agnico Eagle, continues to openly discuss the concept of a second shaft at Odyssey. On Slide 9, we've provided just a small sample size of the details provided by Agnico as it relates to the current concept, including specific underground mine throughput profiles as well as aggregate potential underground production range in ounces as well as a breakdown of what is being targeted for both Shafts #1 and #2, expected grades and recoveries and finally, fairly detailed time lines to achieving all of this. What does this mean for OR Royalties? Distilling all of this down, it means that we could see an approximately additional 15,000 GEOs from a second shaft over and above what would be expected from the first shaft. The sheer amount of gold discovery to date at Odyssey Underground and more specifically East Gouldie on which we have a 5% NSR royalty and which continues to expand, continues to support our partners' plans. The current mineral inventory at the East Gouldie sits at approximately 50 million gold ounces and continues to grow. Agnico Eagle now has over 29 drills turning to expand this ounce inventory in addition to firming up the confidence of what has been previously defined. Given the sheer magnitude of the potential upside here, we can sympathize with Agnico's approach of taking a measured and methodical approach to the potential addition of the second shaft. Consequently, it is unlikely that there will be any meaningful public disclosure as it relates to specific details on the second shaft until the first half of 2027. Though Agnico has already indicated that upon release of those figures, a final investment decision would be quick to follow, if not almost immediate. Here at OR Royalties, it is our continued belief that the value of the potential second shaft at Odyssey is not currently fully reflected in our share price or even for that matter, in Agnico's share price despite the fact that we truly believe that there is little doubt that this project will eventually be sanctioned and completed. Finally, the potential second shaft only serves as a component, albeit a key one to Agnico's broader plans, which could see the entire complex produce 1 million ounces from 2030 onwards when factoring in additional regional ore sources such as Marban and Wasamac. As a reminder, Marban is subject to an NSR royalty or NSR royalties owned by OR Royalties as well as the toll milling royalty, while Wasamac ore would be subject only to the toll milling royalty. Agnico noted on their conference call last Thursday that the studies on both the second shaft and the complex's path to 1 million ounces remain on track. On to Slide 10, which touches on Dalgaranga, a high-grade underground gold asset in which OR Royalties owns a 1.44% gross revenue royalty and which was acquired just over a year ago. On July 31, Ramelius Resources fully closed its acquisition of Spartan Resources. And then just 2 weeks ago, our new operating partner provided its detailed plans of how it expects Dalgaranga to fit into this gold production growth over the next 5 years. In summary, Ramelius is choosing to operate and concurrently expand its central processing facility at its pre-existing Mt Magnet Hub in order to accommodate ore from Dalgaranga. Eventually, and within the next 2 years, the facility will be completely expanded to 5 million tons per annum and with 2 separate crushing circuits to accommodate ores from both Mt Magnet and Dalgaranga due to their respective different grind size and recovery profiles. In the meantime, higher-grade ore from Dalgaranga will be fed through the pre-existing unmodified plant with lower recovery rates expected to be achieved during this interim period. The good news out of all of this for OR Royalties is that Dalgaranga is now very likely the next producing asset in our portfolio with the first production expected in the first half of 2026, with significant step changes in growth expected after that based on Ramelius' financial year. Based on the recently provided production profile, Dalgaranga is also set to produce close to 275,000 ounces of gold in Ramelius' financial year in 2030 alone. None of these figures include any potential additional ore source, ounces sourced from Dalgaranga's Gilbeys Underground or a potential Never Never open-pit project, which serve as potential upside and on which Ramelius has also completed a PEA level scoping study -- scoping studies, respectively. And of course, this doesn't include any potential future exploration upside success within our royalties area of interest either. To sum up these points, we think that the recently released plans from Ramelius represents the first positive early indication of the true potential of this high-grade asset going forward. We'd like to extend our congratulations to the entire Ramelius team on having completed these creative and well-received integration plans in relative short order post this acquisition of Spartan Resources, and we very much look forward to Ramelius' execution going forward. Moving to Slide 13, but also staying down under. We're happy to report that Harmony Gold's acquisition of MAC Copper closed on October 24, 2025. The most immediate impact to OR Royalties and more specifically, OR Royalties International was the receipt of $49 million in cash for the 4 million shares held in MAC Copper. Even more exciting, though, is the future of this asset under such a deeply skilled underground mine operator such as Harmony. With the transaction closed, the approximate 3-month integration process of the asset is now underway. with Harmony looking to immediately execute on available synergies while also looking to maximize operational efficiencies once the integration is complete. Furthermore, Harmony has already provided a time line with respect to future catalysts at CSA, most notably an updated life of mine plan expected in August of 2026. Before that, however, will be some key interim updates in late February or early March of 2026, at which time Harmony is expected to provide a fiscal year 2026 production guidance for CSA as well as detailed updates on operational performance, key project development milestones and finally, on recent exploration activities. From our understanding, Harmony doesn't plan to deviate from either of the 2 projects started under MAC Copper, specifically the Upper Marn mine as well as the CSA ventilation project, with the latter still scheduled for completion in Q3 2026. Recall that these 2 projects are expected to get the mine to a point where it can sustainably produce at the 50,000 tons of copper per annum level, which represents a production expansion of approximately 25% of the most recently completed full year of operations in 2024. Recall the underground mine that had been the key bottleneck with the surface processing facility still having plenty of latent capacity, a facet that we expect Harmony to take full advantage of over time. Let's move to Slide 12. We're now highlighting the CSA expansion projects more explicitly in our 5-year growth outlook to 2029, alongside Island Gold, Dalgaranga and the others. As it relates to CSA, these expansions were always expected based on our exchanges with both MAC Copper and now Harmony Gold. Another minor change on this slide versus previous variations is that we've reintroduced the Eagle Mine in the Yukon back into the optionality bar, where previously it had been completely removed. And this actually provides a very good segue into Slide 13, which provides an ongoing summary of the significant progress being made on some of our key optionality assets that are currently excluded from our 5-year outlook. Though this slide might provide a good foundational preview on how to think about what might be included in our 2030 5-year outlook when released in mid-February of next year. As noted in our press release last night, we'll start with Cariboo and Spring Valley, 2 shovel-ready, fully permitted sizable gold projects that each resides in what we would define as Tier-1 Mining Jurisdictions. In aggregate, these 2 assets would be able to provide OR Royalties and their shareholders with approximately 16,000 GEOs in aggregate once fully underway. Starting with Cariboo, with another round of additional financing just completed, ODV is already moving forward with preconstruction and construction activities for the development of the project, including certain detailed engineering, procurement, underground development, operational readiness planning and other early works activities. We're expecting more news from the Osisko development team in the near term as it relates to more concrete plans and timelines for the Cariboo construction, which is set to be completed in order to achieve first gold production in the second half of 2028. Moving to Spring Valley, our understanding that Solidus and its build team are effectively ready to go as the company is keen to move forward with construction work. However, at this time, our partner is seeking final authorization of project financing via the proposed $835 million of U.S. EXIM bank facilities. So stay tuned on this one. Progress continues at pace at Agnico Eagle's Upper Beaver project in Ontario. Elsewhere, United Gold or Lydian Armenia is already drawing down on its credit facility in order to move forward with what's left to complete for the construction of Amulsar. In fact, we just had our team on site this past September, and they were very pleased to see this kind of activity there, the first of its kind in a really long time. And at South Railroad, Orla Mining should have an updated feasibility study out before the end of this year with the final record of decision expected mid-2026 and first gold and silver before the end of 2027. Finally, at Eagle, we understand that first round bids for the asset were due in the first week of September 2025, with those interested parties that made it into the second round now completing more due diligence, including site visits. The hope is that a new owner can be announced sometime in the coming months with a potential new plan of operations, including a potential timeline to restarting production following fairly soon after that. Quickly on Slide 14. On top of everything else we've mentioned, here is an updated list of key catalysts on currently producing assets on the left and key near-term development projects that fall within our current 5-year outlook on the right. I'll single out just 2 for now. Looking to the right side, one second. Looking to the right of the slide and starting with Windfall, it's likely that Gold Fields provide some updated economic numbers on the project at its upcoming Capital Markets Day scheduled for next week on November 12. Recall, the most recent fulsome update from Gold Fields provided the expectations that an updated feasibility study, along with final project permits as well as final IBAs with the relevant First Nation groups are now expected in what is shaping up to be a very busy 2026 for Gold Fields at Windfall. Second, and touching briefly on what has been and continues to be a busy year for Marimaca Copper with the MOD feasibility study now completed, it's quite possible that in the next few months, we could see additional major milestones achieved in the form of final permits for the MOD projects and our partner securing full financing to move forward with a final investment decision and subsequent project construction. Finally, we'll end on the formal part of the presentation on Slide 15, which outlines the current state of OR Royalty's balance sheet. At quarter end, we were completely debt-free and had cash of $57 million. This cash balance would have grown to approximately $106 million if we've been able to include the $49 million value of our MAC Copper shares, which are listed on this slide as investments held for sale, given this was representative as of September 30. The good news is this cash was received this past week. So factoring this all in, with approximately $1 billion in potential available liquidity at the end of the quarter, the balance sheet is looking incredibly strong. Our improved financial position is key as OR Royalty's corporate development team continues to be stretched to capacity across multiple transaction opportunities. At the same time, our robust organic growth profile and deep pipeline of tangible optionality affords OR Royalties the luxury to maintain a disciplined approach and wait for the right deal as we're not willing to sacrifice investment returns, deal economics or contract features just for the sake of adding gold equivalent ounces. As such, we plan to adhere to our time-tested strategy of measured and disciplined capital allocation in the pursuit of high-quality accretive streams and royalties that will bolster the company's current and near-term GEO deliveries as well as cash flows for the benefit of our current and future shareholders. And with that, we will conclude the formal part of today's call, and we can move forward with the Q&A. Joel? Operator: [Operator Instructions] Your first question comes from Joshua Wolfson with RBC Capital Markets. Joshua Wolfson: A couple of questions. First for Malartic, this has been a very strong year for the asset, outperforming expectations on Barnat grades. The existing mine plan in 2026 outlined a little bit lower production before, I guess, some further increases thereafter. I'm wondering how OR is thinking about the near-term outlook for the asset in the context of what next year looks like and what we should expect there? Jason Attew: Thank you, Josh. I note you had 2 questions, so we'll come back to you in a second, but I'm going to hand it over to Guy, who is best situated to answer the question for you in the audience. Guy Desharnais: Josh, we're not expecting any surprises. As you know, the grade overperformance is due to blocks that are around the underground stopes and Agnico takes a fairly conservative approach to whether those blocks appear in the resource reserve models. We continue that -- we expect that to continue into the final pits that we see there. So no expected surprises. We do get more detailed information at the beginning of the year with respect to their short-term mine plans, but we don't have those yet. Jason Attew: And your next question, Josh... I can keep going. I've got a couple of them. For Eagle, I'm wondering if OR has been involved in any part of the negotiation process with some of the parties here that have been, I guess, providing offers. So look, I think everybody is aware, there is a public process that BMO Capital Markets Restructuring Group is running. It's safe to say that, as we mentioned, the first round of indicative bids, nonbinding bids passed and they've selected a number of we would -- what we would qualify or what they've told us is high-quality operators with very, very good ESG credentials. In addition, given the fact that we are a stakeholder, given our interest, we've also signed an NDA with the group PwC, who's obviously acting for the Yukon government and BMO Capital Markets. So it's really not appropriate for us to be able to comment on, again, any discussions we may or may not have with potential operators. They are running the -- BMO Capital Markets is running a very fulsome and proper public process that you certainly and everybody, all stakeholders will be able to see in the fullness of time. All we can say is as a stakeholder, we're quite pleased with the progress that has been made. We do believe that at some point, and we'll very likely get visibility in 2026 as to what the plan of the next operator of the Eagle Mine will be -- and at that point, we will determine or decide whether we reinclude the Eagle GEOs into our 5-year outlook. So there's not much more that we can say on that, Josh, apart from we're very pleased with the quality of interest from established operators that are looking to set a base up in the Yukon. Joshua Wolfson: Great. And then one last one. I think in some of the prior conference calls, you had talked about some potential for a transaction to be announced before year-end. It sounds like the company is instituting some greater discipline. And I'm just wondering what the outlook is still for that negotiation process. Jason Attew: Yes. No, it's a really good question. I'm looking at my team around the table here. As I said in my remarks, the corporate development technical teams are just flat out right now. We're looking at a lot of opportunities. However, as I've said in the past, I mean, if our group can get 1, maybe 2 high conviction, very good returns for our shareholders over the course of 12 months to 18 months, we will do that. What we've seen in the marketplace, though, is we have not been able to conclude those transactions, both on a couple of things, as I said in my remarks, value. We're not seeing -- we've got to obviously make a spread on our own internal hurdle rate. We're not seeing deals right now that satisfy that criteria. As also, we've seen some loosening of structure, i.e., there's been a number of deals, as you would know, that are unsecured or the security instrument is not where we, as risk managers on behalf of shareholders' capital are comfortable with at this stage. So there's certainly a desire to get things done, Josh. It's just we have to remain very disciplined and really stick to and pick our spots. Operator: [Operator Instructions] Your next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Can I just continue on Josh's questions on the transaction opportunities? Jason, you mentioned on your call that you have an internal rate of return metric that you're very focused on as part of your strict valuation for all metrics for transactions and you said it's a more conservative gold price. What sort of internal rate is that? Is it... Jason Attew: It would vary, Tanya. And so maybe we can take this conversation offline because I think it is important you understand it, but I'll just talk about broad parameters. We obviously have a weighted average cost of capital within our company. That's mainly informed by a revolving credit facility. Our revolving credit facility is based on a variable rate. I think you know what prime rates and where the rates have been going down. So approximately, and it could vary over time, but approximately, it's about 4.5% in terms of our cost of capital or cost of debt if we were to dip into the revolving credit facility. So that is obviously what we need for a transaction is a spread beyond that. And what we also do is we don't do transactions and we don't look at transactions in the frame of spot prices right now. We do continue to look at consensus pricing and be informed by that. All that said, we do look at spot as a relevant benchmark. It is a very competitive sector and very competitive for deals right now. And then we have to really lean on our technical team, Guy and Brendan, in particular, to look through the asset and see what might not be publicly disclosed in terms of technical reports to look for upside, both geologically, mine life extensions and operational efficiencies. So it's a very complex -- well, it's an answer that has many different components to it. Very happy to walk you through our methodology at some point. But you can think around those parameters, as I said, a spread over that hurdle. And obviously, if we did a transaction in one of those Tier 1 jurisdictions, the hurdle or the spread would be significantly less than, let's call it, Tier 2 or Tier 3. And we've proven that in the past. Let's go back to the Cascabel transaction that we did with Franco and what the Street had suggested in terms of the internal rate of return that was mid-teens for us, 14% to 15%. So those are approximately the goalpost, Tanya. Tanya Jakusconek: Okay. So definitely over 5% spread over that. Maybe just on the opportunities that you're seeing out there. I think on the Q2 conference call, it was quite a wide spread from like $50 million to $1 billion. I mean, you can drive a truck through that. Maybe we could talk a little bit more about what are you seeing currently in the environment? Is it a much tighter spread? Is it still streams versus royalty packages? Is it still development or financing for asset sales? What exactly are you seeing? Jason Attew: The answer to all those questions, Tanya, is yes, all of the above. Again, it varies for sure. And some obviously deals that are in flight we've been working on for can be 2 years, 3 years and some obviously come in through processes of existing operators, for example, deciding now is the right time to sell a royalty package off that they've put in a portfolio many, many years ago and obviously are looking at the commodity complex and saying, is this the right time for us to extract value. So again, there's a lot of different opportunities out there for us. I think I'm consistent in saying that for us, being a mid-tier streaming and royalty company that the strike zone for us is anywhere between $50 million and $500 million. We do have ample liquidity and capacity to do that given, again, we're now 0 debt and completely undrawn on our revolving credit facility. But there is many, many opportunities out there. As I said, our team is very busy, and I will -- because I don't think it's -- I will again emphasize that for our company, given our growth profile, we just have to be incredibly disciplined around capital allocation. Tanya Jakusconek: Okay. I guess we'll get more into that at your Investor Day. Maybe just a final question. As I think about 2026, and I know pricing is important, whether you keep the 82 or 83:1 ratio. As I think about -- and you provided the 5-year 2029, you're up in that 120,000 GEO, 125,000 GEOs or thereabout. As I think 2026, would it be fair and it's just a directional situation, would it be fair to assume that '26 could look very similar to '25? Jason Attew: Yes. No, it's an excellent question, Tanya. Look, obviously, we'll provide more details when we put out our 1-year guidance in February of 2026 as well as an updated 5-year outlook. What we've been consistent in saying in the past is this growth rate, 40% over the next 5 years is not linear. You know the assets that we have in production currently. Really the only new asset that's going -- unless we actually bring an asset through an acquisition, the only really new asset coming in is the Dalgaranga that we talked about on the call. We do expect next year for Mantos Blancos to continue to have the higher silver grades that we've just recently started to experience. So those are the big drivers of growth for 2026 as well as the Namdini mine in Ghana as it hits its full stride in 2026. That's probably the best guidance I can give you at this stage. We can certainly talk about it further on Monday at the Investor Analyst Day, but we'll give all that specificity to the extent we can in February of 2026. Tanya Jakusconek: And look forward to your Investor Day. Operator: Your next question comes from Carey MacRury with Canaccord Genuity. Carey MacRury: Just a quick one for me. There was a copper buydown option on the MAC Copper stream. Just wondering if that option transfers now to Harmony and if you have any thoughts on whether they will execute that or not? Jason Attew: So really good question. Cary, effectively, you can think of everything that we had with MAC Copper as essentially being assigned to Harmony Gold. So yes is a straightforward answer. And anything that you're modeling or seeing with MAC Copper, you can just assume and because it has been assigned to Harmony Gold. There's been no changes in the structure, no changes in effectively anything commercially with respect to that -- both the silver stream and the copper stream. Carey MacRury: And that option only kicks in after -- on the fifth anniversary, they can exercise early. Jason Attew: That's correct. Operator: There are no further questions at this time. I will now turn the call over to management for closing remarks. Jason Attew: Thank you, Joel. As always, if anyone on the call or listening to this replay has additional questions, insights or observations on our business and our business strategy, please do reach out to Grant, Heather or myself, and we're more than pleased to provide more information about the bright future for our company and its shareholders. In addition, I would like to provide a final plug for our Investor and Analyst Day, which is planned to be a 2-hour session this Monday, starting at 1:00 p.m. at Vantage Venues in Downtown Toronto. My team will go through in much greater detail our assets, including the potential for growth, insights and opportunities that we do see within our portfolio. If you can make it down in person and you haven't already done so, please RSVP to my colleague, Grant Meonting. And if you can't make it in person, a live webcast link was also provided in our press release last night. We hope you can join us either way. And if not, a recording of the event will be available on our website in relatively shorter order after the event. Thank you again very much for your time, and we look forward to engaging with you in the future. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good afternoon, everyone, and thank you for joining OptimizeRx's Third Quarter Fiscal Year 2025 Earnings Conference Call. With us today is Chief Executive Officer, Steve Silvestro. He is joined by Chief Financial and Strategic Officer, Ed Stelmakh; Chief Legal and Administrative Officer, Marion Odence-Ford; and Chief Business Officer, Andrew D'Silva. At the conclusion of today's call, I will provide some important cautions regarding the forward-looking statements made by management during today's call. The company will also be discussing certain non-GAAP financial measures, which it believes are useful in evaluating the company's operating results. A reconciliation of such non-GAAP financial measures is included in the company -- in the earnings release the company issued this afternoon as well as in the Investor Relations section of the company's website. I would like to remind everyone that today's call is being recorded and will be made available for replay on audio recording of the conference call on the Investor Relations section of the company's website. Now I'd like to turn the call over to OptimizeRx's CEO, Steve Silvestro. Mr. Silvestro, please go ahead. Stephen Silvestro: Thank you, operator, and good afternoon to everyone joining our third quarter 2025 earnings call. We had a strong third quarter with results ahead of both consensus estimates and our internal expectations. Our Q3 revenues increased 22% year-over-year to $26.1 million, and our adjusted EBITDA was $5.1 million, an improvement of over $2 million from the same period last year. Our contracted revenue remains well ahead of last year's pace, underscoring the success of our focus on operational excellence, our dedication to delighting customers and deepening relationships with trusted partners. Before we move on, I want to take a moment to thank the OptimizeRx team. We deeply appreciate their dedication and hard work as we navigate an increasingly complex and rapidly evolving digital pharma marketing landscape. The industry is in the midst of a major transformation and the company's products and services are positioned to fundamentally redefine how pharmaceutical companies, patients and prescribers connect. Our mission-driven culture fuels this progress and enables us to attract, retain and strengthen the relationships that make us a trusted and enduring technology partner. With that said, I'm happy to report we are increasing our guidance for the year and are looking for revenue to come in between $105 million and $109 million, with adjusted EBITDA to be between $16 million and $19 million. Moreover, while it is still very early, we are seeing favorable RFP trends for 2026. As a result, we are introducing initial fiscal year guidance 2026 with revenue expected to be between $118 million and $124 million and adjusted EBITDA expected to be between $19 million and $22 million. In addition, subsequent to the end of our third quarter, we paid down an additional $2 million of our term loan principal on top of the debt payment schedule. At this time, given the cash flow we are seeing, we intend to continue to pay down our debt at an accelerated rate and do not believe we will need to access the equity capital markets for the foreseeable future. As evidenced by our strong results, we are firmly hitting our stride. Disciplined cost management and targeted cross-selling strategies grounded in enabling customers to optimize budget allocation and maximize script lift are driving sustained momentum into Q4 2025 and beyond. Our strong third quarter performance makes it clear that our goal of becoming a sustained Rule of 40 company is within our sights. Perhaps most notably, average revenue for our 5 largest customers over the last 12 months continues to grow and now stands at over $11 million. We believe OptimizeRx is uniquely positioned to drive meaningful long-term growth and sustainable shareholder value. With one of the nation's largest point-of-care networks, we provide pharmaceutical manufacturers the ability to reach health care providers directly at the moments that matter most. Building on this foundation, we've developed a purpose-built omnichannel technology platform that integrates advanced patient finding tools like DAAP and micro neighborhood targeting. These capabilities are redefining how pharmaceutical companies, physicians and patients connect, communicate and act, helping to improve patient outcomes while transforming engagement across the health care ecosystem. Our reach across both the point-of-care and direct-to-consumer channels provides a durable and defensible competitive advantage. OptimizeRx is the only player with the scale, technology and data integration to engage providers and patients seamlessly, enabling us to deliver the industry's most comprehensive commercialization platform. This allows us to support customers across the full product life cycle, deepen client relationships and capture greater share of long-term value. As we've discussed on previous calls, a key focus moving forward is to further showcase our reach, scalability and our role as a trusted strategic partner, helping pharma manufacturers address some of their most pressing commercialization challenges. These include enhancing brand visibility, reducing script abandonment, improving interoperability and supporting the growing shift toward complex specialty medications. I believe our success in helping our customers address these challenges is best evidenced by our strong ability to build on the relationships and increase our engagements with our largest customers. I'm confident that continued execution in these areas, combined with our ability to deliver strong ROI and drive impact and script lift for our customers will translate into meaningful long-term shareholder value. We believe our momentum positions us to capture greater market share and expand our participation in the pharma industry's multibillion-dollar digital ecosystem. Our customers remain deeply connected with our integrated HCP and DTC offerings, and our goal is to keep them engaged across the full patient care journey. And with that, I'd like to turn the call over to our CFSO, Ed Stelmakh, who will walk us through our financial results. Ed? Edward Stelmakh: Thanks, Steve, and good afternoon, everyone. A press release was issued with the financial results of our third quarter ended September 30, 2025. A copy is available for viewing and may be downloaded from the Investor Relations section of our website, and additional information can be obtained through our forthcoming 10-Q. Third quarter revenue was $26.1 million, an increase of 22% from $21.3 million during the same period in 2024. Gross margin for the quarter increased from 63.1% in the quarter ended September 30, 2024, to 67.2% in the quarter ended September 30, 2025. Year-on-year gross margin expansion is tied to a favorable product mix, economies of scale as well as a favorable channel partner mix. Our operating expenses for the quarter ended September 30, 2025, decreased by $6.5 million year-over-year to $15.5 million as the third quarter of last year was impacted by a $7.5 million impairment charge. Meanwhile, our cash OpEx increased to $12.4 million from $10.8 million, largely due to higher bonus and commission payouts, which is directly tied to the company's strong year-to-date performance. As a result, we had a GAAP net income of $0.8 million or $0.04 per basic and fully diluted share for the 3 months ended September 30, 2025, as compared to a GAAP net loss of $9.1 million or $0.50 per basic and fully diluted share for the same 3-month period in 2024. On a non-GAAP basis, our net income for the third quarter of 2025 was $3.9 million or $0.20 per fully diluted share outstanding as compared to a non-GAAP net income of $2.3 million or $0.12 per fully diluted share outstanding in the same year ago period. Our adjusted EBITDA came in at $5.1 million for the third quarter of 2025 compared to $2.7 million during the third quarter of 2024. Operating cash flow was $11.6 million for the first 9 months of 2025, and we ended the quarter with $19.5 million cash balance as compared to $13.4 million on December 31, 2024. The remaining principal on our term loan debt financing at the end of the third quarter was $28.8 million. And subsequent to the quarter's end, we paid down an additional $2 million in principal with our total principal paydown for the year standing at $7.5 million. At this time, we intend to pay down the principal on our term loan faster than originally expected as we look to continuously lower our cost of capital. With that said, we continue to believe that our healthy balance sheet will help us execute against our operational goals. Now let's turn to our KPIs for the third quarter of 2025. Average revenue per top 20 pharmaceutical manufacturer now stands at $3.1 million as compared to $2.9 million for the third quarter of 2024. Net revenue retention rate remained strong at 120% Meanwhile, revenue per FTE came in at $820,000, topping the $732,000 we posted in the third quarter of 2024. We're encouraged by the improvements of our KPIs as we continue to execute against our strategy of driving profitable growth as a leader in our space. Now with that, I'll turn the call back over to Steve. Steve? Stephen Silvestro: Thank you, Ed. Operator, now let's move to Q&A. Operator: [Operator Instructions] And the first question comes from Ryan Daniels with William Blair. Ryan Daniels: Sorry, guys, can you hear me now? Yes. Can you guys hear me now? Stephen Silvestro: We can hear you, Ryan. Ryan Daniels: Okay. Sorry, about that. Congrats on the strong print. I want to start with the 2026 outlook. It's nice to see that so early in the year, one of the few companies doing that. And I'm curious if you could just offer a little bit more color there on why you're providing it at this time. I assume it's due to some enhanced visibility with the contracts. And then maybe question number two, you mentioned the strong RFP activity being part of that. Are you just seeing more new clients? Is it more shift towards digital, more omnichannel, more shift towards HCP given some of the D2C challenges? Any color on what's driving that? Congrats again. Stephen Silvestro: Thanks, Ryan. Good to hear your voice. So I'll start with the first one. We've been really articulating to the Street and also to our clients and investors that we're going to give more visibility on our visibility into the future as we've been migrating more toward a predictive model we've quoted in the past, subscripted momentum. And so we're going to continue to push that throughout the remainder of the year. And as a result of that, we're now getting more visibility into the out years, including 2026. In terms of the RFP situation, Ryan, RFP season has been very strong for the business. We do see more people coming into the digital space and making investments on the client side. And we're seeing equal parts, HCP and DTC at this point, interest in the RFP cycle. I would say the parts of DTC that we cover at OptimizeRx are CTV, ATV, the pieces that you're aware of. And in the event that we have a linear television ban or reduction or any of those pieces, our view and thesis is that our solutions that will continue to benefit disproportionately from those types of moves. So I would say, at this point, both DTC and HCP are looking very healthy. I appreciate the question. Operator: And the next question comes from Richard Baldry with ROTH Capital. Richard Baldry: When you look at the implied guidance for fourth quarter revenue, it'd be actually slightly down year-over-year at the top end of guidance. Talk about either any onetime year-ago issues or other things because your net retention would argue that, that's sort of difficult to do. Stephen Silvestro: Yes. Thanks for the question, Rich. Good to hear from you. So I mean, what we're looking at is really a full year guide at this point and trying to give a good range of what we believe will come in at. We moved away from quoting pipeline as everybody on the call knows and have moved principally towards contracted revenue and what our real visibility is. And so the new guidance that we've updated with is truly what our visibility is. It doesn't count bluebirds that might happen, buy-ups that might happen that are not accounted for right now where we don't have visibility in years past, we would have thought about that more in terms of on pipeline and probabilities. But what you're seeing in the guidance now is, I think, reflective of our true visibility that we know we can deliver on. Again, we're going to continue to be very transparent, very conservative, not sandbagging, but look to beat the numbers that we put out there every time. So hopefully, you appreciate the transparency and conservatism. Edward Stelmakh: Just to add a little bit. As Steve said, I think we do need to look at it on a full year basis rather than quarter-by-quarter. As you know, Q1, 2 and 3 have been extremely strong. So it is more of a smoother sort of phasing this year than it was in the past. So again, I would just encourage you to look at the full year performance versus last year. Stephen Silvestro: And part of it is the enhancement to the revenue model, right, Rich, part of it is we've been successful at migrating away from periodic revenue drops and getting to a more smooth revenue model. And so that's what Ed is referring to there. Richard Baldry: Got it. It's just implicitly a little hard to look at it as a full year, you only have 90 days left. So same question I think I'm going to get a similar answer. But if you look at the adjusted EBITDA guidance, you'd have an up revenue quarter, maybe 10% plus sequentially, but the adjusted EBITDA either be slightly down to narrowly possibly up Again, is there any like onetime expenses year-end things that true up higher that create more of a headwind because it wouldn't -- it'd still be down year-over-year as well. Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, I can take that one. Yes, look, I mean, we're assuming a conservative gross margin number. There's nothing really in the operating expense line that's going to pop. So it's more of just being a little bit more conservative on what you think is going to happen with the channel and product mix. We do believe that we were shooting for hitting or beating the top end of the range. Operator: And the next question comes from David Grossman with Stifel Financial. David Grossman: Maybe we could just expand a little bit on the line of questioning you just went through. And maybe, Steve take a minute just to remind us fundamentally, what may be going on in the business that maybe smoothing out the quarters or maybe giving you better visibility? And then I have another question after that, but just curious, again, fundamentally, some of the changes that you guys have made that may be creating a little better visibility and again, giving you the confidence, for example, to guide to 2026 at this point. Stephen Silvestro: Sure. Yes, happy to talk to it and then Andy and Ed can chime in also. But I mean, if you think about our business data the way that we've talked about it over time, you've got our audience businesses, which is GAAP principally, and then you've got micro neighborhood audience, which is that targeting capability for DTC. Both of those are data-driven technologies that are -- lend themselves to becoming more subscriptive in nature. Then you've got our execution functions, both at point of care and the other omnichannel components for HCP and you've got that for DTC. And those are obviously going to be transactional largely because that's the way that component of not just our business, but the ecosystem operates. And so what we've seen is outsized growth in DAAP, like we've talked about in months past, and we've seen a resurgence of micro neighborhood audience growth. And so those pieces not only give us a smoothing of the revenue because of the revenue models, but they also give us a renewable view into what 2026 will look like and those contracts start earlier than we would normally do for transaction level contracting. So that's the big part of it. Andy, Ed, feel free to chime in if you want to add more. Andrew D'Silva: Yes. I mean, it's really -- go ahead, Ed. Edward Stelmakh: No, I was going to say, I mean, as you guys know, I mean, vast majority of our business comes from renewals. So if you take that into account and then add some of the successes that drove this year, on top of it with more visibility into next year in terms of signed contracts as we sit here today, we feel like we're in a position to say, right, looking at next year, we can start to make at least a general guide around bookends that we're going to shoot for. And as things progress forward, we'll continue to tighten that range. Yes, go ahead, Andy, you can add to that. Andrew D'Silva: No, you got it. You both you nailed it. David Grossman: So thanks for all those details. So if I recall, like last quarter, we talked about these managed services type of contracts that come in. How much of that was present in the third quarter? And are you kind of making the same assumption that you did last quarter where you're not assuming any of that comes to bear in the fourth quarter in terms of the guidance that you provided as well as the outlook for '26. Is that the way to think about it? Stephen Silvestro: Yes. Andy, why don't you take that one? Andrew D'Silva: Yes. So it went back to more of a normalized rate in the third quarter as it relates to that managed services business. The only thing that we're including in the forecast period for managed services business is stuff that we've already won and is starting to burn into revenue right now. We're not really including anything that's in pipeline and we don't have visibility to. So again, we're taking a very conservative approach to providing guidance with bookings that we feel very comfortable with. David Grossman: Right. So as we kind of think of your guidance for '26, can you help us kind of bracket the kind of retention that is the baseline, if you will, to achieve that range? Andrew D'Silva: Yes. So historically, between 5% and 15% of our business comes from new logos every year. So the remaining would be what you would consider net revenue retention on a normalized basis. David Grossman: Okay. And that's the same assumption underlying your '26 guidance? Stephen Silvestro: It is. Andrew D'Silva: Yes. We don't really guide based on net revenue retention, right, but that's kind of how it just shakes out as every year progresses. Stephen Silvestro: And David, on that note, just one other quick bullet for you. Just -- and you and I spoke about this last time we were together. We are seeing good growth in the mid-tier segment of our business, meaning the mid-tier segment of clients coming to the table who may not be in that top 20, 25, 30 manufacturers that are coming in with outsized spend, mostly because we're able to provide capabilities that can supplement -- not just supplement, frankly, replace a lot of the stuff that they can't afford to do internally. . Whereas the big manufacturers might have kind of Cadillac support, so to speak, the mid-tier businesses do not. But using the technology that we've got allows them to compete on level ground. And so that's why we're seeing such a drive there. In our commercial organization, that Theresa is leading, has done a wonderful job of driving that. So I just wanted to call that out as a key point. Operator: And the next question comes from Eric Martinuzzi with Lake Street. Eric Martinuzzi: I wanted to dive in on the RFP trends. You 0talked about they are improved. I was just curious, though, is that your win rate is the same and the number of RFPs has improved? Or is your win rate improving on a flat RFP trend? What can you tell us there? Stephen Silvestro: Yes, I'll start, and then I'll have Andy chime in, too. But all of the above, Eric, we're seeing more RFPs coming and the RFPs are more directly pointed at what we want them to be, which I think is good. The market is seeing what we are shifting the business model to over time. So the RFPs are definitely reflective of what we're providing the market, providing our clients. And I would say our win rate as a result of that is getting better. Again, I want to give some credit to our commercial team. They're doing an excellent job of getting out ahead of all of this stuff and engaging with clients. And when you're engaging with clients more intimately, you can tend to drive the crafting of the RFPs so that they get written at an appropriate level to something that you can respond versus just a random spray and pray request for information, right? And when we get those, the hit rate will be lower because there was no prior engagement. So hats off to Jen Dwyer, Theresa Greco and the entire commercial team for doing a great job there. Eric Martinuzzi: Right. And then you talked about the smoothing of the business. Maybe I could use a brief tutorial on the transactional where you said that those started later in the year as opposed to the DAAP and the micro neighborhood that are more sort of level loaded that kicks off to each of those types of campaigns. Stephen Silvestro: Sure. Yes, happy to talk about it. I mean you think about what DAAP and what MNT or MNA does, it's principally audience creation and it's the data that drives all of the campaigns, right? It's the technology that's producing -- finding those patients wherever they're going to be. And so because that is more of a software-like play that lends itself to a normal planning cycle where renewals are going to happen earlier. That's the way pharma manages that segment of their budget and then the transactional components, which is typically message distribution, whether it's at an HCP level or if it's something that's going through DSP like a trade desk or some other way, typically is budgeted and accounted for on a quarterly basis, and it's based on performance and driven that way. So bringing DAAP to the table and getting it more mature, which we've been working very hard on, as you know, over the last several years since we launched it, and now bringing in what we acquired through the Medicx acquisition with MNT, that has really started to transform the profile of the business, and that's what you're seeing reflected in the performance of this year as well. You're seeing it front and center, but it will reflect into 2026 as well. That's given us great visibility. I think everyone feels better about what we're doing there. We're significantly up year-over-year on visibility for next year. Eric Martinuzzi: Is there -- what's the right way to think about the percentage of the revenue in 2025 versus the percentage of the revenue in 2026 between those 2 buckets? Stephen Silvestro: We don't break it out. We don't break it out at a product level. Operator: Your next question comes from Anderson Schock, B. Riley Securities. Anderson Schock: Congratulations on another really strong quarter. So first, could you provide some color on the partnership with Lamar Advertising and on the size of the opportunity here? And I guess, will this gradually roll out in specific regions? Or is this going live across their entire national inventory? Stephen Silvestro: Yes. Happy to talk about it. Great to hear from you. So the whole idea with Lamar is they're looking to transform their business model, right? And their current business model is billboards. One of the things that OptimizeRx does really well, which you're acutely aware of is patient finding and an ability to be more precise in the way that we deploy messages across our omnichannel ecosystem. So think about the capability of doing that to enable a screen that's in a desperate location that might move from a random billboard to maybe a digital screen that's large, right? And that's really what Lamar is after there. The size of the opportunity is very large. I'm not going to take a stab at the TAM because it's not might take a stab at, it's really theirs. But the partnership is going to start rolling out pretty rapidly, I would say. And it's still early for us to start quoting projections on what we think it will do. It's really piloting at this point, but we're feeling pretty optimistic about the initial testing that we've done. And we'll release more information on it as we get some more results, but early stages look pretty encouraging. Anderson Schock: Got it. And then I guess this current guidance that you've provided for 2026 factoring any contributions from this partnership? Stephen Silvestro: No, zero, nothing. Too early for us to start factoring into forecast. We're just not going to do it yet. Anderson Schock: And then could you talk about the gross margin expansion in the third quarter? What really drove this? And how should we be thinking about margins going forward in the fourth quarter and also into 2026? Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, sure. Yes. So look, I mean, it's typically driven by our product mix or solution mix and the channel partner mix. As we said before, as we scale the business, we have much more ability to negotiate more favorable deals with our channel partners, so that's reflecting yourself in the numbers as well as growth in DAAP and the DTC platform. So those 2 things together contributed to where we are right now for the year in Q4. Going forward, I would say we're kind of stabilizing in that upper 50s to low 60s range from a guidance perspective. But you can see there's certainly upside to that number as the year progresses. Stephen Silvestro: I'll add just one quick thing to that there, Anderson. So we also, in the third quarter, had a lot more -- in the second quarter had a lot more managed services revenue and we did not have nearly as much in the third quarter and managed services revenue is our lowest margin product. . Operator: [Operator Instructions] And the next question comes from Jeff Garro with Stephens. Jeffrey Garro: I want to ask on the 2026 guide and the profitability side. If I calculate it, right, at the midpoint, I see about 60 basis points of EBITDA margin expansion. I was hoping you could talk about the mix of gross margin expansion may be dependent on channel mix versus operating leverage? And then any areas of potential variability that could lead to more or less margin expansion than what we see at the midpoint there? Stephen Silvestro: Jeff, I'm happy to answer it topically, and we won't get too deep into 2026, but happy to answer it topically. And what Andy just said is really a clear articulation of the dynamics of the business that really govern it, right? So as we continue to see our audiences grow over time through the DAAP and MNT products, margin expansion will continue to be front and center we will also manage the channel partner mix on the other side of that looking for optimal margin and that gives us the dynamic of being able to continue to improve over time. Execution will be what it's going to be, as you know, from this business, and that's fairly predictable on the highs and lows. But those are the dynamics that are sort of shaping how we're thinking about 2026 gross margin expansion opportunities and where we've landed. Hopefully, that's helpful. Jeffrey Garro: Maybe a follow-up on the operating leverage side of things. You have certainly seen, I think, a quarter-over-quarter decline in adjusted operating expenses this quarter, seeing really good leverage and maybe not expecting that to be the persistent trend over the next 5 or so quarters, but just a little more color commentary on your ability to drive additional operating leverage in the business would be helpful. Stephen Silvestro: Yes, no problem. We're going to consistently -- go ahead, Ed. Yes, why don't you take it? Go ahead. Edward Stelmakh: Yes. So OpEx, as we said before, I mean, we have a highly leverageable business model as it is now. So as I said, on a cash basis, that was actually a bit of an increase, about $2 million versus last year. And that most of that is driven by the fact that our bonuses and variable comp are tracking our overperformance on the top line this year. So once you dial that back, you can pretty much assume a relatively stable operating expense run rate on a cash basis. Operator: And this concludes our question-and-answer session. I will turn the conference back over to Steve Silvestro for any closing comments. Stephen Silvestro: Thank you, operator, and thank you all for joining us today. We're pleased to be building on a strong operational and financial momentum. Our foundation is solid, our patient-focused strategy is working, and we're confident in the path ahead. What you heard today reinforces our belief in our ability to achieve both our near-term goals and our long-term growth objectives. I remain deeply optimistic about the future of our business and the opportunities before us. We look forward to speaking with all of you again on the next earnings call and meeting many of you in the upcoming investor conferences and one-on-one meetings in the coming weeks. Wishing everyone a wonderful rest of your day and a wonderful holiday season with your families and friends. Operator: Thank you, Mr. Silvestro. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. Statements made by management during today's call may include forward-looking statements within the definition of Section 27A and the Securities Act of 1993, as amended, and Section 21E of the Securities Act of 1934 as amended. These forward-looking statements would not be used -- should not be used to make investment decisions. The words anticipate, estimate, expect, possible and seeking and similar expressions identify forward-looking statements. They may speak only to the date that such statements are made. Forward-looking statements in this call include statements made defining how pharmaceutical companies, patients and prescribers connect, our value, our growth plans, creating shareholder value, becoming a Rule of 40 company, estimated 2025 revenue and adjusted EBITDA ranges, capturing greater market share, expanding our participation in the pharma industry's digital ecosystem, our technology and growth opportunities and building a strong operational and financial momentum. Forward-looking statements also include the management's expectations for the rest of the year. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or qualified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject to include, but are not limited to, the effects of government regulation, compensation, dependence on a concentrated group of customers, cybersecurity incidents that could disrupt operations, the ability to keep pace with growing and evolving technology, the ability to maintain contact with electronic prescription platforms and electronic health records networks and other material risks discussed in the company's annual report Form 10-K for the year ended December 31, 2024, and in other filings the company has made and may make with the SEC in the future. These filings, when made, are available on the company's website and on the SEC website at sec.gov. Before we end today's conference, I would like to remind everyone that an audio recording of this conference call will be available for replay starting later this evening running through for a year on the Investors section of the company's website. Thank you for joining us today. This concludes today's conference, and you may now disconnect your lines.
Operator: Hello, and welcome to Intellia Therapeutics Third Quarter 2025 Financial Results Conference Call. My name is Rocco, and I will be your conference operator today. Please be advised that today's conference is being recorded. I will now turn the conference over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Intellia. Please proceed, sir. Jason Fredette: Thank you, Rocco, and hello, everyone. Earlier this afternoon, we issued a press release and filed our 10-Q outlining our recent business updates and our third quarter financial results. These documents can be found on the Investors and Media section of Intellia's website at intelliatx.com. At this time, I would like to take a moment to remind listeners that during this call, Intellia management may make certain forward-looking statements. We ask that you refer to our SEC filings available at sec.gov for a discussion of potential risks and uncertainties. All information presented on this call is current as of today, and Intellia undertakes no duty to update this information unless required by law. Joining me on the call are John Leonard, our Chief Executive Officer; and Ed Dulac, our Chief Financial Officer. With that, I'll turn the call over to John. John Leonard: Thanks, Jason, and thanks to all of you who have tuned in for today's call. In terms of the agenda for today, we'll begin with the status of our nex-z program in ATTR amyloidosis since that is obviously top of mind for all of you. We then will provide an update on the significant progress we have made with lonvo-z, which is being developed as a potential onetime treatment for patients with hereditary angioedema or HAE, and we will close with Ed's financial review. First, for nex-z. Since the start of 2024, we've been enrolling patients in MAGNITUDE, our Phase III clinical trial for ATTR amyloidosis with cardiomyopathy. And we've been enrolling MAGNITUDE-2 for patients with hereditary ATTR amyloidosis with polyneuropathy since the start of 2025. Both trials have advanced rapidly, which we believe demonstrates patients' interest in a potential onetime treatment option. On October 24, a patient was admitted to the hospital after reporting abdominal pain to his principal investigator. This is a patient with ATTR cardiomyopathy in his early '80s who enrolled in MAGNITUDE and received a dose of nex-z on September 30. The patient's labs showed that his AST and ALT levels exceeded 3x the upper limit of normal and that his bilirubin exceeded 2x the upper limit of normal. These levels triggered a protocol-specified pause on patient dosing and screening for MAGNITUDE in the interest of patient safety. We decided to also pause patient dosing and screening in MAGNITUDE-2 as a precaution. On October 29, the FDA notified us verbally that it had placed a clinical hold on MAGNITUDE and MAGNITUDE-2. We are now awaiting the FDA's formal clinical hold letter. We were very saddened to learn that the patient passed away last night. We have been advised by the treating physician that this is a case with complicating comorbidities, and the case is being further evaluated. Since learning of this case, we've taken a number of actions in the interest of patient safety. For instance, we've mandated that clinical sites collect additional labs from patients in the initial weeks following dosing to detect potential liver elevation sooner. An internal team has been closely reviewing the blinded safety data, baseline characteristics, among other factors, to identify potential contributors to the liver-related events seen in MAGNITUDE. We've been working with the trial's independent data safety monitoring committees as we consider other potential monitoring and risk mitigation strategies. And of course, we are engaging with global regulatory authorities and other stakeholders to understand their perspectives, concerns and requirements so we can develop a plan that would allow us to resume enrollment as soon as appropriate. Not surprisingly, given the clinical hold, we are unable to maintain our milestone guidance for nex-z, and we expect to provide an update once we finalize the plan with regulators. Simply put, a lot has transpired over the past couple of weeks and in recent hours, and there is still much work ahead. There's a lot of focus on the safety profile of nex-z at this stage as there should be. That said, we continue to believe in this product candidate's potential to address important unmet needs for patients with ATTR amyloidosis. This is based on a few key factors. First, ATTR amyloidosis is a disease with high mortality. While undeniable progress has been made in this treatment, current therapies only slow its advance and most patients continue to face progressive morbidity and mortality. Second, we've enrolled more than 650 patients in MAGNITUDE and 47 patients in MAGNITUDE-2. To date, Grade 4 liver transaminase elevations have been reported in less than 1% of all patients enrolled in MAGNITUDE. Each of these cases has been observed approximately 3 to 5 weeks following randomization and dosing. There have been no Grade 4 liver transaminase elevations in MAGNITUDE-2. And third, we are highly encouraged by the data from our ongoing Phase I clinical trial of nex-z. On Monday, in a late-breaker oral session at the 2025 AHA Scientific Sessions in New Orleans, we will have the opportunity to share longer-term data for nex-z that we believe demonstrates its potential to improve various disease measures and mortality. Let's move on to lonvo-z, which is being investigated in our ongoing HAELO Phase III clinical trial for HAE. Over the course of 2025, we've made considerable progress in this trial. Enrollment was completed in September, less than 9 months after we dosed our first patient. This puts us on track to share top line data by mid-2026, submit a BLA to the FDA in the second half of 2026, and prepare for an anticipated commercial launch in the U.S. in the first half of 2027. We believe lonvo-z could completely redefine the HAE treatment landscape. We aim to reset expectations and the standard of care for patients living with this debilitating disease by completely eliminating attacks and the need for other HAE medications for a majority of patients, all with one dose. This Saturday, at the American College of Allergy, Asthma & Immunology Annual Scientific Meeting in Orlando, we will be presenting longer-term safety and efficacy data from all of the patients who received a 50-milligram dose of lonvo-z in our Phase I/II clinical trial. I'll now hand over the call to Ed, our Chief Financial Officer, who will provide an update on our financial results for the third quarter 2025. Edward Dulac: Thank you, John, and good evening, everyone. Intellia continues to maintain a solid balance sheet that allows us to execute on our clinical pipeline and build important capabilities required for future success. Our cash, cash equivalents and marketable securities were $669.9 million as of September 30, 2025, compared to $861.7 million as of December 31, 2024. During the third quarter, we raised approximately $115 million from our ATM facility. When combined with the benefits of the restructuring initiatives we implemented in early 2025, this enables us to extend our cash runway into mid-2027 and through lonvo-z's anticipated commercial launch in the U.S. for HAE. Collaboration revenue was $13.8 million during the third quarter of 2025 compared to $9.1 million during the prior year quarter. The $4.7 million increase was mainly driven by cost reimbursements related to our collaboration with Regeneron Pharmaceuticals. R&D expenses were $94.7 million during the third quarter of 2025 compared to $123.4 million during the prior year quarter. The $28.7 million decrease was primarily driven by employee-related expenses, stock-based compensation, research materials and contracted services, offset by an increase in the advancement of our lead programs. Stock-based compensation expense included within R&D was $12.2 million for the third quarter of 2025. G&A expenses were $30.5 million during the third quarter of 2025 compared to $30.5 million during the prior year quarter. Stock-based compensation expense included within G&A was $7.4 million for the third quarter of 2025. Finally, net loss for the third quarter of 2025 was $101.3 million, down from $135.7 million for the prior year quarter. We continue to expect a year-over-year decline in GAAP operating expenses of at least 10%. And as stated before, our cash runway is expected to fund operations into the middle of 2027. With that, we are ready to begin our question-and-answer session. Before we do, we would like to let you know in advance that we will be unable to answer some of your questions given a variety of factors, including the fact that we are still awaiting the FDA's clinical hold letter and a more thorough evaluation of the patient's case. We appreciate your patience and understanding. Operator, would you please open the line for questions? Operator: [Operator Instructions] Today's first question comes from Gena Wang with Barclays. Huidong Wang: I'm really sorry to hear the unfortunate event. I know you are still collecting tons of data, but just wondering if any initial hypothesis of the reason for liver enzyme elevation since this is a 1 month after dosing. Is that because of lipid nanoparticle Cas9 or age-related or disease? Any initial thoughts that would be fantastic. And the related question is, you shared the color on Grade 4, less than 1% in ATTR cardiomyopathy. How is that rate for ATTR polyneuropathy and the HAE patient population? John Leonard: So Gena, thank you for the question. At this point in time, we can only speculate, which we're not going to do in terms of what's the source of the liver function test abnormalities. As you pointed out in your question, we've seen across the entire study with over 650 patients enrolled, an incidence of less than 1%. This particular case is distinct from what we've seen. It was a very complicated clinical course with other comorbidities that may have had some influence in the outcome of the patient. Of the other cases that have occurred, all of those cases have either resolved or resolving and no one is in the hospital. Operator: And our next question today comes from Maury Raycroft with Jefferies. Maurice Raycroft: Maybe one more on the patient. I know you can't say much, but you mentioned the other comorbidities. Can you say what those were and also potentially whether the patient was managed in the United States or ex U.S.? And then, yes, I guess, if you can't answer those, if you could talk about just potential risk mitigation strategies that you could implement going forward. John Leonard: Yes. At this point, Maury, we can't go into the comorbidities. I can only say that the patient had a very complicated medical course, and these other comorbidities may have influenced the ultimate outcome along with the hepatic abnormalities. We're not commenting on geography. I can only assure you that the patient received what we believe to be excellent medical care, and we have no reason to believe that there was any shortfall in taking care of the patient. With respect to risk mitigation strategies, that's ongoing work. As you might imagine, we're doing as comprehensive analysis as we're able to do, looking at all of the data we've collected, coming up with any potential hypothesis. The ultimate goal would be to find a way to exclude patients who may be at risk, should we identify it or impose interventions that could deal with the liver function test abnormalities if they do occur. Operator: And our next question today comes from Alec Stranahan with Bank of America. Alec Stranahan: I guess, how many ATTR patients are currently within that 3- to 5-week post-dose window on the study right now? John Leonard: I can't give you precise numbers, but it's -- the vast majority of patients have passed through it. And with each passing day, there's a smaller and smaller set of patients who have yet to go through it. Operator: And our next question today comes from Mani Foroohar with Leerink Partners. Mani Foroohar: My condolences, a tough outcome for the patient for sure. So let me dive in a little bit on a hypothetical that I've received from a number of clients, which is if this hold were to remain for an extended period of time, what does that mean for the ongoing OpEx spend of the company? i.e., I know it extends the duration to whenever we get a potential pivotal outcome for the study. But does it change the total amount of spend over the course of the study? Is your spend at a normal level during this hold or at least some activities interrupted? How should we think from a financial modeling perspective, recognizing that, that, of course, is a secondary concern to the moral obligations for the patient? John Leonard: Thanks for the question. It was a little garbled, Mani, but I think you were asking how does the hold play into the financial runway of the company and how do we manage through it. I think there's going to be a two-part answer. Ed can speak to the runway and how we currently view it. As you can imagine, our priority is going through the data and coming up with the best possible path forward. And that is job one at this point, and it's something that we're working very, very hard to do. The goal is to be up and running as soon as appropriate so that we can regain what was a very substantial momentum as we said. We had enrolled over 650 patients, and that's I think just a really stellar record. But maybe, Ed, you can say a few words about the runway and how we're thinking about this may impact that. Edward Dulac: Of course. Thanks, John. Yes, I would say we -- it's premature to be too precise with any guidance. But as we sit here today, based on the information we know, as we indicated, the time lines and the plans for lonvo-z are unabated. So we continue to operationalize that study as we have been. While we are on clinical hold and therefore, unable to enroll new patients or screen for patients, as we reported, we do have now more than 650 patients in MAGNITUDE and we have 47 patients on MAGNITUDE-2 that still remain on study, are still being managed according to the protocol. So the appropriate follow-up. So that will continue as we work our way through our clinical hold. Maybe to your point, the only thing that changes is the incremental cost of dosing per patient. So in many ways, near term as we work our way through the clinical hold, you could argue we're going to spend a little bit less money. We'll still have program management fees related to CRO costs and our own internal work, but the incremental cost per patient will not occur during this time, and we will reassess what the time lines look like once we have a clearer path on getting off clinical hold. And then we don't talk much about it, but we do have research priorities within the organization, and that continues. So again, sitting here today, we don't see a substantial shift in the operating needs or the cash needs for the company, and we'll look to reevaluate that in a collaborative effort, including with the regulatory authorities in the weeks and months to come. Operator: And our next question comes from Yanan Zhu with Wells Fargo Securities. Yanan Zhu: Sorry to hear the update about the patient. I was wondering, when you talk about comorbidities, is there any liver-related comorbidities? And then additionally, when you talk about less than 1% of the enrolled patients have Grade 4 enzyme elevation, could you -- are you able to disclose how many cases of Grade 4 liver enzyme situation has happened and how many are still resolving? John Leonard: Thanks, Yanan. The 1% applies to the more than 650 patients. I remind you, this is an ongoing placebo-controlled double-blinded study. And what's attributed to what in precise numbers by case, et cetera, is not possible for us to get into. But you should think of this as less than 1% across that number. With respect to the comorbidities, it's not something we can get into at this point. I can assure you that there's an ongoing evaluation where we'll get more information that I think will be very helpful to understand the clinical course that this patient experienced. And we'll present that information at the appropriate time once we have it. But until that information is in our hand, I think it's premature to discuss. Operator: And our next question today comes from Troy Langford with TD Cowen. Troy Langford: My condolences on the unfortunate update today. I guess just to kind of follow on to some of the other -- some of the previous questions. Is there anything that you all can do preclinically to try and disprove any sort of causation between nex-z treatment and the safety event? And then I know you all can't say that much, but is there -- if you all can provide any sort of color on potential time lines or next steps with the FDA around reinitiation of the study, I think that would help a lot. John Leonard: Yes. I can't speak for the FDA, and we're certainly waiting for the letter that we expect to receive from them, the hold -- clinical hold letter. And that will be obviously very influential in how we think about -- going about getting back the protocol up and running. With respect to preclinically evaluating, it's hard to know at this point. But as I said before, we're looking at every source of information that we have to see if there is some way that we can identify patients who may be at increased risk. And when we find that information, I'm sure we'll be talking about it in a way that will be meaningful, but only when we're convinced that we have that information well in hand. Operator: And our next question today comes from Brian Cheng of JPMorgan. Lut Ming Cheng: Ed, earlier this year in January, I remember that you said that the ATM would be used at an opportunistic time. And looking at your 10-Q, $128 million this quarter was executed through the ATM. What changed your mind here in executing the ATM? And is the ATM your path going forward in raising additional cash? John Leonard: Brian, thanks for the question. And Ed, do you want to talk about how we think about the various tools for raising funds? Edward Dulac: Yes. So we've often talked about ATM as not a primary strategy, but a tool within the toolkit to raise capital for the company. We're not going to comment on specifics going forward, but we do believe in having options. And so whether it's traditional equity that's often done in biotech, including the use of the ATM, you should expect us to continue to have that available to us and potentially circumstances dependent to utilize that strategy. But there are others for a company like ours that is approaching Phase III data and has a BLA filing. And so whether it's collaborations that we could consider, debt structures or more creative financing opportunities, I do believe we have the balance sheet to get to those milestones and multiple options to consider to improve the balance sheet in the future. Operator: And our next question today comes from Jay Olson at Oppenheimer. Jay Olson: We're sorry to hear this news. Since you mentioned there are no Grade 4 liver transaminase elevations in MAGNITUDE-2, can you just talk about any notable differences in the baseline characteristics for MAGNITUDE versus MAGNITUDE-2? And any particular changes you may be considering to the enrollment criteria? John Leonard: The primary difference is the indication itself. Patients in MAGNITUDE-2, as I'm sure you know, have polyneuropathy, which is a manifestation of TTR amyloidosis. And in MAGNITUDE, it's cardiomyopathy as the primary manifestation. Other than that, the differences tend to be really minimal, and I would think of it as on a continuum with respect to the drug as a whole. Operator: And our next question today comes from Salveen Richter with Goldman Sachs. Salveen Richter: I was just wondering if we step back, whether you could just help us understand the steps from here apart from the FDA letter. John Leonard: Well, central to the way forward is the FDA letter and coming to terms with what they'll require. But you can imagine that we're already working very hard with all of the information that we've accumulated. We're looking clinical information, preclinical information, manufacturing, et cetera. All of this is part of a very, very comprehensive analysis to see if there is any indication of a particular thing or a characteristic that puts patients at risk. While we do that, we wait for the FDA and the information that it requests. And as that information -- as that letter becomes available to us, we'll think through what we need to do and we believe we'll have the tools to address what we imagine may be things that are of interest to them, and we will work very, very closely with them to come up with the best possible plan that we think is an appropriate way to mitigate risk. Operator: And our next question comes from Jack Allen of Baird. Jack Allen: I also wanted to pass along my condolences, a tough update here. Stepping back, I was hoping you could help remind us of the differences in the construct as it relates to the ATTR candidate as compared to HAE. I believe they're using different LNPs, but could you help me understand that, and then also obviously targeting different genetic diseases as well? John Leonard: Yes. Thanks for the question. As we've shared elsewhere, the LNP is the same. That is the lipid constituents, the mRNA is the same. It's the guide RNA that differs between the two. but that leads to a totally different sort of outcome in patients. So ultimately, the patients themselves are different. The disease that they have is different and the gene that is targeted is different. So we view lonvo-z and nex-z as absolutely distinct from each other and the patient experience thus far aligns with that. Operator: And our next question comes from Silvan Tuerkcan with Citizens. Silvan Tuerkcan: My condolences as well to the clinical team. My question is do you add any additional liver monitoring in the lonvo-z trial in HAE? And I'm asking because if the percentage is less than 1% on 650 patients, if you do the math, less than a patient in the HAE trial, right? So any chances you can pick up slight liver increases there before there's a potential launch? John Leonard: Well, first of all, the lonvo-z HAELO trial is completely enrolled. And as we said at a prior update, that patient population is fully enrolled, and they've all passed through this initial window for the patients randomized in the primary evaluation part of the study. The monitoring that we have is not as intense as what we have in the nex-z trial. But again, our experience to date has been quite distinct. And if there were an issue that we would expect to be able to see it with the monitoring that we do have. I would say that an additional aspect to point out is that on Saturday, as we said in our comments, we'll be presenting at the AACI meeting, the combined pooled experience that we have of all patients who have received a 50-milligram dose for lonvo-z, and you'll be able to see the same not only clinical performance, but safety performance that we're seeing ourselves. Operator: And our next question today comes from Jonathan Miller at Evercore ISI. Jonathan Miller: My condolences as well to the family of the patient and to you guys, tough update. I guess I would love to dig further into the comprehensive analysis that you said you were doing. Obviously, you're going back over the individual patient. But how deep are you going across both the nex-z and the lonvo-z patient populations thus far? And can you maybe put some guidelines around what sorts of cases you would consider to be possibly fitting the pattern versus the sorts of cases you would be excluding? I'm thinking of patients who have subclinical liver enzyme elevations that might fit a timing pattern. How do you adjudicate whether you think those are part of this signal or not? John Leonard: The first point I would make is that the lonvo-z experience is distinct from what we see with nex-z. But with respect to nex-z, you're correct in that we'll have more information coming from this particular patient, which I think can be potentially very illuminating in terms of understanding the patient's clinical course. But other than that, when I say comprehensive analysis, I mean comprehensive. And we're looking broadly. We're looking deeply and the sorts of things that you're raising are all on the list of things for us to consider. Operator: And our next question comes from Whitney Ijem with Canaccord. Angela Qian: This is Angela Qian on for Whitney. I also want to express our condolences. So we understand you'll be increasing the monitoring of lab values after dosing. But can you give us a little bit more color on how often the lab values are being monitored previously? In this one patient, the levels were discovered when he had abdominal pain. But in the other patients who did have elevations, how was that discovered? John Leonard: We've always monitored in the window, and that's how we are aware of what we've seen thus far. We've not only picked this up as a result of more intense monitoring. But what we've done as more information has become available to us is move to at least weekly monitoring for the first few weeks after a patient has been exposed to the drug to see if we're able to actually characterize the full course of what happens when it happens. Again, it's occurring in less than 1% of all of the patients that have been enrolled in the trial. And the notion there is that if there's information that can be acted on that, that's in the hands of the physicians who are caring for these patients. Operator: And our next question today comes from Luca Issi with RBC Capital Markets. Shelby Hill: This is Shelby on for Luca. Maybe a quick one on HAE. We appreciate that you don't see a lot of read-through here, but do you think the patient death in TTR could hurt the potential commercial opportunity for this indication? Any color there, much appreciated. John Leonard: I can only speculate at this time, I think between where we are today and completing the readout of our Phase III trial for HAELO, there's a lot of time and information to be accumulated that will characterize the benefit risk profile for lonvo-z. Again, I would point you to a presentation that will be given on Saturday, just a couple of days from now, where the combined experience of all of the patients, 32 that have received 50 milligrams and the efficacy profile, along with the safety profile is there for everyone to see. And we think that, that is largely going to be representative of what we think we'll see in our Phase III or clinical use of the product more broadly. So until we get all of that information, I don't think we're going to be in a position to talk about the commercial opportunity. But thus far, we very much like what we see. Operator: And our final question today comes from Myles Minter with William Blair. Myles Minter: Sorry to hear about the update. It's a straightforward one. Do you have a cause of death? This is a cardiomyopathy trial. You will have deaths in the trial, unfortunately. Just wondering whether this was a CV-related event or as it seems maybe something beyond that? John Leonard: If I heard you right, I'm sorry, it was a little garbled. We'll give the information once we have all of the final material in hand. There are some things that are being done after the death to give us additional insights. And at the appropriate time, we'll share all of that. Operator: Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to CEO, John Leonard, for closing remarks. John Leonard: So thank you all for joining us. We will look forward to speaking with you again when we have meaningful updates to share. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, everyone. Welcome to the Solo Brands Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call to Mark Anderson, Senior Director, Treasury and Investor Relations. Please go ahead. Mark Anderson: Thank you, and good morning, everyone. We appreciate you joining us for the Solo Brands conference call to review the third quarter 2025 results. Joining me on the call today are the company's President and Chief Executive Officer, John Larson; and Chief Financial Officer, Laura Coffey. This call is being webcast and can be accessed through the Investors portion of our website at investors.solobrands.com. Today's conference call will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of any replay or transcript reading date. I would also like to remind you that the statements in today's discussion that are not historical facts, including statements about expectations, future events, financial performance, liquidity, turnaround efforts, strategic transformation goals and future growth are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature are uncertain and outside the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Solo Brands assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, and reconciliations to the nearest GAAP measures are included at the end of our earnings release. Finally, the earnings release has been furnished to the SEC on Form 8-K. Now I'd like to turn the call over to the company's CEO, John Larson. John Larson: Thank you, Mark, and good morning all. Thank you for your interest in Solo Brands. Today, Laura and I will discuss third quarter results and share our progress on strategic initiatives, then open the call to analyst questions. The third quarter sales environment was challenging, reflecting continued pressure on consumer demand while we work through excess retailer inventory and rebuilding our retail relationships, primarily in the Solo Stove division. That said, our approach remains measured and disciplined. We maintained stable gross margins and generated $11 million of operating cash flow, our second consecutive quarter of positive cash generation, driven by stronger cost discipline and better working capital management. Net sales for Solo Brands were $53 million, down from $94 million last year with softness in both DTC and retail. At Solo Stove, while working through excess inventory at our retail partners, we deliberately aligned promotional activity and pricing integrity across channels to rebuild retail partnerships. We also faced the reality that uncertainty and temporary delisting earlier this year set us back on future planning with some retail partners. That's on us to repair, and we're doing exactly that by coordinating promotional calendars with partners rather than competing with them. Now we are beginning to deliver on our core initiative of launching innovative new products. At Chubbies, revenue declined 16% year-over-year, primarily due to the timing of retail replenishment after a very strong first half of 2025. DTC was essentially flat for the quarter, signaling stable consumer demand for Chubbies. We recognize we have work to do on the top line. Recent product launches are gaining momentum, but we are committed to further accelerating structural cost reductions beyond the reduction in SG&A of 35.4% year-over-year in Q3 to better align our operating model with today's baseline demand and to allow future gains in top line performance to flow directly to the bottom line. Let me step back and frame how we are running the business. We are focused on profitability first and building a cost structure to match current demand. We're simplifying the organization, taking permanent costs out and holding the line on marketing efficiency. SG&A declined 35.4% year-over-year in Q3. That discipline is not a onetime action. It's how we operate. Cash discipline is equally central. We ended the quarter with $16.3 million in cash and cash equivalents, no outstanding borrowings on our revolver and inventories down 21% year-over-year. Across Q2 and Q3 combined, we generated $22 million in operating cash flow. Liquidity is stable, and we're allocating capital with care. We are product-led, but we are not chasing volume for its own sake. Our launches must be differentiated and margin accretive, supported by pricing integrity and coordinated promotions with our partners. The recent launch of the all-new Summit 24 firepit in late September and the Propane Infinity Flame firepit in late October are showing positive signs in Q4. Finally, we're keeping it simple, fewer distractions, faster execution and a sharp focus on the customer, on partnerships, on launching products that matter with profitability and cash being our measure of success. Q3 was not where we want revenue, and I won't address that up, but we are addressing head on with a plan to win, which includes further accelerating our structural cost rightsizing. With that, I'll hand it to Laura for the financials. Laura Coffey: Thank you, John, and good morning, everyone. As John mentioned, the third quarter was challenging but reflected progress in how we operate and manage the business. We are staying focused on what we can control, driving efficiency, protecting gross margins and generating cash as we continue to build a more stable, rightsized growth model while accelerating structural cost reductions. With that context, let me walk you through our third quarter results. Consolidated net sales were $53 million, down 43.7% from the prior year, largely reflecting softer retail sell in, primarily within Solo Stove as our partners continue to rebalance inventory levels. The Chubbies segment sales were $16.5 million, down 16%, mainly due to earlier timing of retail replenishment compared to last year, while DTC sales were essentially flat year-over-year. Within our Solo Stove segment, net sales were $30.8 million, down 48.1% from the prior year. The decline was driven primarily by retail partners continuing to manage through elevated on-hand inventory. While retail sell-in remained soft, sell-through trends were more stable. On the DTC side, performance reflected our deliberate shift to maintain minimum advertised pricing or MAP, and reduced promotional intensity. We believe that trade-off, while impacting near-term volume, supports the long-term brand health and profitability. For the third quarter, adjusted gross profit was $32.2 million, representing a 60.6% adjusted gross profit margin compared to 61.9% last year, down modestly, mainly due to inventory write-downs. We continue to manage costs carefully across our entire business. Selling, general and administrative expenses were $39.5 million in the quarter, down 35.4% year-over-year, driven by lower marketing spend, reduced employee-related costs and continued structural efficiencies. We also recorded a $1.9 million onetime restructuring contract termination and impairment charge in the quarter, primarily tied to a facility exit in Mexico. Net interest expense was $7.6 million compared to $3.7 million last year, reflecting both higher average debt balance and the higher average interest rate during the quarter. Our weighted average interest rate at September 30 was 8.38% on the term loan and 5.95% on the revolver, which had no borrowings outstanding at quarter end. For the quarter, GAAP net loss was $22.9 million and adjusted net loss for the quarter was $11.9 million. Adjusted EBITDA was a negative $5.1 million or negative 9.6% of net sales. Please refer to our earnings release for the reconciliation tables to the most comparable GAAP measure. Turning to cash flow. We generated $11 million of operating cash in the quarter, marking our second consecutive quarter of positive cash generation. This reflects disciplined working capital management and leaner operations. Inventories are down 21% year-over-year, and we've continued to align supply with demand, particularly within Solo Stove, where we are working closely with retail partners to support sell-through and prepare for the holiday season. We continue to monitor cash and inventories closely and are carefully managing all of our working capital. On the balance sheet, we ended the quarter with $16.3 million in cash and cash equivalents. Our debt structure included a $240 million term loan and a $90 million revolving credit facility that matured in 2028. During the quarter, we paid down the $10 million revolver balance and ended September with no outstanding borrowings on the revolver. As of September 30, we were in compliance with all financial covenants and have no significant debt repayments until 2028. This provides strength and flexibility as we execute the strategic transformation of the business. Regarding the steps we've taken with tariffs, earlier this year, we began transitioning to a more balanced diversified supply chain footprint, including Southeast Asia and other strategic regions, adding dual sourcing where appropriate, so we can quickly adapt as market conditions or tariffs shift. Our goal with these mitigation plans is to maintain a trusted supplier relationships that are flexible, scalable and resilient as we grow. We feel good about the progress we've made and remain proactive in strengthening our sourcing network to stay ahead of future changes. We are taking a disciplined approach to capital allocation. Our growth investments remain focused on new product innovation, typically in the range of $2 million to $3 million annually within our means and aligned with our return expectations. We are continuing to structurally rightsize the business to match today's demand environment, focusing on profitability, efficiency and cash generation. We believe this ongoing execution of our profit-focused model should position us to drive long-term shareholder value. This concludes my prepared remarks. John? John Larson: Thanks, Laura. I want to reiterate, we are not satisfied with our revenue performance in Q3. It was a challenging quarter and the top line pressure reinforces why we are taking action to align our operating model with current demand. Those actions are already delivering meaningful savings, and we will continue to move with urgency. On Solo Stove retail, the uncertainty in delisting earlier this year clearly set us back with some partners. We are rebuilding confidence the right way, partnering with integrity and providing the coordinated framework to win together. Looking ahead to our all-important Q4 holiday season, we're encouraged by initial consumer response to the very recently launched Summit 24 and Infinity Flame firepits, which have improved our year-over-year sales trends in October. I invite those on the call to explore these new innovative products, including the Steelfire 30 Griddle as evidence of the quality and superior design of our new products. As we look to 2026, we're executing with purpose. We have taken difficult actions required to rebuild our relationships with our Solo Stove retail partners. We know this turnaround takes time, and we expect some continued volatility, but we've stabilized our foundation, proving cash generation even in a contraction and are now leaning into innovation and further operational discipline. The path forward is clear: continue simplifying the business, focus on profitable growth, protect liquidity, invest where the customer and the data points us. I'm confident we're building a structurally smaller, stronger, more focused company with durable brands and passionate communities behind them. That's how we'll create sustainable value for our shareholders. To close, we value our investor communications and outreach. We plan to participate in the IDEAS Conference in Dallas on November 19. Please reach out to our IR team if you'd like to speak with us or meet in person at the conference. With that, operator, I'd like to open the line for questions. Operator: [Operator Instructions] The first question comes from Will Hamilton with Kestrel Merchant Partners. William Hamilton: Congrats on the positive cash flow in a difficult environment. You've been obviously busy on the new product front. I was wondering if we could just expand a little bit more about what you're seeing there in terms of online at your websites, but then also where do you stand in terms of the rollout to retail and what you think will be accomplished over the next couple of months and quarters there? John Larson: This is John Larson. Thanks for the question. Appreciate it very much. Yes, it's really soon. We launched the Summit 24 at the end of September, and we just launched the Infinity Flame October 24. But we're really excited about the initial response to it. I can tell you that we have increased orders from our partners in terms of building some more opportunity for sales here in the fourth quarter. What is really encouraging is we're bringing a lot of new customers into the category. More than 70% of the customers are new to us who are buying these products. And in particular, the Infinity Flame, the #1 state for sales is California right now. And given California generally has some fire bans, et cetera, as you know, wood burning isn't big there, but it's now the #1 state that we're selling in with Infinity Flame. As we look across the country, we're moving into other markets that we didn't participate in as heavily before. So we're very encouraged by the initial results. Nothing to announce in terms of the rollout plan with our partners. We have been reviewing with our partners our entire new lineup of products. And in '26, we have just an aggressive lineup coming out from the Solo Stove division, and we're talking about exactly what we'll do in terms of rolling out in the spring of '26. But very encouraged by the initial response to it and feel good about it heading into the fourth quarter as these are really key products for us. And as I said, the initial response has been very strong. William Hamilton: And then just in terms of the destocking with the retailers, particularly, I guess, with Solo Stove, are you nearing completion of that, do you think? Will you be done maybe by the end of the holiday season? John Larson: I think I heard most of your question here. What I'd say is it really has been a difficult transition here. Imagine our retailers were loaded with significant inventory. We did -- we were very promotional on the DTC side at the end of last year. So they came into '25 with a lot of inventory. And it was painful to reset our approach, and that was we weren't going to compete and undercut our retailers to regain confidence and promote together with them in a coordinated fashion moving forward. So what it did was it put real pressure on our DTC sales because we're no longer promoting deeply and selling. At the same time, they were working through excessive inventory, and we're working to regain their confidence. What I'd say is I think we really hit the trough in Q3. And their inventories are now in line with very normal level of inventories, and we believe we'll start seeing more normal cadence of reordering from our retailers and the conversations have been great recently. And I would say that working together for these 6 months, in October, we had a promotion that we coordinated with our retailers together, and it was very successful for both of us. And due to that success, it just shows how when we're working together, a rising tide lifts all boats. And so we feel very comfortable with the promotional cadence in the fourth quarter. We are aligned with all our key retail partners at the Solo Stove division, and we're excited about seeing where it takes us in Q4. Chubbies is -- this is related to Solo Stove. Chubbies, I think, has been a more mature relationship with the retailers and has had this alignment more in line for the entire year. But particularly with Solo Stove, we had to make these changes. It's been painful, but we're finally coming out the other end, and I think seeing some positive initial results. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Larson for any closing remarks. John Larson: Thank you for continuing to follow our company, and we look forward to providing fourth quarter and full year results and updates on our strategic transformation in a couple of months. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PureCycle Technologies Third Quarter 2025 Corporate Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Eric DeNatale, Director of Investor Relations. Please go ahead, sir. Eric DeNatale: Thank you, Kyle. Welcome to PureCycle Technologies Third Quarter 2025 Corporate Update Conference Call. I am Eric DeNatale, Director of Investor Relations for PureCycle. And joining me on the call today are Dustin Olson, our Chief Executive Officer; and Jaime Vasquez, our Chief Financial Officer. This evening, we will be highlighting our corporate developments for the third quarter of 2025. The presentation we'll be going through on this call can also be found on the Investor tab at our website at purecycle.com. Many of the statements made today will be forward-looking and are based on management's beliefs and assumptions and information currently available to management at this time. The statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our safe harbor provisions and forward-looking statements that can be found at the end of our third quarter 2025 corporate update press release filed this afternoon as well as in other reports on file with the SEC that provides further details about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statements. Our remarks today may also include preliminary non-GAAP estimates that are subject to risks and uncertainties, including, among other things, changes in connection with quarter end and year-end adjustments. Any variation between PureCycle's actual results and the preliminary financial data set forth herein may be material. You're welcome to follow along with our slide deck or if joining us by phone, you can access at any time at.purecycle.com. We are excited to share updates from the previous quarter with you. With that, I will now turn it over to Dustin Olson, PureCycle's Chief Executive Officer. Dustin Olson: Yes. Thanks, Eric. Thank you all for joining today's call. It's been another quarter of meaningful progress for PureCycle across all parts of the business. We're ramping operations, we're starting to ship to key customers in Q4, and we're excited about the growth ahead. I'd like to begin with the recent board changes that we announced. I'm very pleased to welcome our newest Board member, Dr. Siri Jirapongphan. Dr. Siri has an impressive resume and I believe he is going to be instrumental in PureCycle's future success. He's the former Chairman of the Board for IRPC, this is our partner in Thailand and is currently serving as an independent director of Bangkok Bank, the largest bank in Thailand by assets. Dr. Siri is an incredibly bright individual. He's got degrees from both Caltech and MIT and chemical engineering, and he has already made an impact when interacting with the Board and the PureCycle team over the last few weeks. His polymer expertise has deep network in Southeast Asia and passion for PureCycle is bringing good energy and perspective to our decision-making process. He will serve a key role in our debt financing activities as well as support our technical and project teams. I'm excited to have him join the team. I'd also like to personally thank Jeff Feeler for his service on the Board over the last 4 years. He has been an instrumental part of getting PureCycle to where we are today. And from a personal perspective, he has taught me so much about how to think about our business, our activities and how to lead this organization effectively. His departure coincides with Dan Gibson of Sylebra Capital joining the Board 3 months ago. Operational performance has shown steady improvement. Ramp-up activities underway at both Denver and Ironton further reinforcing our confidence in the business trajectory. Q3 was one of the highest quarter of production in the company's history. September was the highest month at 3.3 million pounds and was limited by fee. At the end of Q3, we successfully added a second shift in Denver during the quarter and plan to add a third in Q4. This will bring Denver's capacity to approximately 100 million pounds annually. The compounding expansion at Ironton continues to be on track, and we expect this to significantly reduce complexity of supply chain, improve our product offering, lower our cost and meaningfully widen the market for available sales. On the commercial front, we continue to make a lot of progress. We scheduled to ship material in Q4 to P&G's converter for application production that are scheduled to the shelves in early '26. Additionally, we are working to finalize and ship for other P&G applications in Q1. We continue to add to the P&G funnel. We have made major strides on the operational front, and we believe we have alignment to meaningfully grow their volume in 2026. We have also made standout technical progress on numerous applications and are beginning to narrow the focus to high-value applications. One of the biggest successes have been with white thermoform coffee lids, this led to progress with 3 of the top 5 quick service restaurant companies or QSRs and we expect to be shipping into stores for a top 5 QSR group in the fourth quarter and ramping in 2026. We've made tremendous strides in the commercial and general trajectory is very positive. We've also made -- we also have a much better sense of what our customer volume expectations and needs are for the next year. While the timing of any ramp is always hard to pinpoint with certainty, we do see initial volume indications between Emerald, Procter & Gamble, QSR coffee lids and other converters in the range of about 40 million to 50 million pounds annually. To put a blunt point on it, we see significant volume converting from just 4 to 5 projects, and we have another 75 to 100 projects churning through the hopper. Given our technical successes and the product line that we've developed, we feel confident about the long-term demand for Ironton. The sales funnel continues to be very strong and successful conversion of only some of these would be large enough to sell out Ironton many times over. The focus has shifted more towards converting these large applications into sales and less towards growing the funnel. Even in a challenging consumer spending and petrochemical environment, we continue to see robust demand and pricing in line with the unit economics we have previously laid out. Our growth plan continued to progress during the third quarter. The personnel in Thailand continues to grow, and I'm excited about the team that is being put in place. The Antwerp permitting process continues on schedule, and it is extremely good news that our proposal to the EU Innovation Fund or EIF, was accepted. We expect to receive final grant approval of up to EUR 40 million by the end of Q1. We continue to progress our Gen 2 purification design work through Augusta and beyond and expect this to be completed in the first half of 2026. Overall, this has been another quarter of extreme progress. Branded shipments are moving. We're in the final stage of commercial negotiation with a number of very large potential applications, and we are accelerating. We are doing something that has never been done before. The operation Ironton and Denver continued to show progress during the quarter. Ironton produce 7.2 million pounds in this quarter and 3.3 million pounds in September, both new records. Denver continues to ramp as well, processing 9.4 million pounds of feedstock in Q3 and 4.4 million pounds in October. This was possible due to strong reliability performance and successfully adding a second shift in Denver. We have plans to add a third shift in the near future, and this will allow Ironton to continue to ramp to higher rates of production in coming quarters. We have developed a really strong relationship with our feedstock providers and are taking product from numerous locations, some of which are among the largest waste companies in the country. These companies value steady and ratable offtakes and thus, it makes sense to deliberately and systemically ramp Denver volumes in conjunction with Ironton production and sales, and speaks to our confidence in the commercial ramp in front of us. The amount of feed coming out of Denver was a constrained Ironton production in the quarter and with the additional shifts this should be relieved going forward. The 100 million pound compounding expansion at Ironton that we announced last quarter is on track for mechanical completion in December. And in addition to that, we've already installed the Co-Product 2 extruder on-site and started the operational commissioning. This compounding capacity that we're installing will allow for reduced complexity of supply chain, improved product offering, lowers our costs and should widen the market for available sales. The Co-Product 2 compounding expansion is already showing positive results. As you can see in the pictures on Slide 4, we can now take raw Co-Product 2 coming out of Ironton and compounded into a sellable pellet that we have already sold into the market for $0.20 to $0.30 per pound. As we have ramped Denver, we have developed market outlets to sell the non polypropylene co-products. As we have found markets for approximately 20% to 30% of the bale, that is non-PP, which results in approximately a net 20% reduction in feedstock costs. This is inclusive of the waste disposal costs for 18% of the bale that we are currently not selling. This is a really big deal. And I believe it's only the early innings of this co-product optimization and that it will be a big driver in our long-term low-cost story. Operations continues to make progress, and I feel increasingly confident about our ability to ramp production in coming quarters. To pace the commercial ramps, we expect to run the facility at 60% to 70% rates for the next 3 to 6 months and then ramp to near nameplate in the second half of the year. Now turning to the commercial update. Some of the largest brands and companies in the world are becoming interested in our products. This is a tremendous endorsement for the quality of our product and the future of our company. It's important for our teams to stay focused on developing these high-quality demand applications like this. While there have been some delays with respect to the overall rollout, it's important to note that none of that was driven by technical capabilities of our product or the market's underlying demand for it. The delays relate to developing regulatory dynamics in states, which are largely behind us as well as the natural delays that came from 2 mergers among the 4 largest global converters. Both mergers impacted the timing for a few contracts that we had initially expected to close, start moving in Q3. None of this has impacted the long-term progress or where things are going. Frankly, confidence in the end state of where Ironton is headed has only improved. I continue to see potential demand in the funnel, well exceeding our ability to supply it by multiple times over and a growing list of qualified products to take us there. If you combine the customers that we're beginning to ship to, with the ones we already have high visibility to ship to in the near term, this represents approximately 40 million to 50 million pounds annually at full ramp. I've spoken a lot over the past few quarters about how our resin continues to get qualified in numerous applications, especially those like film and fiber that traditional mechanical recyclers cannot serve. I've also talked about the value of compounding business and how it is a core component of how we can take our purified product and transform it into exactly what the customers require. So with that in mind, I think it's valuable to present to the market our current product portfolio with which we're going to market. There's a lot of technical data in there, but I think it's important to note a few things. First, all of our products serving food-grade end markets have FDA LNOs. Second, all of the material that we process has both Green Circle and APR certifications for post-consumer recycled content. Third, our general purpose material does not require compounding. However, we use compounding to augment the mechanical properties and to deliver a single pellet solution to customers. This product portfolio is a function of a lot of incredible work by our technical and R&D teams as well as demand and pricing discovery by our sales team over the last year and is a big part of why I'm so excited about the future of PureCycle. No other recycled PP producer can offer to the market what we can. Last quarter, we told the market that we had 17 applications that had successfully passed industrial trials and that we're in later stages before commercialization. I want to give as -- I want to give a detailed and update as possible on these. The key takeaways here is that we are progressing and converting the funnel. We completed negotiations with an unnamed consumer goods company during the quarter and expect to ship product for a thermoform application in Q4. 2 large applications for yogurt cups had to undergo lengthy odor and taste tests, but that's now complete. We successfully made industrial adhesive tape for a top 5 manufacturer during the quarter. This is very similar packaging tape consumers use every day when preparing for a remove or when shifting a gift to the postal service during the holiday time. They informed us that they do not -- that they do not -- that they -- sorry, they informed us that they want to do additional testing on a Brückner machine, which was planned for November. This will be our first commercialization of BOPP and believe this can be a double-digit annual volume opportunity for PureCycle. The only real disappointment in the funnel was the long brand adoption cycle we're seeing with fiber. We're fully technically qualified with numerous fiber app -- fiber producers, but this is a very fragmented market with literally thousands of small textile producers making decisions for apparel. It is taking longer to build out the new projects with end customers during the challenged market conditions. The only application of the 17 that PCT dropped out of the funnel with small consumer goods application. This is one of the smallest applications in our pipeline and PCT chose not to pursue due to the required internal resources to develop the project. What's really exciting to me is the number of new opportunities that have entered the later stages of the funnel. Many of them are with Fortune 100 brand owners, specifically across thermoform and BOPP. As I've mentioned, these last few quarters, part of the reason that we have qualified so many applications is to prove out the market depth across different segments and end markets. Not surprisingly, FDA flexible film or BOPP is toward the top of the list. Thermoforming for QSRs, namely for coffee lids and cups as well as for other food container opportunities are also emerging as one of the best places for us to focus. The demand from just 3 of these large QSRs for coffee lids alone could be enough to sell out Ironton. We have had a PO in hand -- we have a PO in hand to begin shipping for the first of these top 5 global QSRs in the fourth quarter and are closely working with the top -- with 2 top QSRs who have both told us that they want to move forward but are waiting for a couple of internal approvals before doing so. BOPP film continues to progress on schedule and trialing success with Brückner has unlocked with -- has now unlocked trials with brand owners of multiple top 5 snack brands. These are huge volume opportunities and currently cannot be served by mechanically recycled product due to the technical challenges of producing BOPP. We've also had virgin resin producers reach out to us for BOPP supply. The success we've seen with the first adhesive tape trial has led to interest and scheduled trials for other brands. To be clear, both white thermoform and BOPP film technical developments are very complex, and this is a very undersupplied market. We've proven that we can make them grades, we've tested it and it's working. And while they took additional time to complete the development of trials, the interest in this segment is strong and moving quickly -- moving more quickly than other applications. We believe that the single-use nature of many of these applications is driving interest and quicker adoption by QSRs and snack brands. Additionally, due to the lack of true recycled demand for these applications, we believe many of these companies are currently using -- currently buying ISCC Plus credits for roughly 70% to 80% per pound over virgin to cover their regulatory requirements. We continue to make progress with Procter & Gamble during the quarter. They are one of the most technically demanding companies due to their intense focus on quality and brand image. And I'm very excited that we expect to be shipping product in the fourth quarter with these caps making it to the shelves in early 2026. The relationship with Procter & Gamble is transitioning to an operational relationship. We meet weekly. We are well aligned and are both excited about this first application and the pipeline that's following. The partnership with Churchill continues to ramp with incremental end customers, and I'm very excited that we will be producing cups for the release of a very popular upcoming franchise film release. Additionally, there's a major sporting event taking place in the United States in 2026, and they have confirmed that they will be using our run-at-back cups during the entirety of that event. These are both nice volume additions, but even more importantly, I believe there will be great opportunities to showcase the PureCycle to a broader audience. It's also worth noting that one of the big 4 sports leagues has invited us to a Private Stadium Operations Conference where we'll have an opportunity to present our cups to all the franchise procurement teams at the same time. There's also a lot of positive news emerging from the regulatory front. 7 states covering about 20% of the U.S. population, have passed extended producer responsibility regulations or EPR for packaging over the past 4 years. On top of that, states like New Jersey have passed and are implementing laws that mandate recycled content. Further builds are also being introduced in numerous states across the political spectrum, including places like Tennessee and North Carolina. These bills were passed for the last 3 to 4 years and are just now being implemented. I believe this will force many large brands who operate an interstate commerce to ship to almost every state to adopt our material, and we expect will only accelerate as more states implement these policies in '26, '27 and beyond. We're ramping up our efforts to educate the steps on the positive role that the PureCycle can play in compliance to the new rules. Many new independent publications like the PRE White Paper for Dissolution and the NOVA Institutes Definitive Chart for recycled technologies are helping to place the right designations on plastic to plastic solutions at the regulations demand. PureCycle is very well positioned to be the premier solution for many brand applications. The regulation in Europe regarding PPWR as well as mandated recycled content for automotive continue to be planned for implementation towards the end of the decade and our recent successful application for the EIF grants speaks to the momentum PureCycle -- through the momentum for PureCycle in Europe. We will continue to educate all agencies and regulatory bodies on how PureCycle can support the legislative efforts around the globe. The growth plan we outlined to the market last quarter continues to progress. Since announcing the Thailand project earlier this year, key feedstock LOIs have been signed and the amount of material available appears to be more than required to run the facility at full capacity. In Europe, permitting for the Antwerp facility is progressing as planned, with construction expected to commence thereafter. Our proposal to the EU Innovation Fund has been accepted and we anticipate up to a maximum of 40 -- maximum grant of EUR 40 million by the end of Q1. Between the capital efficiency of the Thailand project, the EIF grant for Antwerp and the capital already spent on long-lead equipment, the remaining capital requirements are limited relative to the scope of these projects. We're in a good position to progress these 2 projects over the next 3 years according to our original plan. Additionally, we're on schedule to complete the final engineering for our Gen 2 purification line design work in early 2026. While not finalized yet, we still believe the capacity will likely fall between 300 million and 500 million annually. On the financing front, we have initiated debt financing efforts in Thailand in collaboration with local banks are making good progress to secure the financing and believe that we remain on track for financial close in line with prior communications. With that, I'll turn it over to Jaime for the financial presentation. Jaime Vasquez: Thank you, Dustin. As shown on Slide 16, we ended the quarter with just over $234 million of unrestricted cash. In addition to the cash on hand, we still hold about $87 million of revenue bonds that we plan to sell in the future to further support our growth initiatives. Also, as we mentioned in our June growth update, we have almost $25 million warrants outstanding that expire in March of 2026, must exercise at a price of $11.50 per warrant prior to that time. In addition to the potential proceeds from the warrants, our team is pursuing other nondilutive financing arrangements including the successful EUR 40 million grant application for our Belgium project that Dustin just mentioned. Our operations and corporate spend was around $37 million, which was slightly lower than the $39 million spent in the previous quarter. We anticipate that our operational spend will remain at similar levels adjusted for increased spend associated with the ramp-up of commercial sales. Additionally, we expect growth capital spend to increase beginning in early 2026. We are working on detailed project plans and we'll provide more insight once the spend curves associated with those plans are finalized. I would now like to turn the call back to Kyle, who will open the call for your questions. Operator: [Operator Instructions] And for your first question, it comes from the line of Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Can you hear me okay? Dustin Olson: Yes, Andres. We hear you loud and clear. Andres Sheppard-Slinger: Wonderful. Congrats on the quarter and then all the progress. I think there's a lot to unpack, but I wanted to maybe start with all the progress with these QSRs. I was wondering if you can maybe give us some details as to where is the interest coming from? Any feedback you've received. Why have they been so interested as of late? Dustin Olson: Yes. I mean, thanks for the question, Andres. What I think is really exciting to me is to see the interest coming from these very recognizable brands around the world. These are not only brands people will recognize, but also brands that we can grow with globally. Sustainability is, quite frankly, really important to these companies and the brand value is core to their success. And ultimately, that's where the true opportunity lies. I think it's important to take a step back a little bit and helicopter up on recycling. I think when any individual thinks about recycling, they probably naturally go to their bin at home, okay? What are they throw in the bin? And where does it go? And everybody has this idea that they want to see that material go back in the products, but they don't see the scale of it. But that's what's interesting with PureCycle and quite frankly, our Denver facility. Our Denver facility is processing so many bales at that location. And when you really watch it for a while to stand on the line and watch the material move through, you see what's coming through. And there's just a tremendous amount of QSR material on the belts in Denver. And I think that when you see that and you share that with the QSRs, it really resonates with them. So I see these products, these companies, products running through the process in Ironton, and I see it as a real circularity opportunity. Not only can we give them high-quality product to make the product that they need, we can also take it back to Denver and show them that their material is coming back into their products. So when you see -- so when the companies see their product in the bales at Denver, it resonates. When they see it transform back into things like coffee lids, it moves them. And yes, I mean, as far as big companies are concerned, these QSRs are moving faster. And they're really excited about how we can work together, and these companies need a lot of material. Once we designed the white thermoform and the film brands, and we got them tested and showed that they could work, the excitement really started to grow. Thanks for the question, Andres. Operator: And for your next question, it comes from the line of Jeffrey Campbell from Seaport Research Partners. Jeffrey Campbell: Well, first of all, I wanted to congratulate you on strong progress this quarter. I'd like to ask a couple of questions if could. The first one is, I want to make sure I understood what you said earlier. Regarding the Co-Product 2, is the plan to sell what you separate from the feedstock to the market although you utilize any of it in your compounding operations? Dustin Olson: That's a very insightful question, Jeff. Thank you for that. The answer is both. While we see opportunities to take the Co-Product 2 that we separate out in our purification facility and compound that into a pellet form, so it's easier for customers to use. That's primarily what we're doing at Ironton right now with our newly installed compounding operations, which were commercialize or operationalizing right now. But you hit on something that's very interesting, and it speaks to where we're going to go with co-products. The concept of compounding is really about recipe management, and about taking lots of things and blending them together to make something better. And given the compounding of the capacity that we have with a third party as well as the compounded capacity we've installed in Ironton, coupled with the things that we make, both in Ironton and at Denver, it creates a lot of opportunities for us to find synergy. And so I think that your question is good, and that we will start taking some material from Denver and also bringing it into the Co-Product sales, which and how much that will be proprietary IP for the company to manage the recipe. But I think at the end of the day, it's going to lead to higher revenue from Co-Product sales and ultimately lower net feedstock costs to Ironton. Jeffrey Campbell: Right. Yes, that was kind of what I was thinking as well. I also wanted to ask you, you mentioned that some of your potential customers have to buy credits. Could you expand on that a little bit? And just give us a sense of the value of the PCT is going to provide these people. Hopefully by obviating the need for those credits. Dustin Olson: Yes, that's a good point. So this is one of the things that I'm not sure how much people are aware of what's going on out there. But there are ISCC credits being generated by several facilities across the industry, okay? And some of our customers, we believe, will buy those credits as part of the regulatory requirements for their company. Those credits, the best that we understand are valued at $0.75 to $0.80 per pound in the market, and that's effectively virgin pricing plus $0.75 to $0.80. So that's a really good proxy for the value proposition that we offer. And we should, at a minimum, be at those kind of levels in the long run. But quite frankly, we believe we should be over that. And here's why. ISC credits are not a plastic to plastic solution. It's effectively a plastic to fuel solution that is mass balance to plastic. And that's inferior for the brands. The brands really want to be able to -- the consumers, customers buying candy bar, snack bags and things like that. They want to know that the material that they threw into their bin has come back to the products that they're buying and that's a plastic to plastic solution that we offer. And so we offer our consumers, let's say, a real plastic to plastic solution, less regulatory risk and less litigation risk. You can see across the regulatory ecosystem that a lot of rules are coming in that limit the use of recycled material. And that limit the use of the ISCC material, and that's where we can come in and fill the gap. I think it's also notable that on many of the brands, the marketing for how they use recycled product becomes very complex, either they don't put the fact that they're recycling content on their packaging or they put a lot of legalese around it that complicates the overall message. And quite frankly, that's why brands like a simple plastic to plastic solution, and I think that's where we're going to start filling the gap. Jeffrey Campbell: Right. And the last question I wanted to ask is, are you -- right now, are you actively selling very much PureFive? Or are you building inventory for the compounding that you're going to be able to do when you get your equipment installed in the next quarter? Dustin Olson: Yes. I mean it's a little bit of both. I mean we sold some PureFive. We've sold some compounded products, but we've also built more inventory that we've sold. So I think that we've got an opportunity as these trials convert and the funnel starts to pull and the ramp extends, I think we'll pull that inventory down to show the revenue from that in the future. Operator: And for your next question, it comes from the line Hassan Ahmed from Alembic Global Advisors. Hassan Ahmed: So I wanted to focus both of my questions on the growth project side of things, right? So let me throw the first one out. This EIF grant that you guys were awarded. Would love to hear the process around that, what it entails, what this means for your sort of European growth projects? Dustin Olson: Yes. Look, I mean, this is a little bit third time's the charm. First of all, I want to compliment the team in Europe. We've got an incredible small but mighty team in Europe that has been building toward this project for 3 years. We've submitted 2 times in the past, and we're not selected, but we've continued to improve the quality of the project, economics of the project. And now we are -- we were awarded the EIF this year, and we're extremely excited about it. I think what it does -- I mean, look, it shows a lot of confidence in our ability to bring the technology to scale. I think it shows a lot of interest in Europe to -- it shows a lot of interest in Europe to continue to lean into sustainability. And I think from an economics perspective, the EIF is just a way to further reduce the overall CapEx for the project, which makes the project look more valuable to our shareholders. We continue to look at the overall CapEx of projects and work them very, very hard. And this will be another feather in the cap for the overall return when we put it to use for the development of the project. Thank you, Hassan. Hassan Ahmed: Very helpful. And just sticking to the growth side of things. On the Thailand side, it's -- you guys sort of flagged the sort of securing the feedstock letters. I mean, what does that entail? Can you talk a bit about the cost of it, the availability of it, particularly sort of in line with what you guys are thinking in terms of the capacity out there? Dustin Olson: Well, I think the punch line is it's just the tip of the iceberg, okay? One of the reasons that we found Thailand, and we leaned into it is that we believe that's a location for great growth. It's no surprise to anybody that Asia is an area of a tremendous population, and b, tremendous need for waste management, trash management, recycling. And so there's a lot of efforts going into, let's say, small cap projects to improve the handling of waste in Asia. We're starting to see the fruit of that. But quite frankly, all handlers of waste are looking for partners like PureCycle that can improve the net value of the product at the end. Look, at the end of the day, if we can't sell to a higher-margin business, then we can provide better economics to feed to continue pulling feed out of different systems. That will allow us to support the growth of the feed and also allow us to grow our business. So we're super excited about it. I mean, look, we've talked to -- we've talked to so many different people in Asia around the willingness to partner with us and there's a strong willingness to partner. But in many cases, they say things like I'm not limited by how much polypropylene I can find. I'm limited with how much polypropylene I can sell to customers like you. And I think that, that speaks really well to the prospects for our Gen 2 design and where we're going to place it and how we're going to grow around the world. Hassan Ahmed: And you're comfortable with the cost associated with it as well. Is it like the per pound, unit economics of procuring that feed stock? Dustin Olson: Yes, I think so. I mean you find it a little bit all over the map. It depends on what stage of preparation has been put into the pellet. But yes, I think the economics look pretty good for us there. We're still in the process of nailing down all of that to firm up the final economics, but they all look very, very, very positive for Thailand. Operator: And for your next question, it comes from the line of Jeff Grampp from Northland Capital Markets. Jeffrey Grampp: Was curious, Dustin, and I think you hit on this in your prepared remarks as well as the deck. A couple of applications are awaiting brand approval. It sounded like you guys have kind of jumped through all the hoops and just waiting for a couple of back office signatures effectively. Like what -- do you have any sense of what that timing looks like? Like what is the inflection point? Are we just literally just waiting on a couple of signatures and off we go? And what might that ramp look like for some of these where you guys sound like you're pretty close? Dustin Olson: I think we feel really good about it. I mean, if you look at what we've actually got kind of coming already, that's the green lines on our 2 slides. I mean that plus Procter & Gamble is enough demand to get to 40 million to 50 million pounds annually when ramped. And honestly, what's most exciting about the remaining opportunities and the highlighted is what we described on Slide 9. I mean these are really big and with some of the biggest brands in the world. Many of those are category leaders, Fortune 100 types and converting any of those will materially impact the 40 to 50. I think we're really encouraged by how the conversations are going and feel good about getting a few of these over the line and get us to a sold-out condition. These brands are very deliberate. They ramp in stages. It takes time, but their needs are real. Their interest is real. And that makes me feel good about what's to come. We are really excited not just to convert these guys quickly and get them in, in the short term. We're really excited to build a long-term relationship with them. So we're selling to them for decades. And so that takes a little bit more time on the front end, but we're doing that and we're successful so far. Jeffrey Grampp: Great. That's helpful color. For my follow-up on the Co-Product monetization side of things. Is that something that you guys think is feasible kind of across the spectrum as you guys get into new continents, is this something that has a depth of market, if you will, in future projects as well? Or do you guys have that level of, I guess, conviction or build out at this point? Dustin Olson: I think if you break it into prep Co-Products and purification Co-Products, for sure, the concept of purification Co-Products is directly applicable. I mean our Co-Product 1 is a very useful waxy-type product, and we're investigating different opportunities to move that into different applications. And I think the value of those applications will grow year-over-year as we find new opportunities to move that in. And the same thing with Co-Product 2. And both of those Co-Products we made off of every plant that we build in the future. With respect to prep Co-Products, I think it depends a little bit on the region and how sophisticated they are, okay? Generally speaking, I think the answer is yes. I think we're going to be able to take prep Co-Products also and bring them in, in various stages of our process, whether it be compounding or it's feedstocks into purification. We've got a lot of ideas and opportunities there and we'll handle them by a case-by-case basis. But I think the bigger takeaway here is that the ecosystem that we're building, both on the feed side as well as the compounding side is really transformative, and it's going to create so much optionality for our company to create full value chain value for the company and options to do different things to reduce overall yield loss from the prep process and overall value creation. We're really excited about the asset footprint we're putting down. Operator: And for your next question, it comes from the line of Eric Stine from Craig-Hallum Capital Group. Luke Persons: This is Luke on for Eric. So I guess, first. Could you maybe provide a little more color just high level on the financial impact that your shipments in 4Q will have or that you expect to have? And can you outline how quickly you expect to ramp towards full production levels for these contracts? Dustin Olson: Yes. That's a good question, Luke. Thanks for dialing in. I think what's most important is to focus on what we're shipping and growing with our customers in the fourth quarter and first quarter. It's always very tricky to know exactly which week or which month these type of shipments will ultimately fall in. But look, they're happening, okay? And the timing of the ramp is hard to pinpoint. But that doesn't mean that we're not -- that does not mean that we're wavering from the prior commentary around the $8 million target per month at the end of Q1 and into Q2. Listen, the bottom line is that the sales funnel continues to get stronger, the largest global brands are now fully engaged and interested. We're increasing revenue but what's most important is selling out Ironton with brands that are going to be there for -- with our customers for the next decade, as I said before. That's a good question. Luke Persons: Right. That's helpful. And just as a follow-up here, I guess, what's your thought process on just inventory and cash use going forward? So we thought we might start to see you build a little bit more inventory this past quarter, which is some of these contracts getting closer to the finish line. Should we expect to see that balance really start to build here in 4Q, 1Q? Dustin Olson: Yes. I think from an inventory perspective, I mean, we're going to be ramping rates at Ironton and Denver, consistent with what we see on the sales ramp. There might be a little bit of inventory build as we ramp into the customer sales funnel. But again, that's -- it's tricky to pinpoint exactly which month or which quarter that will happen. Yes. So that's how I go with that. Operator: And we have a follow-up question from the line of Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Sorry, I think I got disconnected before. Dustin, I just wanted to follow up, if maybe you can give us a little more details around the 40 million to 50 million pounds run rate that you mentioned in the call. And also, I was wondering if you could maybe, maybe help us connect some dots with the REACH certification in Europe and then the joint presentation with Volkswagen on the bumper. How should we be interpreting that? And anything you can say to that effect? Dustin Olson: Yes, that's great. Yes. So on 40 to 50, I mean, I think we've hit that a little bit. But if you look at the, let's say, the green highlighted lines on the projects and you add Procter & Gamble to that, I think at full ramp, we're going to get to the 40 to 50. And it's just super positive, Andres. I mean like we're really moving forward with some big brands and good names. I mean these are top companies, big global brands that we can grow with, not only in Ironton and in Augusta, but also in Thailand and in Antwerp. I think it's going to be a really nice foundation for future plants, future sales, and that's going to be very positive for us. With respect to REACH and VW, look, I mean, we are going to -- we are a brand-new company. We're just emerging, and we're doing a lot of great things. And we're going to continue to click the box on lots of different certifications. We did it with GreenCircle. We did it with APR. We've done it multiple times with FDA LNO. I think we have 4 or 5 of those now. I don't know the exact number, but we've got several. And we just recently did with REACH. And so REACH is just a step to get your product into Europe, okay? If you don't have REACH, you can't ship appreciable volumes in Europe. And now that we have that, I think that we're starting to see already some interest in trials and getting things moving. And I think that will be very interesting for us. The European team has not only been working on the EIF submission, but they've also got a great outreach with different customers in Europe. And as we develop our product portfolio sheets with the white thermoform and the flexible packaging and the injection molding grades, things like that. We're going to start shipping samples over to Europe at scale and getting customers to really start biting off on those for trials. And I think that the REACH has enabled that. With respect to the 8-K that we put out a few weeks ago with VW, look, I mean I couldn't be more thankful of the partnership with that technical team. They really worked with us to develop the right recipe, the right compound to develop a beautiful bumper. I mean, we've got this bumper actually on display in our office in Orlando, and it's just beautiful, okay? And it's just -- it's a very difficult project to get post-consumer curbside recycled product into applications that are as sensitive as automotive. Remember, automotive is one of the most complex supply chains in the world and their precision to quality and just perfection is extreme. And so if you've got recycled product that varies in product quality or it has gels in it or it's got whatever contaminants in it that get to the surface to make it difficult to paint or make the paint crack when it's in cold weather, and make the paint crack what it's in hot weather. It's not going to work. And so the most exciting thing about the presentation that we published in the 8-K was the 1 slide that showed the picture. And then the next slide -- right next to that slide, it showed a whole bunch of green dots next to very complicated tests. And that's basically the 2 teams coming together and saying, not only did we build a bumper, but it passed all the required tests for another company that values quality, just as highly as is -- just above everybody else. I mean it's a really quality company. And so I think that -- I do not think that automotive is going to ramp quickly in the next 1 to 2 years for Ironton. I think we have other opportunities that are going to go faster and quite frankly, probably bring more value. But I fully believe that automotive is going to be a foundational component to our growth plan. It's going to be a stable volume for Thailand and for Augusta in the future. And I think that, that particular case is a good example for every automotive company in the world to see that our product works really well in an extremely complex application. And when the other automotive companies see that bumper, they say, "Wow, that's pretty amazing they're able to pull that off". Great question, Andres. Andres Sheppard-Slinger: Congrats again. Operator: This concludes our Q&A session. I would now like to hand the conference back over to Dustin Olson, PureCycle's Chief Executive Officer, for closing remarks. Dustin Olson: Look, thanks, everybody, for joining the call. I mean it's another good quarter for PureCycle. We've built a unique asset footprint on both ends of our process, feedstock processing and product compounding. This is unlocking opportunities to reduce costs and expand our customer base. We continue to deliver technical improvements to the pipeline. We're seeing strong adoption by major brands in the market, and the shipments are beginning to flow in Q4 of 2025. But most importantly, we're playing our part to improve our planet. We're converting post-consumer curbside waste from your waste bin into high-quality products that consumers can use. This is the holy grail for recycling and PureCycle is starting to achieve it. We're poised to execute on a very strong 2026. Thank you for your interest in PureCycle and your continued support. See you next time, everybody. Operator: This concludes today's conference call. You may now disconnect.
Adriana Wagner: Good morning, and welcome to the ENGIE Brasil Energia's Third Quarter '25 Earnings Results Video Conference. I'm Adriana Wagner, Investor Relations Analyst at ENGIE Brasil, and I would like to make a few announcements. [Operator Instructions] It is worth remembering that this video conference is being recorded at our site, www.engie.com.br/investors, we have made available the results presentation and earnings release filed at the CVM, which analyzes financial statements, operational results, ESG indicators and progress in the implementation of new projects in detail. Before proceeding, I would like to clarify that all statements that may be made during this video conference regarding the company's business outlook should be treated as forecast depending on the country's macroeconomic conditions of the performance regulation of the electric sector besides other variables. They are, therefore, subject to change. We remind the journalists who wish to ask questions that they can do it through e-mail sending it to the company's press conference to present the results. We have with us today, Mr. Pierre Gratien Leblanc, the CFO and IRO; Guilherme Ferrari, Renewable Energy and Storage Officer; Marcos Keller, Director of Energy Trading; and Leonardo Depine, Manager for Investor Relationships. I would like to give the floor to Pierre to begin the presentation. Pierre Gratien Leblanc: So good morning, everyone. I will do it in English. So I hope it will be fine for everyone. So thanks for joining us in this -- during this hour. Always a very, very important moment for us to meet you and to explain you the financial results and the main highlights for the last quarter '25. So if we start with the highlights, it can be the main achievement we realized during this quarter are the following. First of all, regarding our project Assuruá and Assu Sol, we now almost complete the physical phases, and we are starting the operational commercial operations. So we are on time, and it's a very, very great achievement for us. Then we complete also the acquisition and the integration in our portfolio of the 2 hydro power plant, Santo Antonio do Jari and Cachoeira. So now there are -- the 2 assets are fully embedded in our portfolio management and since mid of August, and they are starting to contribute in our EBITDA. We won for the 15th time the trophy of transparency in accounting, Anefac, which recognize the transparency and the quality of our financial statements. And it's a very, very great job from teams and our accounting team. We also be certified as the Best Place to Work according to the GPTW, Great Place to Work Brazil. So good company and good achievement from our HR team. Then I have to mention that there is a subsequent event post from Q3. This is an increase of our social capital. So we decided because we need to comply with the law and our profit reserve was above our social capital in late '24. So we need to increase our capital through the profit reserve incorporation. So we will do it during November months, and we will do it through bonus shares. Then Q3 results in terms of finance is a very, very -- next slide, please. is a very, very good, robust and solid results. As you can see on the slide, our EBITDA grew by almost 12.54% compared to last quarter '24, which is good results. And if we look at year-end -- year-to-date EBITDA, of course, on a recurring basis, we increased our EBITDA in '25 by 6.4%. It's a little bit less true regarding the net recurring results because you can see that we decreased by -- in year-to-date by 8.4% our net income due to the -- mainly 3 factors. First of all, we see an increase of our depreciation of assets because we do have compared to last year, 3 big assets now in operation like Caldeirao Cachoeira. We also have an increase of our financial expenses linked to the high interest rate in Brazil in '25 much higher than in '24. And we do have an increase in our tax expenses also. But overall, very good results, robust. We deliver what we say. So ENGIE is a healthy company on that. Then regarding the ESG KPIs, well oriented to be fair, all of them, except maybe -- and unfortunately, we have to -- 4 accidents during the last quarter '25, 4 accidents with work stop days, some days. So we are still paying a lot of attention, a lot of focus on that. And we also support a lot the increase of the women in our leadership team. So we are on track. We are on the good way to achieve our results. We increased the percentage of women in our leadership team. And we continue to invest in innovation and in our responsibility, social responsibility even if we decrease a little bit our contribution on that. Now time to leave the floor to Guilherme in order for him to present the operation in renewables. Guilherme Ferrari: Very well, I'm going to explain what underlies these figures. Here, we have the availability of our wind, solar and electric assets. Our performance continues to improve, especially in wind and photovoltaic. We have a team that works closely with our suppliers so that we can have greater availability in our equipment. This is the effort of our team, of course, with the help of investment, always seeking good performance of our assets. Now the performance has been significant in these 2 technologies. In energy, we are subject to seasonality, but we're also following a very good availability standard. In transmission, also a very high availability. And of course, these are assets that are more predictable in terms of operations, except for unforeseen things, but we're doing well in transmission as well. Now regarding curtailment, the hot topic in the sector of renewable energy, it has been significantly impacting our generation. The impact is on wind, solar assets and very much aligned with what is happening in the system. We attempt, of course, to minimize this, optimize everything with maintenance, management of these curtailments. We hope that a solution for curtailment will come in the fourth quarter with operational adjustments that should come from ANEEL and the National Integration System. Now another important point that has already been mentioned by Pierre is the acquisition of Cachoeira Caldeirao and Santo Antonio do Jari. And I think you can go on to the next slide. No, perhaps not. If you could go back. Therefore, the organic growth in this quarter, where we added 680 megas additionally from [ Cerrado ] and additionally, the 2 hydroelectric plants mentioned by Cachoeira Caldeirao and Santo Antonio do Jari with 612 megawatts. Next slide, please. As has already been mentioned, we see a growth in generation. This comes from our organic growth and from the M&A operation we have just carried out. Once again, it's organic growth and an enhancement in performance. This year, the wind situation was above what we had expected, helping us to minimize the issue of curtailment. Operational enhancement, better natural resources, both solar and wind, all of these are helping us have an increase in power generation. Next slide. Keller, you have the floor. Marcos Amboni: Good morning to everybody. And I think this slide summarizes our trading activity for the quarter. It was an excellent quarter. And in the graph to the right, you can observe that we had very good sales during the quarter. Now this is a comment we made in the call of last quarter that some operations that were under negotiation are still not reflected in our balance. And this is the case of this quarter, where they are reflected, the variation is due to the accounting of new productions with high production levels, and we're showing the availability, new contracts for all the years until 2029. So we have good volumes, as you can see. And besides these good production volumes, you can see the number of our consumers. We have a good evolution in that figure of consumers when compared with the same quarter last year. 17.6% increase of consumers. We have 2,056 at the close of the quarter and a growth of 24% in consumer units served in the third quarter of '25 until the end. Once again, very positive figures in energy sold, volumes sold as well as in our consumer portfolio with a lower ticket perhaps, but with higher margin. We can see the position of our resources available until 2030 going forward. This means that we continue with that strategy of contracting through time, fine-tuning tactical adjustments, gradual growth, guaranteeing revenues and the predictability of our results. I think this is what I wanted to say regarding that slide, and I am at your disposal during Q&A. Well, to go back to the projects that are under implementation, the Assuruá Wind Complex, as Pierre mentioned, the physical progress has been concluded. It is 100% operational. We're waiting for ANEEL dispatch to enter commercial operations of 100% of this complex. And we're waiting for the decision of ONS that has created new procedures to obtain, well, the license and to test these assets. It's worth highlighting that the Assuruá Wind Complex, as you already know, has quite a bit of supply and the performance has been much above what is expected. It surprises us in terms of its performance. It's the largest wind complex in Brazil and also the part with the best performance throughout Brazil. This project was delivered within the forcing budget within the right time line with health and security fully complied with. And we're in the final stage of execution, the environmental part, the recovery of degraded areas and investment in social areas surrounding the assets location. Next slide, please. Assu Sol, we have concluded it. We are progressing in installation activities. And because of this new procedure of the ONS, we're waiting to signal all of the procedures to be able to enter commercial activity. This is an asset with very good performance, top line performance. Now in terms of CapEx, it's all according to what has been scheduled. It was -- it is in accordance to our scheduling. And the same holds true for health and security. We have a recovery plan for the degraded areas. These are activities that tend to take longer, but within what is foreseen and as part of the social work that we carry out. Next slide, please. Our first transmission project in this presentation is Asa Branca. The first stretch is between [ Shaffield 2 and Corso 3]. It's about to be concluded. This should happen in the fourth quarter. Now at the end of this year, we will have 33% of the project RAP, a relevant amount compared to what we expected in the auction. Now the second stretch is awaiting the license for the continuation. This should take a few weeks, and this should begin the coming year. The final stretch of the project will only come into operation at the end of 2027. Well, in Grauna, this comes from a recent auction at the end of 2024. It's still in the environmental phase, but going according to plan. Now that red line that you see, the brownfield on the map. At the beginning of July, we began to operate that line. We have 5% of the total RAP, not that much, but an important framework for us. It's the first brownfield that we take on with our own operation, not with third parties. And of course, this is important for ENGIE. Regarding Grauna, now if anybody would like to add something, please do. No great updates compared to the last quarter. We -- Well, we are fully mapping everything out in the graph that you see. And regarding the transfer, which is a frequent question that we receive, we're still awaiting the stance of the controller, and there's nothing new this quarter regarding that topic. And the last one, Guilherme, who will speak about expansion where there is nothing that novel. Guilherme Ferrari: Nothing new here. We continue to maintain our project pipeline. And we are awaiting and the market is reacting, of course. There are real demands. We hope this will not be impacted by curtailment. We continue to keep these in our portfolio, especially the wind assets so that we can follow on with their development. Expansions are always marginal, but highly welcome. And as part of this context, we have the possibility of the auction for capacity in the coming year. We have 2 of our assets, Santiago and others that will participate, but well, we will be able to take part in this auction. And another important point refers to the batteries. We're beginning to look at these with greater attention, the development of batteries to also take part in the auction that will take place in the coming year. Marcos Amboni: Well, thank you, Guilherme. We'll go to see our financial performance, return on equity and return on invested capital at satisfactory levels, showing how resilient we are. We invested more than BRL 38 million in the last years, which means that our asset base has increased. And of course, it is updated. The prices in the past were old. It seemed to be greater with this new updated base, the prices have dropped a bit. And some of these projects are not delivering 100% of their EBITDA. This will become more clear in 2026, Assuruá and others delivering their full performance. And so the levels will be more recurrent. Now for the 9 months of '25, we have a slightly higher share of transmission vis-a-vis 2024 as part of our strategy of diversification. 1/4 comes from transmission, gas transportation, 75% from generation. Here, we see our revenue changes at 31.8%. Most of this due to IFRS, BRL 22 million in transmission, but we do have an important organic effect in growth of revenue and volumes, inflation and new assets coming into operation vis-a-vis the same period last year. And if we look at EBITDA, this will become more clear. Now to go to the results of TAG that continues to deliver a very consistent performance, BRL 2.3 billion, and BRL 1 billion -- almost BRL 1 billion of profit this quarter of net income, very similar to the first quarter, somewhat below the second quarter where we had a nonrecurrent effect and doing very well. Here, we have a more complex graph for this presentation referring to EBITDA at one end, the accounting EBITDA that is published. Then we have the intermediate bar that is adjusted EBITDA. This quarter, there were very few adjustments, as you can see and in the middle, adjusted EBITDA and the effect of IFRS, all have a similar growth between 10% and 13%. Transmission, very stable, equity income of tax somewhat lower. So we're left with generation with an increase of BRL 287 million that we have called performance is price, volume and expansion and reduction due to costs associated to expansion, connection cables, material service and sundry costs. This is a positive result coming from generation. Now in the middle, we have a growth of 10.5%. Net income change, a very similar panorama in the center, an increase of 10% from BRL 666 million to BRL 738 million, most comes from adjusted EBITDA, income taxes, negative variations due to depreciation, new assets and partly due to financial results. Our indebtedness has increased a bit. And we have, of course, the interest rates that are higher than the third quarter last year, leading to a 10% increase. We'll speak about our indebtedness, balance debt. It's increasing, which is expected BRL 3 million for the acquisition of Jari and Cachoeira. We have BRL 600 million in debt, BRL 3 million impact on our debt. Only this acquisition changed the EBITDA. It was 2.7x last year. It has now reached 3.2x. This is still a satisfactory level that guarantees a AAA, which we would like to maintain in gross debt, 3.8x, a well-balanced debt, as you can see. Of course, as of now, we need to be more cautious in our coming steps, but a healthy indebtedness. Now in this slide, we show you the debt profile and maturity, a very smooth schedule after 2030. Therefore, this profile is BRL 2 billion a year in terms of debt payment, fully under control. We continue to be AAA, 1/3 in CDI and the rest in IPCA. The cost of the debt evidently has increased a bit, 6.4% on average compared to 5.6% in the same period last year. Of course, there is pressure from the financial conditions throughout the country. Regarding our CapEx, no significant changes, a detachment year-on-year, almost BRL 10 billion year-on-year. This year, BRL 6 billion, which means the BRL 3 billion from Jari and Cachoeira and the rest for the conclusion of Jari, the transmission companies, that is where our CapEx is going to. And in '26, '27, everything at lower levels. We will be left with maintenance and the 2 transmission companies. Grauna that extends to 2028 and Asa Branca until 2027. And finally, well, this slide, I believe, is the same as that of last quarter to show you our payment of dividend 2021, 100%. And since '23, we maintain this at 55% without significant changes. And that is it. Adri will now lead the Q&A session for us. Adriana Wagner: [Operator Instructions] Our first question is from Daniel Travitzky from Safra. He has 2 questions. I will pose the first question and put it together with another question from [ Huang ], an individual investor about the share of bonuses. Could you explain the rationale to do that now? And we have the question from Ruan on the bonus and other models for the payout of dividends and shareholder capital. Pierre Gratien Leblanc: I can take it, this one. You complement if you want. So why we are doing that? It's just because ahead of '24, our profit reserve was above the capital. And to be compliant with the law, we need to increase our capital -- social capital. This is the first point. The second point is we do have -- we had space until -- to increase our social capital until the authorized capital we do have. And this authorized capital was -- is today at BRL 7 billion. So we take the opportunity to go up to the limit or close to the limit. And we proposed to the Board yesterday, and it was approved to increase the social capital up to BRL 6.9 billion, and it will be done through a bonus action. Why? Just because we wanted to -- also to have a better liquidity of our shares in the stocks. And through these mechanisms, we will increase the liquidity of our shares without any financial impact at short term for our minority interest shareholders. Guilherme, if you want to complement or not, up to you. Guilherme Ferrari: No, that was perfect, Pierre, simply to complement the remuneration model besides the shareholder equity payment. In the future, we can alter the company's stock. I don't think this will be done in the short term. This is a model that will be analyzed to see if there's any advantage in doing that. Adriana Wagner: The second part of the question refers to your vision on the solution proposed for the curtailment in provisional measure 384. This is also part of Juan's question, who asks about curtailment and how to deal with it in the medium term? Pierre Gratien Leblanc: I would like to begin the answer, then I will give the floor to Guilherme or Keller. This provisional measure 304 was approved, but not sanctioned. We have to wait for it to be sanctioned. And we need to understand the regulation better. Perhaps Guilherme would like to comment on what is included in this provisional measure. Guilherme Ferrari: Well, this is simply to add information. We're faced with several uncertainties in terms of the real impact, which will be the reimbursement. We still have doubts if there will be reimbursement regarding power or if there will not be reimbursement. And there is an issue that we already mentioned, regulatory issues that could make investments in generation have a different technical condition to the ones we have presently, creating another obstacle to the incredible growth of generation companies. Now all of this strongly impacts our curtailment projections going forward. Marcos Amboni: Well, I don't have very much to add. Everything has been said. We would have to see the final version of provisional measure 304. There are 2 articles that we need to analyze before we can estimate what will be subject to reimbursement and those articles that refer to us and the impact, the effect that this causes on physical distribution and distributed distribution. These are points that need to be further assessed at the end of this legislation. Now there is a positive point in the midterm, and it is interesting for the long term better conditions to insert batteries into the system. This will help us overcome several difficulties that we face at present and physical curtailment can be mitigated if we make good use of these batteries. Now in the coming months and years, we will see how this plays out. To complete that topic and others, we're going to approach this in great detail in ENGIE Day that will be held in Sao Paulo at the end of November. If you can't be with us, we will record the session. Adriana Wagner: Our next question is from Joaquin. The question is will the company think of similar acquisitions compared to the assets recently acquired? Will this go in detriment of new assets in the renewable sector? Guilherme Ferrari: I will begin and then Depine and Keller, please feel at ease to add your comments. Now evidently, the market with this oversupply ended up thinking greenfield made no sense. And with curtailment massively impacting the results, greenfield has been put aside. Now this is a factor that will make us postpone our decision to invest in greenfields. And when we look at M&A for wind and solar operations, the curtailment factor is a fundamental assumption. Of course, the seller will try to insist on curtailment. The buyer will insist on a more realistic curtailment, and this leads to a great difference in values. Potential M&As for renewable wind and solar energy will have to wait until we have a clear vision of the impact of provisional measure 304 and the regulation that will come about to work with distributed generation. Now M&As in hydro plants, well, this is not only our desire, but that of other players, but it is scarce in the market. There are a few opportunities. Whenever an opportunity arises, we will look at it, of course, following the line that we followed for Cachoeira and Jari. We will see the quality of the assets, labor -- I think, labor qualification is fundamental, and that was a positive point in these 2 assets. We were able to maintain all of the employees that were already working there, bringing in the knowledge since the phase of conception until the beginning of operation. And we're adding ENGIE's knowledge to enhance the quality of these assets. We have to carry out an in-house analysis. And as I said, these assets are scarce in the market. There are not very many opportunities. Adriana Wagner: Thank you, Guilherme. The next question comes from Bruno Oliveira, sell-side analyst. Two questions. Any planning on TAG, a possible partial sale in the horizon? And as part of your investment projects, any outlook for a dividend payout of 100%? Or is it too early for this discussion? Pierre Gratien Leblanc: The answer is quite easy is no. Nothing planned in the very, very short term or short term or medium term for TAG. Depine, maybe you can take the second one. Leonardo Depine: Well, regarding the dividends, for the time being, no, our indebtedness continues to grow somewhat above 3 at present and will further increase because of the 2 projects under construction until mid-2026. I think Bruno asked about this. It doesn't make sense for the time being to go back to 100% of payout with indebtedness above 3%. I think we had already referred to this in the second quarter as well. Adriana Wagner: Very good. Thank you. To continue with the next question from Victor Brug, a sell-side analyst for JPMorgan. Any update in the revision of tariffs in the Northeast, TAG? Leonardo Depine: Well, from TAG and the regulator itself, we have heard that this tariff revision should happen in the first half of the coming year. The last information is that this review will be carried out in 2 stages. They're going to work on work and the asset base. So this process will be displaced through June, perhaps will be concluded in June. This is the last statement we heard from the regulator. We shouldn't expect anything very concrete in the short term. Adriana Wagner: Our next question comes from Bruno Vidal, sell-side analyst from XP Investments. Does the company have an outlook on participation in BP and which would be the modality, capital stock increase or increase of indebtedness? Pierre Gratien Leblanc: So we are still studying this opportunity to prepay our UBP topic. We are waiting for the ANEEL calculation. And then we will have until beginning of December to discuss with ANEEL. And then ANEEL will give us if we are interested to prepay the deadline to do the cash out. How we will do it? So it will be probably now in '26, not in '25, is still under discussion inside EBE. We do have a lot of different options. Increase of capital may be one, but it's not the only one. So we will take and choose the best option for EBE to finance the prepayment if we decide to do it. I hope that as Depine said earlier, I hope that end of December during our Investor Day in Sao Paulo, we could give you more and more detail on that. Leonardo Depine: Thank you very much. Our calculation in the time line, the payment should be until the end of March or the beginning of April. So we have the first quarter of 2026 to discuss these options. Adriana Wagner: Our next question is from Lorena, sell-side analyst from Itaú BBA. Our trading strategy, which is the outlook of maintaining part of the portfolio uncontracted considering the price of energy in the coming years. Leonardo Depine: I can answer that. If you could tell me the first part. Adriana Wagner: Our trading strategy, which is the outlook of maintaining part of the portfolio uncontracted, considering our viewpoint on energy in coming years. Leonardo Depine: We continue with that vision, with that strategy of having gradual uncontracting and we make tactical adjustments in terms of sales. This is the best for a company that is capital intensive and works with generation. We give ourselves the opportunity to make the most of higher prices in that long arm. Now we're thinking of year plus 1, year plus 2. We have future prices that are higher than years further ahead. So there is space for that long arm, while the market prices react in the upward position. It's important to make the most of contracting and not move away from this now. There's also a limit in liquidity in the market. So we can't contract everything on the spot with this very volatile price model, we know there are scenarios where the price will be much too low and spot prices will be low and we have to counterbalance our vision that there is room for future prices to improve vis-a-vis the risk in the short term, not allowing huge volume for the short term because we'll end up in the spot market. This is a bet, of course. Our profile is to have an appropriate management between results, our revenues and the risks that we take on. To summarize, we're going to continue following our broader strategy of gradually contracting future energy. Adriana Wagner: Thank you very much. At this point, we would like to end the question-and-answer session. I will return the floor to our officers and Mr. Depine for their closing remarks. Leonardo Depine: I would like to thank all of you for your attendance, and we hope to see you at our next events. We will meet at our event at the end of November, and we hope to have a better vision of the impacts of PM304. Thank you all very much. Have a good day, and we hope to see you in our next event. Pierre Gratien Leblanc: Thank you all. See you in late November in Sao Paulo. Adriana Wagner: We thank all of you for your attendance, the energy video conference and have a very good afternoon.
Operator: Good day, everyone, and welcome to the PDF Solutions, Inc. Conference Call to discuss its financial results for the third quarter conference call ending Tuesday, September 30. [Operator Instructions] As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press release, it has been posted to PDF's website at www.pdf.com. Some of the statements that will be made in the course of this conference are forward-looking, including statements regarding PDF's future financial results and performance, growth rates and demands for its solutions. PDF's actual results could differ materially. You should refer to the section entitled Risk Factors on Pages 16 through 30 of PDF's annual report on Form 10-K for the fiscal year ended December 31, 2024, and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now, I would like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead. John Kibarian: Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the third quarter, please go to the Investors section of our website, where each has been posted. Bookings in the third quarter were strong as we continue to realize the benefits from our investments in product development and customer support. As we announced in the September press release, we signed an extension contract with a large customer that involves bringing our characterization vehicle infrastructure, Exensio characterization software and eProbe machines to their manufacturing sites as well as expand usage at their R&D site. The eProbe machines under this contract are provided under a subscription. Expanding beyond the machines they have in their R&D facility, we now have shipped 2 additional machines that are in the process of being installed at their first production site. Also in the quarter, we announced that we licensed Tiber AI Studio from Intel. With this license for source code, we are integrating the Tiber AI Studio's award-winning data science operations platform directly into Exensio. Tiber AI Studio enables engineers to build and manage hundreds of thousands of AI models. Coupled with Exensio's existing ModelOps, which enables model deployment in the fab and test floors, this integration is designed to enable engineers to use Exensio to both train models as well as deploy them. On a stand-alone basis, Tiber AI Studio already had hundreds of users. As we talk with our customer base, we are hearing the same message. They have great proof of concepts using AI, but scaling and maintaining large deployments remains elusive. We believe the integration of Tiber AI Studio with Exensio, which we call Exensio Studio AI is an important capability required to close this gap. Among the Exensio contracts signed in the quarter, notably, we signed an 8-figure contract with a large IC manufacturer. We are honored this customer selected Exensio as their data analytics platform, the primary repository of manufacturing data and the platform on which to integrate their internal systems using Exensio's big data APIs. As part of this contract, they will leverage Exensio Studio AI to manage their AI deployments in production. We also closed an 8-figure contract for secureWISE with one of the largest equipment OEMs in the world, which extends and expands their existing licensing. Finally, contributions to revenue from our Cimetrix connectivity and control software were the strongest since the acquisition closed at the end of 2020. Historically, the large equipment OEMs make their own control and connectivity software, however, as our market share has expanded and more equipment is now -- as our market share has expanded, more equipment is now shipped with our software installed on it than internally developed software of any single equipment vendor. This means, our software -- our customers enjoy software that is proven across more applications in the fab, test floor and assembly facilities. As we integrate Cimetrix, secureWISE and AI-enabled monitoring, we aim to enable equipment vendors to more easily deliver smart tools and value-added subscription services. Now, I'd like to turn to the environment. The industry is making significant investments in 3D manufacturing in front-end fabs and packaging facilities as well as product design. There is an increased geographic diversification of manufacturing locations. As those investments are ramping up, we see customers working to make the new processes, products and facilities economically viable. It is well understood that diversifying manufacturing comes with the risk of driving up production costs and slowing innovation. We see AI-driven collaboration as a critical capability to enable cost-effective and efficient manufacturing in many of these new locations. Last month, we were invited to present our vision of AI-driven collaboration at SEMICON CEO Summit in Arizona. My comments, which appear to resonate with the audience, outlined how the industry can leverage our secureWISE network, Sapience orchestration products, and Exensio AI to collaborate with their customers and suppliers. We have also noticed that our equipment, fab and fabless customers are looking for ways to move from human-driven collaboration to AI-driven collaboration, in part to enable more efficient production around the world. As we look to Q4, we are preparing for our users conference and Analyst Day. Since 2020, when we acquired Cimetrix, and began the journey to be a comprehensive analytics platform for the industry, we have driven results equal, or exceeding the long-term revenue growth, non-GAAP gross margins, and non-GAAP operating margin goals we set in 2019, and also have exceeded the revised goals we established in 2023. Before 2020, we had approximately 150 customers that were primarily fabs and fabless. We had few equipment companies and almost no cloud suppliers as customers. Today, we have over 370 customers, including most of the equipment industry and multiple cloud providers. It is a unique customer base as we bring analytics capabilities to every aspect of the semiconductor supply chain. Today, our cloud systems manage petabytes of data and secureWISE network transmitted exabytes. Our systems are used to control tens of thousands of tools. We believe the success we've achieved to date is due in large part to the relentless investments, including the acquisition of secureWISE and the build-out of our eProbe machines, both of which required us to use our balance sheet this year as investments were ahead of the growth they enabled. We expect the profits generated from these investments in 2025 will enrich our balance sheet in 2026 and beyond. Finally, I encourage you all to attend our Analyst Day and Users Conference. There you will see our customers, partners and PDF folks talk about the needs and opportunities for AI and analytics and manufacturing. We are honored to have Mike Campbell, SVP of Qualcomm; Aziz Safa, Corporate VP of Intel; Tom Caulfield, Exec Chairman GlobalFoundries; and Jean-Marc Chery, CEO of STMicro, among others, share their perspectives. Now, I'll turn the call over to Adnan. Adnan? Adnan Raza: Thank you, John. Good afternoon, everyone. Good to speak with you all again today. We are pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business. We posted our earnings release and management report on the Investor Relations section of our website. Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results we discuss in today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website. As you saw from our press release, with our Q3 results, we achieved another record for quarterly revenue. Our bookings for this quarter totaled over $100 million, as a result of multiple large deals signed across our product portfolio of leading-edge Exensio and secureWISE. During the third quarter, our bookings were greater than the prior 2 quarters combined. On a year-to-date basis, for the 3-quarter period, our bookings were 49% higher than the comparable period of last year. With the contracts John mentioned as well as additional business closed in the quarter, we ended Q3 with backlog of $292 million, which is 25% higher than last quarter and 22% higher than the same period a year ago. We are pleased that we were able to grow our backlog while delivering record quarterly revenue. Our total revenue for the Q3 period came in at $57.1 million or 10% higher than last quarter and 23% higher on a year-over-year basis. Our Analytics revenue came in at $54.7 million or 12% higher versus the prior quarter, and 22% higher on a year-over-year basis. The growth in Analytics compared to the prior quarter was driven by business from leading-edge customers and equipment software. Integrated Yield Ramp revenue was 4% of total revenue in Q3 and was lower by $0.5 million compared to the prior quarter and up on a year-over-year basis by $0.8 million. On gross margins, we reported 76%, or slightly ahead of last quarter, and down 1% versus last year's comparable quarter, which had meaningful perpetual software revenue in that quarter. As you will recall, our long-term target for gross margin is 75%. We're pleased that we were able to be ahead of that target for this quarter. Our operating expenses in Q3 grew 3% compared to the prior quarter, primarily due to spend related to development improvements for our platform and increased variable compensation accruals due to strong results. On EPS, we were able to deliver $0.25 per share for the quarter, our strongest quarter for the year. For the first 3 quarters of 2025, our EPS of $0.64 is now $0.06 ahead of the comparable period of last year. We generated positive operating cash flow of $3.3 million this quarter and $6.7 million for the first 9 months of this year. We ended the quarter with cash, cash equivalents and short-term investments of approximately $35.9 million compared to the prior quarter's ending cash balance of approximately $40.4 million. We repurchased $0.2 million of our stock this quarter at a per share price of $19.55 per share. During the quarter, we invested $6.3 million in CapEx, which is lower than the $8.5 million in Q2 and the $8.2 million in Q1 of this year. 2025 has been an important investment for us, like John said, as we use significant cash on the acquisition of secureWise and related integration expenses while only benefiting from a partial year of ownership. During the year, we also invested in building eProbe machines to meet customer demand in 2025 and 2026, without the benefit of full subscription run rate return on the investment within the year. Now with 2 additional machines shipped and going through qualification on a subscription model as well as the integration cost of the secureWISE acquisition largely behind us, we anticipate cash to grow over the next year. Given the strong business activity, the growth in our backlog and the customer opportunities in front of us, we reaffirm our prior guidance of 21% to 23% annual revenue growth range for this year. As we get ready for our Analyst Day and user conference on December 3, we look forward to sharing more details about our long-term targets for the next phase of PDF growth with you at that time. We are also thankful to our customers and partners for supporting the growth we delivered this quarter and look forward to growing sequentially again in Q4. With that, I'll turn the call over to the operator to commence the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from the line of Blair Abernethy from Rosenblatt. Blair Abernethy: Nice quarter. I just -- I wanted to just ask you a little bit about the BFI. I see that [indiscernible] more machines. The machines that are under the lease model, when does that start to generate revenue? Is that some point next year? Or is that first half of this year? Adnan Raza: Yes. We are going through the deployment and qualifications of those machines. Blair, as you know, those can take anywhere from 1 quarter or a little bit plus or minus on that time frame. So given that we have shipped, we expect within the next quarter or the quarter after, depending on the timing of those qualifications and the customer acceptances to start converting and generating the revenue. Blair Abernethy: Okay. Great. And how does the pipeline of opportunities look for the DFI right now? John Kibarian: Quite strong, actually. This is John, Blair. We do have other places where we would like to be able to ship machines. That's why if you did notice, we did spend some on CapEx this quarter in part to continue building machines, which we expect shipping in the first quarter of this coming year. We are hoping to squeeze in one more shipment this year, but it may be tight, just given the timing and what we're doing to bring up the machines already. So quite strong across a handful of customers. It's not a huge market for eProbes, but there's probably between 5 and 10 customers in the world, and we do have probably closer to 5 where we are actively engaged in discussion. Blair Abernethy: Okay. Great. And then just on the secureWISE, you won a large contract there this quarter. How is that -- how is the go-to-market there now that you've had it for a couple of quarters? Just kind of a sense of how that is building. John Kibarian: Sure. Yes. We actually had -- at SEMICON, right after SEMICON last in Phoenix this year, we had a little, what we called Connected Summit because in the past, the secureWISE team had had our users conference in conjunction. What was different about that was we had not just equipment companies come, but also fab companies attend. And in that conference, Intel presented how they are using secureWISE as their standard connectivity platform for both internally as well as to support the equipment vendors. We had felt that the way secureWISE had been run, it really only focused on the needs of the equipment vendors. And when we -- because of our DEX network, because of our work with the fabs and our -- just our general footprint, which, as I said in my prepared remarks, goes from everything from wafer makers through to system companies, we thought connectivity to the fabs was actually desired by lots of folks. In fact, when we announced that acquisition, the first congrats I got was from one of our largest fabless customers, who was very intrigued with the ability to get remote access at the OSATs and fabs. And so the Intel contract was a way of us, saying, okay, we're going to provide base capability on every machine at Intel. They announced that they're going to put this on every machine front end, back end and test facilities for their use as well as to make it available for some modest level of usage at every equipment vendor. When we talk to the equipment vendors that use secureWISE, one of their elements was not secureWISE itself, but the fact that they were not able to get it on every factory in the world, even if it was actually already installed at some factories, that factory may not give a specific equipment vendor access, maybe only the largest equipment vendors in the world typically got access at every factory in the world, and the smaller equipment vendors didn't feel like they were getting access, but they would much -- very much like it. They knew it makes them a lot more efficient, both for human-level collaboration as well as for AI-driven collaboration. So now that we've had this company in our hands for the product in our hands, for maybe 7 months now, if I think about it, what we started doing is selling it much more broadly into the fabs as well as into the equipment vendors, creating collaboration across them, which is what I talked about at SEMICON West. And we started piloting it at the OSATs and really merging it with our DEX network because the security and some of the features that secureWISE enables are very desirous, more broadly. So it becomes an integral part really within the first quarter, we were selling combined contracts, if you look at that first contract that we announced in Q2, which is really now that it's been announced, was effectively the Intel contract. And we see a lot more of that coming down the pipe. Operator: [Operator Instructions] Our next question comes from the line of Clark Wright from D.A. Davidson. Clark Wright: Quick question just around the customer concentration mix. Your Customer A that you guys referenced year-over-year went from 19% to 38%. I'd love to understand kind of how you're winning bigger and as well as how you're looking at using secureWISE as a potential point of the spear to expand the overall customer base? John Kibarian: Yes, that's a great question. If you look at our business, really, we kind of think about it in 3 categories. There is the fabs. They tend to buy almost everything from us. If you look at just the discussion I had around secureWISE as well as the test vehicles, the eProbe, Exensio, et cetera. And those are very large contracts, typically multiple contracts with the same account. And hence, you see the customer concentration. It's really not often of one contract, but of many contracts that gets those customers. They represent typically between 40% and 50% of our business in any given quarter, just looking at how things work. The fabless and system companies are around 35% to 45% of our business, and that's about 100-something, 150-ish companies. We are seeing more interest in AI on Exensio, the Exensio Cloud, the secureWISE connectivity and some of the what we call orchestration products, Sapience products. There, we've had a number of wins over this past year and continue to drive business there. And then lastly, about 15%, and we think in the long term, closer to 20% are the equipment vendors. We have about 200 of them with the acquisition of secureWISE that certainly grows our business with those customers. And they have access -- they have desire for the same access points that the fabless did. So the way we think about it over the long-term clock, you can think about fab customers as a nexus point. And they run factories and they control the data, but they need collaboration with their customers to get qualified, and their equipment suppliers to be able to reach effective use of the machines that they purchase and put into use in their factories. And so secureWISE, as you pointed out, is the point of that spear because it allows us the collaboration across a number of those customers. And the Exensio contract that we did this quarter, it has an element with regard to secureWISE because they want to be able to reach their customers through secureWISE on the Exensio platform from a collaboration standpoint. So this is how we see PDF becoming a platform for the industry rather than a platform for each individual company. And secureWISE is a very important element to that. Clark Wright: Awesome. Appreciate that color. And then just as it relates to the announcement made in the end of September around the landmark contract, you reaffirmed your guide for this year. Is there anything we should be considering as it relates to kind of the 2026 picture and what you can say so far around how that deal potentially sets up the company for kind of the next leg of growth? John Kibarian: Yes. We haven't given guidance for 2026 yet, and we'll do that as we get through Q4 and we do our Q4 call. But obviously, as we grow backlog, you asked a question about other, we do see a number of other opportunities on the horizon for the company over the next couple of quarters. We hope to have a strong 2026 on top of a very good bookings 2025. Operator: Our next question comes from the line of Gus Richard from Northland Capital Markets. Auguste Richard: I'm just curious on the systems you're sending to the production site. How many tools per fab do you think the customer is going to need? John Kibarian: Yes. I think it's early to say, Gus. Obviously, we've put two in the first site. Two is a good number because at least as these things are used in mission-critical manufacturing, if one were to go down, you would want to be able to at least route critical material to the other. So I think very rarely would it be one? I think the minimum number is two. And then the question is, with any inspection capability, how much of the dance card can you fill up? What we've noticed as we've installed machines around the world is it gets very quick to get these things filled at very high utilizations in part because they can see things that are very hard to see or maybe nearly impossible with other systems. So we'd like to go beyond the two, but right now, we think two. Auguste Richard: Okay. So these are near production, but not necessarily in line, not -- there's not... John Kibarian: Not in product, that's in your words. No. I said the reason why they want to is if one goes down, they want to be able to continue production, right? Auguste Richard: Okay. I just want to get it clear. And then of the -- you have several systems going out end of this year, beginning of next. I just want to understand, are these evaluation systems or are they for revenue? John Kibarian: These are mix. It will be a mix and then the next set of machines. There'll be a couple on eval and the remainder will be revenue machines. Operator: [Operator Instructions] We have a follow-up question from Blair Abernethy from Rosblat. Blair Abernethy: John, I just wanted to follow up on the Hybrid AI studio. Can you just -- you said there's 100-or-so customers for that. I'm just wondering if you can give us some sense of the time line of when that can go to market with the Exensio platform, i.e., when is the integration sort of ready for customers? John Kibarian: Sure. And I said actually hundreds of users. It's actually a very, very small number of customers, Blair. And -- but thanks for asking that clarification. We will have an integration at the end of this quarter. We actually signed this contract quite a long time ago, but due to timing of other contracts, we needed to wait before we could announce it. And we had had discussions with them going all the way back to 2024 around this opportunity, we had evaluated it in early Q1. As you can imagine, we were pretty busy in early Q1 because we're also closing secureWISE and then signed contract towards the end of Q1, then executed some activities in Q2 and announced in Q3, but we do -- so as a result, we've been working out with this code base for -- since all of Q3 and into Q4, and we expect to release some first level of integration with Exensio at the end of this quarter for some early access customers. Blair Abernethy: Okay. Great. Great. And then just on the Exensio Analytics business, what is the -- what's the renewal book look like as we kind of head into the end of 2025 here versus last year? And are you -- and maybe in recent contract signings, what sort of any changes in the term length of Exensio contract? John Kibarian: Yes. Typically, term lengths are 3 years. There are some that go as long as 5 and some that are short as 1 or 2. Our book is quite robust. The large contract we signed, the 8-figure contract we signed this last quarter was probably one of, if not the largest, stand-alone Exensio MA contract in the history of the company, as other larger contracts tended to have test operations or other components included in there. What we are seeing, we're going to talk about this at our user conference. Customers really want to have a scalable AI-first analytics capability. We're going to show our road map and what we're doing to have kind of analytics with AI-first, and what that means in terms of parallelization, the advances we're making around how to get to very large data sets interactively. They want the human interactivity with data still, but they want to be able to operate on data where you've got 1 million parameters and 10 million data points. And you really can't do that with conventional business intelligence tools, right? If you look at Exensio or any of the tools out there, you're limited by the compute. And -- we're going to show what we're doing to break through that problem. Studio AI is a very -- is an element to that, a very critical element to that because even when you're interacting with 1 million parameters, you need to use AI methods to screen and to tell you what part of that data set you should look at. And so what we'll demonstrate in December is ways of being able to operate interactively, leverage AI first and move -- work with data sets that you really couldn't do anything, but a batch mode in the past by leveraging basically a native AI approach and a natively parallel approach. You can think of a lot like moving algorithms from CPUs to GPUs, you get to scale with compute. What we will show is how you can leverage GPUs and other computing elements in an interactive analytics capability. And we are hearing from our customers that this is what is desired. We have a number of renewals that are coming up this year, and primarily next year that I think will benefit from this capability. Blair Abernethy: Okay. Perfect. Great. Yes, excellent. The other question I just had was around Sapience. Anything to report there or any progress with the partnership with SAP? John Kibarian: Yes. We've got a number of activities going on, on Sapience contracts. We do expect to announce something related to Sapience in Q4 in terms of customer -- additional customer business. And you'll see us announce something in the Sapience family at our user conference that's really building on top of Sapience some capability targeted to the fabless and system company that we expect to announce at our user conference. Operator: Our next question comes from the line of Clark Wright, D.A. Davidson. Clark Wright: Awesome. Appreciate the time. Look, any findings from SEMICON West in terms of how the end markets and the health of those sound relative to the beginning of the year or your expectations? John Kibarian: Yes. Clark, it's a great point. It was an interesting SEMICON, I think, because it's the first time SEMICON West was not in San Francisco, people couldn't go in and out. You're kind of stranded in Phoenix. So there was a lot more informal conversations. And we did meet with also a lot of our -- not just our equipment customers, but I would say our fabless customers and a lot of our fab customers. And what we heard were a few things. Yes, the build-out on AI is continuing to go on. All the equipment customers participating in advanced packaging, everything around advanced nodes, on logic side do see and on the DRAM side, do see a pretty rosy outlook for 2026. I do think they're in a pretty strong position. Our customers selling into automotive, industrials and communications, the ones with very differentiated products do seem to be talking about a robust 2026, I think that's still a mixed bag. There are customers in that sector that have some challenges to work through, but I would say for the first time, the kind of ones that have very differentiated products that are much more bullish. So I would say you start seeing kind of a more broad base of enthusiasm within the customer base, than, I would say, 3 months ago or 6 months ago, where it was really limited to just the people on the very advanced nodes and advanced packaging. So I do think it was more broad, not fully, I would say, not fully broad to everybody, but definitely more broad than where it was in terms of positiveness than where it was 3 or 6 months ago. And then lastly, I would say, our fabless customers as they are becoming more and more embracing advanced packaging are recognizing they're becoming a manufacturer. And that means ability to communicate with the OSAT, more complex test data feed forward and other test flows. We had a lot of dialogues with customers on that topic and how can they effectively become more aware of what's going on in manufacturing. In the past, they would order a wafer from the foundry. And once they hit wafer sort, there wasn't a lot to worry about. But now they've got everything from operationally make sure they have organic substrates available and manage the supply chain of that -- of the production post the wafer sort as well as having many more test insertion points and needing to be efficient in how they leverage. And we've heard a lot of dialogue from customers in that regard. And I think that will be a growing area, as we move from just the very few high-valued, not terribly high-volume chips driving advanced packaging today to a much broader set of customers trying to leverage these advanced packaging test flows. Clark Wright: Got it. And then in terms of Cimetrix and kind of the shadow backlog, last quarter, you kind of referenced the fact that tens of millions there, has that upticked as well this sequentially? John Kibarian: Yes. As I said in my prepared remarks, we had a very strong quarter. We referred to it as revenue because the booking and the revenue happened in the same quarter on the runtime licenses with secureWise. In other words, we get designed in on the SDK and then they ship. What we noticed is, as I said in my prepared remarks, at the end of 2024, and we see it again this year, is more equipment is shipping with our software than with any of the proprietary software systems that the companies build. And I think that's really giving our software the reputation of being very robust and very applicable. A lot of our equipment companies that used to be on the front end are now trying to bring in tools to the back end. Our software is already proven in back-end assembly facilities. Our tester companies are doing much more sophisticated system-level tests with more robots, and our software is very proven with that capability, too. So we do see a fair amount of activity, design activity in some of the customers evaluating our SDK. Net, when you look at our runtime licenses, Q3 was very significant. It was a good quarter for us, a very good quarter for us. We don't get a lot of visibility. So we hope to sustain that in Q4. We don't have as much visibility because we only see it when they ship. But overall, while quarter-by-quarter may be difficult to predict on an annual basis, the trend is quite positive as more and more equipment ships with our software, and they use our software for more functionality, which means they buy more of the Cimetrix modules. Operator: Our next question comes from the line of Andrew Wiener, Samjo Capital. Andrew Wiener: I wanted to maybe follow up on, I think you touched on it a little bit in the last answer, but I noticed that 2 of your partners in the test space, Advantest and Teradyne both posted very strong results and outlooks. And you've talked in the past about Advantest and the complexity around test being a strong secular driver for the company. Can you maybe elaborate a little bit on what you're seeing and how the opportunity for us? Is it coincident with -- as they see strong shippings, does our bookings or opportunities lag theirs and sort of any other color you could provide? John Kibarian: Sure, Andrew. Thank you for the question. Yes, you're right, it tends to lag. We see that, by the way, with our yield ramp business over the years, too. And kind of my prepared remarks saying we've seen lots of people building out 3D production and test and assembly with -- and now they're trying to figure out how to get a good return on a lot of these investments. We see that with -- that's part of what's driven our characterization vehicle and eProbe bookings over this year and a lot of our evals that are ongoing are folks recognizing they've got to get a return on what they've just put on the ground. So we would expect on the advanced test for advanced packaging, we will also lag our partners in that regard. The biggest application we see, and we've got a number of pilots going on with customers is data feed forward. And what this means is they have -- as there's many more packaging steps, they have a lot of test insertion points. So they test more than once at wafer sort, more than once at final test and once at system-level test. There's multiple wafer sort tests, multiple test points package, even sometimes as part of the package flow. And then finally, system-level test. And they do these at different temperatures and different conditions for these very large data center chips. The nature of that is they want to see forward data. Typically, they take the raw data, run an AI model, extract features and send it downstream to another test insertion point. And as the data is coming off that test, they will use that as a basis to decide to test more or test less. Our original strategy on this, Andrew, was to not be in the modeling business at all, but provide them the infrastructure for kind of orchestrating the data up and down the supply chain. We've got pilots ongoing with that. We actually have a customer deployed using that on tens of tools now over a year in production across multiple OSATs. And even that customer has come back to us and said, "Hey, we need capability to be able to build and maintain the models, not just move the data around." And that was really the Tiber studio -- Tiber AI Studio, I forget the name, right. We thought our customers would be able to do that on their own, or there were systems to do that on their own, but the reality is there's a lot of friction to getting that work done, too. And so the integration with Exensio Studio AI with Exensio ModelOps is to help them not only run the model in production, but manage the model through the build and through the life cycle in their central servers. So I don't think this is a 1-quarter bang and everything is going great. Andrew, we're going to see win by win by win with customers, but I would say we have a handful of pilots going on in data feed forward at this point. We've got some in production already, and we do anticipate that to becoming an increasingly important part of our Exensio test business. Andrew Wiener: Okay. And would you think that would be like a 2026 sort of time line? John Kibarian: Yes. I mean, the majority of that business impact will be in 2026, to be honest. This year, there may be some additional contracts won, but the revenue impact will be de minimis. Andrew Wiener: And then following just -- I want to clarify something. So the 2 tools -- 2 DFIs that were shipped and are in the process of qualification, it sounded like the way you described it, they could get qualified this quarter, or maybe not. Is it then fair to say that, Adnan, I think in the past, you've talked about multiple ways to get to guidance. You guys feel comfortable with the guidance, even if there -- these tool qualifications slip into Q1? Adnan Raza: Yes, Andrew, exactly. I mean, any time we're looking at a quarter, particularly when we're speaking to comments such as the ones that we put in my prepared remarks about, sequential growth for Q4, and also both in John's and my remarks about the reaffirmation of the 21% to 22% guidance, you're absolutely right. We're thinking about this and then other ways to get there. So look, if the timing happens this quarter, great, but like John said, there's many other opportunities we're working on across the product platform portfolio that we have. Andrew Wiener: And then maybe... John Kibarian: this is a little bit our timing. The timing on qualification would be towards the end of the quarter in any case. So the in or out is not a tremendous amount. Andrew Wiener: Okay. So again, the qualification of those tools regardless would be more of a tailwind to 2026 versus the earlier question about, correct. And then maybe just a little more color on -- I mean, obviously, you talked about rough engaged with 5 customers or potential customers on DFI. How -- is there memory customers in that bucket? Or are we still primarily focused on logic? And to the extent it's logic, is it -- you have 2 sort of other customers that have accepted tools? Are they looking at what your lead customer has done and the conversations around sort of a similar broader deployment along those lines? John Kibarian: Yes. It's actually all of the above. So with our existing customers, we see interest in more machines as they see the value, including the value of putting these in manufacturing and using these to monitor lines. They -- with new customers that are in the same areas our earlier customers, maybe at different feature sizes, but logic manufacturers. We do -- we started getting ongoing pilots with customers where they're sending us wafers and showing them what you can do. And it is a very unique capability. So we're able to show usually within a wafer or a few what you could see that's hard to see elsewhere. And then lastly, as I've said throughout the year, we have interested in doing pilots on DRAM for just about 12 months now, maybe 13 months. And you got by sending wafers to our facility here in California. And we're getting ready to be able to ship. I think the limiter on shipping is really us not at least one of those customers being in a position to ship given what we've been doing to bring up these machines and manufacturing this year. And at the engineering level, there's a lot of similarities to what we're doing in the logic side, but it's very, very different process technology, if it's memory versus a logic technology. But also exploiting the unique capability of the machine and the software. Andrew Wiener: Okay. And then just lastly on the Tiber. So just to be clear, like -- so it didn't -- we didn't come over with existing revenue. But in the press release, it said something about like supporting customers through this transition. Anything you -- sort of that contributes will be going out and selling once the integration is complete? John Kibarian: Yes, that's correct. The majority of the customers were not in semiconductors. Some have interest for us to support. And we may -- we are talking to only a very small handful about having them be supported on the stand-alone version of the product. Obviously, we licensed this from Intel. Intel itself was an internal user of the product. And for them, we will support it -- offer to support it both ways, both stand-alone and with Exensio. There's a lot, a lot of value getting it integrated in Exensio for a semiconductor customer, because it didn't really support any visualization of the data, the model, the results, just really visualization on running the models and algorithms. So Exensio and you didn't have a database for storing the data set you want to use. And then once you're done, you want to be able to store all of that information, so you could always go back and recreate it, and Exensio has capability for that model registration and things like that. So I think for that -- the user base, which is primarily at Intel, that was in semiconductors and using it, I think it's quite advantageous for them to use the integrated version. For the small number of non-semiconductor customers, they may use a stand-alone version. Operator: [Operator Instructions] There are no further questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the AAON Inc. Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Joseph Mondillo, Director of Investor Relations. You may begin. Joseph Mondillo: Thank you, operator, and good morning, everyone. The press release announcing our third quarter financial results was issued earlier this morning and can be found on our corporate website, aaon.com. The call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. We begin with our customary forward-looking statement policy. During the call, any statement presented dealing with the information that is not historical is considered forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AAON's control that could cause AAON's results to differ materially from those anticipated. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our press release and Form 10-Q that we filed this morning detailed some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on the call today is Matt Tobolski, CEO and President; and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will then follow with a walk-through of the quarterly results, and Matt will finish with our outlook for the rest of the year and some closing remarks. With that, I will turn the call over to Matt. Matthew Tobolski: Thanks, Joe, and good morning. The third quarter marked a decisive inspection point in our operational recovery and capacity expansion. We saw substantial improvement in production throughput at both the Tulsa and Longview facilities, which drove meaningful sequential sales growth, while continued strength in bookings contributed to further backlog growth. While margins in the quarter continued to be impacted by operational inefficiencies in Longview and the early ramp-up of the new Memphis facility, we continue to make steady progress and expect sequential margin improvement to continue through the fourth quarter and into early 2026, putting us firmly on track toward our longer-term goals. The BASX brand continues to perform exceptionally well, fueled by strong momentum in the data center market, where favorably priced bookings have risen sharply and the pipeline of opportunities remains robust. BASX-branded backlog grew to $896.8 million, up 119.5% from a year ago and up 43.9% from the prior quarter. Demand for both our air-side and liquid cooling products remain strong, reflecting how well our custom solutions align with customer needs. To meet this growing demand, we remain laser-focused on ramping up production capacity at our new Memphis facility. This facility adds nearly 800,000 square feet of state-of-the-art manufacturing capacity which provides considerable growth to our BASX production capabilities and positions us well for continued growth. The ramp-up of the facility is progressing as planned, with large-scale production expected by year-end. With a strong backlog and significant increase in capacity, we expect the BASX brand to deliver meaningful growth in 2026. The AAON brand continues to perform well, with sales rising substantially from the prior quarter and bookings remaining strong. AAON-branded sales grew 28.1% sequentially, driven by over 20% production increases at both the Tulsa and Longview facilities and improved utilization of the ERP system, enabling us to better meet demand. Also production returned to prior year levels. In Longview, while still about 20% below last year showed strong progress. Based on September and October exit rates, we expect Longview is nearing full recovery. Enhanced production output of AAON-branded equipment resulted in a book-to-bill ratio for the brand below 1, successfully helping bring backlog in lead times of AAON-branded equipment closer to normalized levels. While backlog for the brand remains higher than desired, we are making steady progress in reducing it. We are committed to achieving this in the near term, ensuring we can effectively serve our customers and restore a normal business cadence. Despite a soft commercial HVAC market and extended lead times, AAON-branded bookings remained strong. While flat year-over-year due to a challenging comparison, bookings were up 15% on a 2-year stack reflecting continued strength in underlying demand. National account wins were particularly robust with bookings up 96% in the third quarter and 92% year-to-date, representing 35% of total bookings for the year. Bookings of Alpha Class air-source heat pump equipment also continued their strong momentum, up 45% quarter-over-quarter and 46% year-to-date. As I mentioned earlier, Longview's ERP implementation has progressed considerably. While production of AAON-branded equipment at the facility remained about 20% below target, output improved sequentially throughout the quarter and by quarter end, production of AAON-branded equipment was approaching full recovery. Production of the new BASX-branded equipment in Longview has performed exceptionally well with consistent year-to-date improvement. Despite the improvement in throughput, we continue to work through efficiency challenges that are weighing on facility profitability. We view these as temporary and expect meaningful margin improvement in the coming quarters. In Tulsa, average production levels for the quarter reflected a full recovery. And by quarter end, we're running ahead of target. We've made strong progress in improving coil supply, which supported the higher production volumes. And while our supply of coils remains constrained, we are effectively managing through these constraints. With the Longview implementation now well underway, we have gained valuable experience and insight, both operational and technical that will guide future ERP rollouts and greatly enhance our readiness to efficiently deploy the ERP system across our other facilities. While we continue to expect some level of operational impact as future sites transition, we are far better prepared to manage these challenges with strengthened internal processes, improved training programs, and a proven framework that positions us to execute future implementations with greater speed, precision and minimal disruption. We've applied the lessons learned from Longview to the Memphis go-live, which occurred on November 1. And we continue to expect Redmond to transition in the first half of 2026 with Tulsa following in the second half. I will now turn the call over to Rebecca, who will walk through the financials in more detail. Rebecca Thompson: Thank you, Matt. Net sales in the quarter increased year-over-year $57 million or 17.4% to $384.2 million. The increase was driven by a 95.8% rise in BASX-branded sales due to continued demand for data center solutions, and increasing production out of our Memphis facility. AAON-branded sales were roughly in line with the prior year, declining 1.5% but increased 28.1% sequentially, driven by solid production gains at both Tulsa and Longview facilities. Gross margin was 27.8%, down from 34.9% in the prior year, but up 120 basis points sequentially. The year-over-year contraction was primarily due to operational inefficiencies associated with the ERP system implementation and unabsorbed fixed costs related to the new Memphis facility. Sequentially, the improvements reflect progress made in optimizing the new ERP system and the resulting increases in production throughput at both the Tulsa and Longview facilities. Non-GAAP adjusted EBITDA margin was 16.5%, down from 25.3% a year ago, but up 160 basis points in the previous quarter. Diluted EPS was $0.37, down 41.3% from a year ago, but up 94.7% sequentially. Below the line pressures included elevated DD&A from Memphis and technology consulting fees related to the ERP implementation. Looking at the segment financials, starting with AAON, Oklahoma, net sales grew 4.3% year-over-year and 29% sequentially. The growth was driven by a strong backlog entering the quarter and improved production throughput that enabled higher backlog conversion. Coil supply also improved, allowing us to efficiently scale production of AAON-branded equipment. Segment gross margin was 31.5%, down from 36.8% in the prior year period, but up sequentially 400 basis points. The year-over-year contraction was primarily due to approximately $4.5 million in unabsorbed fixed costs associated with the new Memphis facility. AAON Coil Product sales increased $35 million or 99.4% from the year ago period. The year-over-year increase was driven by $46.5 million in BASX-branded liquid cooling product sales, a category that was not in production during the prior year period. AAON-branded sales at this segment declined $10.9 million or 31.6% due to the ERP implementation disruptions. Sequentially, AAON-branded sales grew 36.2% reflecting improved utilization of the new ERP system and the resulting increase in production throughput since its go-live in April. Despite the improved throughput, gross margin declined sequentially, reflecting several discrete items which collectively impacted gross margin by 1,050 basis points in the quarter. We expect these challenges to be resolved with our ERP progress. And over time, we expect this segment will deliver gross margin of around 30% based on the strength of pricing within the backlog. Sales of the BASX segment grew 19.2% driven by sustained demand of data center solutions as the market continues to demonstrate strong momentum, and the business captures additional market share. Initial production from our new Memphis facility played a key role in driving growth. Gross margin contracted modestly due to higher indirect warehouse personnel costs associated with operating the Redmond facility near full capacity. Optimization efforts at this facility remain a focus and are expected to accelerate as the Memphis facility continues to ramp. Cash, cash equivalents and restricted cash balances totaled $2.3 million on September 30, 2005 (sic) [ September 30, 2025 ] and debt at the end of the quarter was $360.1 million. Our leverage ratio was 1.73. Year-to-date, we had cash outflows from operations of $18.8 million compared to cash inflows of $191.7 million in the comparable period a year ago. Capital expenditures for the first 3 quarters, including expenditures related to software development, increased 22.1% to $138.9 million. We had net borrowings of debt of $205 million over this period, largely the finance investments in working capital, capital expenditures and $30 million in open market stock buybacks that we executed in the first quarter, all of which we anticipate will generate attractive returns. Overall, our financial position remains strong. We anticipate cash flow from operations will turn significantly positive in the fourth quarter as working capital, including contract assets become a source of cash, reflecting payments received on a large order that was recent started deliveries. This gives us flexibility and allows us to continue to focus on investments that will drive growth and generate attractive returns. We now anticipate 2025 capital expenditures will be $180 million compared to our previous estimate of $220 million. The reduction primarily reflects project timing and the inability to fully deploy funds this year with the majority of these expenditures expected to shift into 2026. I will now turn the call over to Matt. Matthew Tobolski: Thank you, Rebecca. As previously mentioned, backlog remains strong across both brands, giving us the confidence in visibility to stay focused on production and execution. The BASX brand remains the key growth driver of the company, fueled by exceptional demand for the data center market and the unique custom design solutions that we provide our customers. In the quarter, BASX secured a strong volume of new orders at attractive margins, most of which are scheduled for production at our new Memphis facility in 2026. This sets us up to ramp production efficiently next year, optimize the fixed cost investments made in 2025 and drive robust growth for the BASX brand in 2026. The AAON brand also maintained strong momentum. Backlog at the end of the quarter was up 77.1% year-over-year, reflecting strong demand across our business. While backlog size and lead times remain extended, we are actively managing this by ramping production. Despite commercial HVAC volumes being down double digits year-to-date, bookings have stayed strong, demonstrating the resilience of our business. For the fourth quarter, we expect double-digit revenue growth driven by continued production recovery and pricing actions implemented earlier this year. This positions us well for 2026 as comparison fees. However, looking to 2026, we also plan to implement the ERP system at our Tulsa facility in the second half of the year. While we expect minimal disruption based on our Longview learnings, there may be some short-term production impact during the transition. Turning to our 2025 outlook. We now anticipate full year sales growth in the mid-teens at a gross margin of 28% to 28.5%. Adjusted SG&A as a percent of sales expected to be 16.5% to 17%. Before I hand it off for Q&A, I just want to finish by saying, while we continue to navigate some near-term challenges, we're making steady progress across all areas of the business. Our operational execution is improving, production is ramping, demand remains robust and cash flow is trending in the right direction. As we look ahead, we are extremely excited about the opportunities that 2026 will bring. With that, I will now open the call for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ryan Merkel with William Blair. Ryan Merkel: Congrats on the quarter, a lot of things to like here. I wanted to start off with the BASX orders, which I think for me is the headline. You talked about liquid cooling being strong. You talked about Memphis is fully coming online. But just speak to the drivers, speak to your confidence in your outlook for 40% to 50% growth for the BASX segment. And then you mentioned order visibility is pretty good. I just want to get a sense that you continue to expect strong orders. Matthew Tobolski: Yes. Great question. And to start, maybe looking back to the Q2 earnings call, where the sort of backlog in BASX was flat, it was obviously a point of question from a lot of individuals. We mentioned on that call that obviously, we have to have the capacity and the visibility in our ability to execute those orders in order to really start taking on large orders to support the Memphis growth. As we've kind of progressed through the third quarter, we've had a lot more traction and visibility and kind of understanding what that ramp rate looks like, which allowed us to effectively go out to the market and really start filling the coffers for the Memphis facility. That, coupled with continued strength on liquid cooling orders out of the Longview site, air-side solutions at both Memphis and the Redmond site, provide a lot of that backlog growth. And so, the Q3 sort of order securing was really a good mix of orders in both air-side and liquid side orders kind of across all of our sites, but certainly with a strong amount of focus on the Memphis facility as we look to ramp that up in late '25 into '26. As we think through the visibility, I would just say that the activity our team is having in the pipeline conversations, in projects across existing as well as a number of new customers continues to strengthen and remain very strong. And so, we're having a lot of interest really across the product portfolio and tremendous amount of conversations across the sort of entire network of data center developers, as we look to really capitalize on the continued growth and align our unique value proposition to those customers. So really, we see the BASX -- the growth story is certainly being very strong, certainly have good growth in 2025. And as we go into 2016, we'll see continued good strength in converting that backlog into sales. Ryan Merkel: That's great. Okay. Perfect. And then the one nitpick this quarter was gross margin. Good to hear though the ERP, you're feeling strong there. The implied guidance for 4Q gross margin, 31%, you're showing a step-up. But let's just take the two pieces. So, in Oklahoma, if I add back sort of the Memphis unabsorbed and you're going to be getting the full production there soon, it sounds like, and then the price cost, which is really just a timing thing, should we think about sort of gross margins on a normalized basis for the Oklahoma segment at that 35%, 36% level? That's the first part of the question. Matthew Tobolski: Yes. And certainly, the math you're doing is putting you in that range. So, when we back out the Memphis impact and we back out that price cost differential kind of on that near-term kind of tariff dislocation, that does put you right in that mid-30s. Certainly, we see some additional pressures that existed. When we look at the kind of year-over-year comp from '24 to '25 in Q3, certainly, you got another 200-ish basis points of kind of gap there. And really, what I would say is, we've been ramping up production, kind of meeting some near-term needs of BASX products inside the Oklahoma segment, which while profitable in its sales, it certainly is a new product introduction into that facility that just caused some manufacturing inefficiencies where production lines aren't optimized kind of to build that, but we were doing it to ensure we met customer demand. So, I'd say that mid-30s with some headroom on top of that really is where we see the Oklahoma segment kind of on a normalized basis. Ryan Merkel: Got it. All right. I'll leave the ACP questions for others, but it sounds like there's some discrete items there and 30% long term is a target. So, that's kind of what I expected. Matt, I wanted to give you an opportunity before I turn it over to just comment on the short report that was out. I don't know if that's something you want to do, so I'll give you that out. But there were two claims that I was hoping you could respond to. One, the change in accounting has inflated revenues. And then two, large liquid cooling gross margins are in the 20% range. Just any thoughts there. Matthew Tobolski: Yes. So, just maybe to start off on that report and really just to hit this head on, we want to just kind of reaffirm that we take the integrity of our financial reporting incredibly seriously, and it is regularly reviewed by our independent auditors. And so these statements that are prepared and presented are fully in accordance with GAAP and with the rules of ASC 606. From a confidence standpoint, we're incredibly confident in the strength of our business, in the appropriateness of our accounting practices, and in our operations overall. So with that, just saying that the demand for our products, the pricing of our products remains incredibly strong, and our focus is on executing our strategy, serving the customers and making sure we deliver that long-term value for our shareholders. As we talk through the purported changes in accounting practice, just to state that, that is the ASC 606 standard, which is how revenue has been recognized for the BASX brand kind of throughout its history and since being acquired by AAON. When we look at the dynamics, there was certainly an increase in contract assets in the first half relative to that one large liquid cooling order, which is recognized as a custom engineered, custom manufactured product recognized on a percent of completion basis. And so, when we think about this in context, that one order that was acquired late in the year last year and kind of converting throughout this year, that was nearly the size -- that single order was nearly the size of all of BASX in 2024. And so, that just mathematically is going to drive that change in a near-term perspective on the contract assets. But in Q3, you saw those contract assets decline. You saw the receivables jump showing that conversion and shipping and going to that customer. And so that, that conversion is going to drive cash strength as receivables are kind of converted to cash-in-hand throughout the fourth quarter. The look at that, I mean, that liquid cooling order itself, again, just to reaffirm, that is a custom engineered product developed in the standard process in which BASX supports our customers over its entire history. And so, just kind of reaffirming that, that is not a contract manufactured product. It was engineered to a specification from a customer much the same as we have executed the development and execution of BASX products over its entire history. It is priced well. It is not priced at some low-margin kind of perspective. We're executing well. We're delivering for the customer. We're delivering the quality that customer expects, and we continue to receive add-on orders for that product as well as developing and collaborating on other cutting-edge innovations for the data center space. So, all that to say, I mean, this is executing in accordance with regulations. It's executing incredibly well and profitably for our customers. And some of the ACP near-term stuff has nothing to do with the price perspective on the product. It's inefficiencies as we've kind of rolled out some of that growth. Operator: Your next question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Matt, Rebecca. Great to be on with you for the first time and a good quarter to be on for the first time on. I want to go to your CapEx guide lowering it to $180 million and the comments you made, Rebecca. Anything we should read or infer from that into kind of the timing of your planned capacity ramp, whether at Memphis or elsewhere in the business that we should be thinking about? Rebecca Thompson: No, I don't think so. It's just a slight shift from moving some amounts between Q4 to Q1. So, I don't think the lowering of that CapEx is going to slow down the ramp-up of Memphis. The Memphis facility has already really built out with most of the equipment we need to do the ramp-up right now. So, next year's additional plants would just be increasing capacity for future growth. So, it should not impact those ramp-up plans at all. Noah Kaye: Okay. And then since Ryan teed it up, I might as well ask about the discrete onetimes at ACP. Can you just give a little color on that and kind of how you lap them as we go into 4Q in '26 here? Matthew Tobolski: Yes. Just to start off, I want to maybe just take the ACP segment for a second and look at this from a quarter-over-quarter perspective. We saw really good strength and growth in the ACP segment, and absent of the discrete items that we kind of referenced, you'd be seeing margin at around 27%, which is showing good quarter-over-quarter growth in both the throughput as well as the overall margin profile. Some of these discrete items that kind of are in question, I mean, there's essentially operational inefficiencies, some of which are going to -- or most of which will abate kind of with the optimization of the ERP, the rest of which just with some additional manufacturing process improvement. Nothing to do with pricing. The liquid cooling order is priced at very compelling levels. And as I mentioned earlier to Ryan's question, that liquid cooling order itself is a solutions-based product, solutions-based win. It was not a low bid type situation. So, priced well and really just focused on getting that execution kind of fully in order. And looking forward, we're confident when we say the segment is at least a 30% gross margin business, based on what we have in the backlog, based on what we have with the margin profile in the backlog and really just focused on execution for both the BASX and AAON brands. Noah Kaye: Yes. And is that -- is ACP where we see the most improvement sequentially into 4Q to kind of help us get to that 31% that was referenced earlier, if that's the right number for gross margin for 4Q? Matthew Tobolski: Definitely quarter-over-quarter, you're going to see strong improvement. ACP definitely being a big driver of that improvement. But I would say, I mean, you're also going to see some incremental improvement within the Oklahoma segment as well, it's kind of as that price cost dynamic get on the right side from the tariff impact. Noah Kaye: Okay. Perfect. And lastly, obviously, really strong data center orders for BASX this quarter, great to see the increase in backlog. Can you talk a little bit about the customer mix and profile there? You mentioned liquid versus air-side, but just give us a sense of the demand profile across the customer base. Matthew Tobolski: Yes, it's a pretty broad-based actually. And I would say that when we look at the amount of interaction and conversation in the space right now, it is across sort of the entire profile of data center developers. So obviously, there's been strength and continued strength within the hyperscalers. But within a lot of the, I'll say, the contract builders, the colocation providers, the neocloud, we're seeing strength really across the profile in the order activity and in the quote activity in that space. Operator: Your next question comes from the line of Chris Moore with CJS Securities. Christopher Moore: Yes. Maybe we'll shift from BASX to rooftop. Can you just talk a little bit about pricing at this point in time, the current AAON premium, and maybe just your big picture thoughts on rooftop in '26. Matthew Tobolski: Yes. So, from a pricing standpoint, I mean, obviously, we put on price twice this current calendar year. So, early January 1, put in 3% and then additional 6% kind of came in through the tariff surcharge. So sitting a little above 9% compounded for the year. As we look forward, we're definitely in the midst right now of really kind of all of our analytics and kind of where cost drivers are looking as we go into 2026. So, no real guidance at this point on kind of what pricing actions are going to come in the near to midterm. But I would say that, we certainly see the price premium of AAON equipment is still existing, for sure, kind of inside the space, maybe ever so slight contraction from last year to this year, but really seeing the price premium and the value proposition is still being sold kind of throughout that product brand. Looking to your question, Moore, I'll say, on the market perspective, I mean, certainly, the space remains soft, the commercial HVAC space remains soft. As we do a lot of our checks with our sales channel partners, a lot of the commentary we're getting is, there's actually a pretty substantial uptick in bid activity. But still soft in the overall order conversion. So, I say that -- to say that, it's a positive indicator, certainly showing there's a lot of activity kind of brewing inside the space. But obviously, in the near term, if not converting to actual orders, it's not converting to new projects. And so, when we think about what that looks like into '26, indicates we're going to enter '26 kind of in continued softness. But I'd say that demand we're seeing with that bid activity, we would look to see that sort of start converting midway through the year into sort of strengthening of the overall order cadence from a macro perspective. But that aside, with that kind of as the macro driver, we continue to remain incredibly focused on some of the unique growth drivers that are sort of providing us that outperform in bookings, things like the Alpha Class air-source heat pump product differentiation really getting out in the marketplace and ensuring that we're selling to the market and effectively communicating to the market that value proposition as well as the continued focus on that national account strategy. So, we see those being the, I'll say, the levers that are allowing us to continue outperforming from a bookings perspective against the softer macro backdrop. Christopher Moore: Perfect. Very helpful. And maybe just a follow-up back to BASX. In terms of gross margins, we've had lots of discussions currently and ultimately, in terms of where the margins could be at the Investor Day. And we talked about 29% to 32%, a little bit below rooftop. And I'm just, again, trying to understand is there something structural in BASX that couldn't get to the mid-30s? Or it's just the rapid growth that is going to make it difficult for a while to get to that level? Matthew Tobolski: No, it's a great question. And certainly, our kind of putting it around that 30% level is really, sort of, setting what we see as the, sort of, near-term execution targets kind of within that space. From a perspective standpoint, it took AAON 30-some-odd years to really get into that mid-30s range. And a lot of that was driven by really good execution around improvements around manufacturing process, coupled with obviously pricing competitiveness. And so, as we start getting more and more, I'll say, we get the ability to really kind of get some of our production lines stable, we can really start focusing on pulling our costs and putting dollars to the bottom line in those spaces. And so, I would just say from an expectation setting standpoint, that 30% range is really kind of where we want to keep everyone grounded. But certainly, we're an organization that is focused on outperforming. And so, for us, looking at how do we keep driving better execution and really keep driving improvement of that is going to be something that is certainly front of mind as we keep progressing forward. Operator: Next question comes from the line of Tim Wojs with Baird. Timothy Wojs: On the Oklahoma business, Matt, I mean, where are your lead times today kind of relative to normal? And I guess as you think about kind of converting the Tulsa facility next year on the ERP side, I guess, how are you kind of communicating that to people in the channel? And how are you preparing for any sort of, I guess, kind of order pull forward that might kind of happen as a result of that implementation? Matthew Tobolski: Yes. Certainly great questions. And on the lead times, when we look at the Oklahoma segment, where they stand today, they're probably sitting around 50% higher than we wanted to be. And again, our focus here is really on getting that execution up, getting that volume up at that facility and really start pulling that back down. So, one thing I'd say is, well, obviously, backlog growth is a big conversation on the BASX side of the business. On the AAON side, our big driver here is, let's get that backlog down, let's get that lead time kind of back in check where we want them to be, just to be able to make sure that we're meeting the market demands appropriately. As we think about, I'll say, kind of getting ahead of things within the ERP side, we're certainly going to be substantially more proactive. Again, I'll just say lessons learned around the Longview side to make sure we get ahead of it. And provide some buffer kind of, in sort of, what we communicate to the market to make sure we deliver and these schedules that are met with our best foot forward. So, that's going to be definitely going to be part of our intentional, kind of, before go-live messaging strategy ahead of a Pulse to go-live. Exactly what that's going to look like and kind of what buffer, that's still certainly part of an operational conversation, but certainly will be something we're looking at throughout the mid part of '26. Timothy Wojs: Okay. And speaking of operations, I mean, you just, I think, hired a COO. Could you maybe talk about what kind of those responsibilities are going to be for him in kind of maybe the near and intermediate term and kind of what he brings to AAON? Matthew Tobolski: Yes. And I really -- maybe what I'll do is I'll start by kind of just framing a perspective here, which is, we've been very fortunate to go through some tremendous growth, which is incredibly exciting. It's an awesome opportunity for our organization, for our team to grow and to really thrive inside that space. And as we think about AAON 5 years ago versus AAON today, I mean, we've got five facilities. We've got some monster growth coming out of brand-new facilities. We've had massive expansion in Longview, strong investment in Redmond and continued investment inside the Tulsa facility, all of that supported by strong demand. So, the company over the last 5 to 10 years, it's really transformed. It's kind of gotten a lot of legs below it and really built itself up in stature and mass. And so, when we think about what Roberto brings to the organization, it's the ability to effectively manage consistency across all five facilities and drive best practice lean manufacturing, visible manufacturing really across the organization and get the right visibility to be able to tack the problems before they become problems. And so, you've got experience operating up to 23 facilities, expert in lean manufacturing and really something that the operations team and the whole team of AAON and BASX is incredibly excited about as we look to continue capitalizing on the growth drivers in a very profitable fashion. Timothy Wojs: Okay. Okay. That's great. And then, I guess just two questions -- two, kind of, modeling questions. I guess, first, is there any way to just quantify the free cash flow that you expect in the fourth quarter? And then as you kind of think about bringing on Memphis, do you have like a DNA number that we should think about for AAON in 2026? Rebecca Thompson: So, I don't have a quantification of the free cash flows for Q4. It should be considerably up. I mean, especially you saw it turn positive this quarter. We're starting to -- we had delays in getting some of our billings out. So, we're collecting those now in the fourth quarter. Yes. It should be up significantly, but I don't have a good estimate to give you just off the cuff. And then, on your second question, -- yes, so for 2025, we expect the year will be in the $75 million to $80 million range, and then we expect to see like another $20 million to $25 million in 2026. Operator: [Operator Instructions] Your next question comes from the line of Julio Romero with Sidoti & Company. Alex Hantman: This is Alex on for Julio. Just a follow-up on ERP. I know we talked a little bit about lessons learned and alluded to that, but maybe we could get a little more specific on key lessons learned from Longview that you're applying to Memphis and maybe even what milestones you thought about before greenlighting the rollout to Memphis? Matthew Tobolski: Yes. From a lessons learned, I mean, I'll say there's kind of a variety of people and process sides of it. But just high level, what I would say is, some of the configuration changes and lesson learned that we've implemented in Longview as well as Memphis is streamlining some of the automation that can be provided in process flow inside the ERP that wasn't fully implemented, I'll say, kind of on the initial go-live that caused too much manual interaction that slowed down some of the production velocity. And so, we really kind of streamlined some of those processes, and we've really greatly enhanced the amount of hands-on training within the system. I think the lessons learned is, we did a lot of training as part of the go-live, but a lot of it was more classroom setting versus getting really more live hands on how you would live in the system on a day-to-day basis. And so, a lot of that kind of was lessons learned out of the Longview site. And really, that was informing the kind of go-live strategy within the Memphis site. And Memphis has been live for about a week now and really been operating in a smooth fashion, albeit lower volumes than what we have in Longview, but kind of on a go-live and a ramp-up perspective, behaving very well. Alex Hantman: Great. I think going hand-in-hand with streamlining and ERP work might be automating with AI. So, I was curious if you could touch on any sort of work with that. Matthew Tobolski: Yes. I mean, certainly, as a manufacturer that greatly supports the explosive growth of the data center investment around AI, it certainly also informs kind of how we leverage AI as an organization. So there's a lot of things we're looking at. I mean, everything from how we analyze warranty claims for trends, how we look at predictive analytics around unit performance. So, there's a lot of sort of projects going on. But certainly, as time progresses, AI will become more and more relevant kind of in our strategy. But what I would say now is we have a lot of things that are more in the sandbox and planning phase as we look at how to leverage AI, both from an operations perspective, but also from a value driver from a customer's perspective. Operator: Your next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Great. Yes. I guess, question, Matt, just as you peel back kind of the layers here within the rooftop business, your thoughts on what seems to be working in terms of the share capture strategy. I heard you comment on the national accounts growth, maybe how that informs, how that, kind of, strategy is working and anything else in and around that? Matthew Tobolski: Yes. So, to maybe peel it back in kind of two pieces. I think, when we look at what we call the more transactional type orders, the standard kind of end market orders, we see that softness kind of that you hear across the overall commercial HVAC space on the more everyday type orders. We see that kind of in our order cadence as well. And so, when we look at where the growth drivers have been, I'd say two things that are big differentiators for us that have allowed us to outperform in bookings has been the Alpha Class air-sourced heat pump. So, from an innovation and sort of a product differentiation standpoint, continue to see that getting some good traction inside the space as we really have a best-in-class solution that operates in sort of your southern climate all the way to your low-temp climates with sort of the more Alpha Class Extreme program. So that's definitely been a driver that's, sort of, allowing that differentiation of product to really capture the hearts and souls of a lot of organizations. And it really aligns well with that national account customer. So when we think about national account customers looking to reduce carbon footprints with portfolios of facilities all across the country, that Alpha Class product definitely is a huge conversation starter and a differentiator kind of inside the space. And with the three tiers of that product, we rolled that out in a way that provided solid pricing points, really depending on kind of what the market is from an environmental perspective. And so, we don't need to go all the way to the Alpha Class Extreme, low ambient air-source heat pump if I'm delivering a product in Florida. But when we look at some of the northern states, the solutions that we have in terms of efficiency, performance points and cost points really can't be beat inside the marketplace. And so, that's really allowed a broad conversation on that national account space, really around air-source heat pumps, decarbonization to be able to provide really a solution across the portfolio that really can't be met by anyone else in the marketplace. And so, a lot of that on some of that conversation and growth really in both the national accounts as well as really just transactional air-source heat pumps. Brent Thielman: Got it. And then on the BASX side, whether you wanted to talk around the orders this quarter, Matt, or kind of an immediate pipeline. I mean, one of the objectives here is to try and get into maybe more of the standardized products. And I guess, question one is, are you starting to see those orders come through? Is it far too early for that? And two, maybe just the diversification of customers that are reflected in these orders? Matthew Tobolski: And just to maybe put a clarifying point. When we look at the productization strategy, I wouldn't say we're going to a standard product by any stretch. What I would say is, really just, envision that as the same solution or the same mindset around how AAON goes to market with a software-driven semi-custom, still very much value-driven products just in a little bit more of a walled off platform that provides some more efficiencies in how we go to market. But I just want to kind of clarify that. I wouldn't really go to sort of a standardized product definition. It still very much is highly configurable value-driven solutions. But I would say, we're certainly starting to get into quote activity on those products. We're in the early innings, really on getting that into the marketplace. And so, certainly out there having the conversations, but that backlog growth that we see right now, that is reflective of the historic solution-based, the custom products that BASX brand has built itself on since its formation. Customer-wise, I mean, there's obviously a couple of large orders that exist inside that sort of backlog growth. But I would say there's also a spattering of other smaller customers kind of in there. So, there is definitely a couple of big hitters in that backlog growth, but there's also a diversity in the customer base in what we're growing right now. Brent Thielman: Okay. Last one. Obviously, a big chunk of orders here is to fill the Memphis capacity that comes on to, I think, just based on past conversations, Matt, you sort of want to be deliberate about that, work through any inefficiencies as that facility ramps up. I guess the question I have is, do you have what you want for now? Or are you comfortable continuing to push and capture more orders for that facility even as that hasn't ramped up quite yet? Matthew Tobolski: Yes, great question. I mean, I think the -- there's definitely good backlog sitting in there right now to help ramp that facility in a measured perspective, but there also is some headroom in there, especially as we get into the second half of next year to start putting in some more demand into that facility. And so, there is room to definitely keep putting orders in there as we get more and more traction. The facility as it stands today, just kind of maybe perspective, it has the ability to have seven production lines put in place. We're sitting at three today. We're adding -- we're working to add a couple more, but there certainly is all of that five to seven production lines are not fully booked out. And so there is room to -- as we keep growing it out to keep ramping up production at that facility. But I would definitely be thinking about that from a bookings cadence for orders that would be coming in for start delivery in the back half of next year. Operator: There are no further questions at this time. I will now turn the call back over to the management team for closing remarks. Matthew Tobolski: Okay. Thank you, everyone, for joining us on today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, everyone, and welcome to today's FRP Holdings Inc. 2025 3Q Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Matt McNulty, Chief Financial Officer of FRP. Please go ahead. Matthew McNulty: Thank you. Good morning, and thank you for joining us on the call today. I am Matt McNulty, Chief Financial Officer of FRP Holdings, Inc. And with me today are John Baker III, our CEO; John Baker II, our Chairman; David deVilliers III, our President and Chief Operating Officer; David deVilliers, Jr., our Vice Chairman; John Milton, our Executive Vice President; Mark Levy, who will serve as our new Chief Investment Officer; and John Klopfenstein, our Chief Accounting Officer. Mark Levy came to us through our recent acquisition of Altman Logistics Properties, where he served as its President. First, let me run you through a brief disclosure regarding forward-looking statements and non-GAAP measurements used by the company. As a reminder, any statements on this call, which relate to the future are, by their nature, subject to risks and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These risks and uncertainties are listed in our SEC filings. To supplement the financial results presented in accordance with generally accepted accounting principles, FRP presents certain non-GAAP financial measures within the meaning of Regulation G. The non-GAAP financial measures referenced in this call are net operating income, or NOI, and pro rata NOI. In this quarter, we provided an adjusted net income to adjust for the impact of onetime expenses of the Altman Logistics acquisition, which is a material business combination unlike our historical real estate acquisitions or joint ventures where we expense -- where our expenses are capitalized. We also provided adjusted net operating income to adjust for the impact of the onetime material royalty payment in the third quarter of 2024 to better detect the comparable results in both the quarter and year-to-date. Management believes these adjustments provide a more accurate comparison of our ongoing business operations and results over time due to the nonrecurring material and unusual nature of these 2 specific items. FRP uses these non-GAAP financial measures to analyze its operations and to monitor, assess and identify meaningful trends in our operating and financial performance. These measures are not and should not be viewed as a substitute for GAAP financial measures. To reconcile adjusted net income, net operating income and adjusted net operating income to GAAP net income, please refer to our most recently filed 8-K. Now to the financial highlights from our third quarter results. Net income for the third quarter decreased 51% to $700,000 or $0.03 per share versus $1.4 million or $0.07 per share in the same period last year due largely to $1.3 million of expenses related to the Altman Logistics Properties acquisition, partially offset by higher mining royalties and improved results in Equity in Loss of Joint Ventures. Excluding the acquisition expenses this quarter, adjusted net income was up $281,000 or 21% over last year's third quarter. The company's pro rata share of NOI in the third quarter decreased 16% year-over-year to $9.5 million, primarily due to the onetime minimum royalty payment received in last year's third quarter. Excluding last year's onetime payment, adjusted NOI was up $104,000 in this quarter versus last year's third quarter. I will now turn the call over to our President and Chief Operating Officer, David deVilliers III, for his report on operations. David? David deVilliers: Thank you, Matt, and good morning to those on the call. Allow me to provide additional insight into the third quarter results of the company. Starting with our Commercial and Industrial segment. This segment currently consists of 10 buildings totaling nearly 810,000 square feet, which are mainly warehouses in the state of Maryland. Total revenues and NOI for the quarter totaled $1.2 million and $904,000, respectively, a decrease of 16% and 25% over the same period last year. The decrease was due to same-store occupancy reducing by 24% or 132,000 square feet and the addition of 258,000 square feet of new development space generated by our Chelsea building in Harford County, Maryland, which was 100% vacant in the quarter. Combined, these vacancies totaled 51% of the business segment and a focus to lease and increase occupancy is a priority. Moving on to the results of our Mining and Royalty business segment. This division consists of 16 mining locations, predominantly located in Florida and Georgia with 1 mine in Virginia. Total revenues and NOI for the quarter totaled $3.7 million and $3.8 million, respectively, an increase of 15% and a decrease of 26% over the same period last year. The decrease in NOI is the result of a nonrecurring $1.9 million royalty payment in last year's third quarter. The disconnect between revenue and NOI is the result of GAAP accounting with the revenues being straight-lined. As for our Multifamily segment, this business segment consists of 1,827 apartments and over 125,000 square feet of retail located in Washington, D.C. and Greenville, South Carolina. At quarter end, 91% of the apartments were occupied and 74% of the retail space was occupied. Total revenues and NOI for the quarter were $14.6 million and $8.2 million, respectively. FRP's share of revenues and NOI for the quarter totaled $8.5 million and $8.2 million, respectively, a revenue increase of 2.9% with NOI down 3.2% over the same period last year. The decrease in NOI was a result of higher operating costs, property taxes and increased uncollectible revenue at Maren. The increase in revenue is the result of GAAP accounting, which again includes straight-line rents and uncollected revenue that is due, but which has not been paid. As stated in previous quarters, new deliveries in the D.C. market will continue to put pressure on vacancies, concessions and revenue growth in the foreseeable future. We continue to have renewal success rates over 55% with renewal rent increases averaging over 2.5%. New lease trade-out rates are generally down to compete with new supply and strike a balance between revenue and occupancy. Management continues to be diligent in tenant retention and rental rates in the market. Now on to the Development segment. In terms of our commercial industrial development pipeline, our 2 Central and South Florida industrial joint venture projects with Altman Logistics Partners, where FRP was a 90% and 80% owner are under construction. Following our acquisition of Altman Properties, FRP now owns these assets 100%. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 square feet and shell completion is anticipated by summer 2026. Our Central Florida industrial joint venture with Strategic Real Estate Partners, where FRP is a 95% owner is pending permits for 2 buildings totaling over 375,000 square feet. The buildings are in Lake County, Florida, near Orlando, with options for investment in additional industrial development on adjacent properties in the future. We expect to break ground in Q4 on both buildings with shell building completion expected in Q4 2026. In Cecil County, Maryland, along the I-95 corridor, we are in the middle of predevelopment activities on 170 acres of industrial land that will support a 900,000 square foot distribution center. Off-site road improvements, reforestation codes and obtaining off-site wetland mitigation permits delayed our entitlement process, and we expect permits in early 2026 with a focus on attracting a build-to-suit opportunity. Finally, we are in the initial permitting stage for our 55-acre tract in Harford County, Maryland. The intent is to obtain permits for 4 buildings totaling some 635,000 square feet of industrial product. Existing land leases for the storage of trailers help to offset our carrying and entitlement costs until we are ready to build. We submitted our initial development plan during the quarter, which puts us on track to have vertical construction permits in late 2026 and the potential to start a 212,000 square foot building pending market conditions in 2027. Completion of these aforementioned industrial projects will add over 1.8 million square feet of additional industrial commercial product to our platform. Our projects in Florida represent over 750,000 square feet that will be available for lease-up in 2026. When stabilized, these projects alone are expected to generate annual NOI around $9 million with FRP's share of NOI just over $8 million. Subsequent to the quarter end, the company acquired the business operations and development pipeline of Altman Logistics Properties, LLC. As discussed earlier, this allowed FRP to own 100% of the Lakeland and Broward County, Florida projects. The acquisition also included a minority interest in 3 industrial buildings totaling 510,000 square feet in New Jersey and Florida, which are currently in various stages of development and all delivering in 2026. FRP expects to have up to $8 million invested in the 510,000 square feet with expectations of receiving over a 2x multiple on invested capital when the buildings are sold. The acquisition includes future development opportunities with the potential to develop 3 additional buildings totaling 725,000 square feet in Florida. Turning to our principal capital source strategy or lending ventures. Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed $31.1 million in funding, $27.5 million was drawn as of quarter end and over $24.7 million in preferred interest and principal payments were received to date. A national homebuilder is under contract to purchase all the finished building lots by Q4 2027. 180 of the 344 lots were closed upon, and we expect to generate interest and profits of some $11.2 million, resulting in a 36% profit on funds drawn. In terms of our multifamily development pipeline, our joint venture with Woodfield Development, known as Woven, is under construction. FRP is the majority owner and the project represents our third multifamily project in Greenville, South Carolina. Total project costs are estimated at $87 million and consists of 214 units and 13,500 square feet of ground floor retail that is eligible to receive both South Carolina textile rehabilitation credits upon substantial completion and special source credits equal to 50% of the real estate taxes for a period of 20 years. The project is expected to be ready for lease-up in Q4 2027. In addition to Woven, our multifamily joint venture in Estero, Florida, located between Fort Myers and Naples, where FRP holds a 16% minority interest is under construction with Woodfield as well. Total project costs are estimated at $142 million and consist of 296 units and 28,745 square feet of retail. The project is expected to be ready for lease-up in late 2027. These 2 multifamily projects are expected to boost FRP's NOI by over $4 million following stabilization in 2029. In closing, FRP will have over 1.6 million square feet of industrial space available to lease over the next 12 months, making leasing conditions an important factor now and over the next 12 to 24 months. Currently, the broader backdrop remains mixed. Continued uncertainty around trade policy and macroeconomic direction has extended decision cycles for many occupiers, particularly for larger blocks of space. Even so, on-the-ground activity in our target submarkets is improving. In Maryland, we are seeing increased tour velocity, especially among tenants in the 25,000 square foot range. While demand for over 100,000 square foot product remains selective, mid-bay activity continues to demonstrate meaningful resilience. Industrial fundamentals remain constructive. Rents are holding firm. New construction has declined below pre-pandemic levels, creating a healthier balance between supply and demand. We expect market vacancy to peak in the fourth quarter of 2025 with improving policy clarity supporting renewed tenant momentum. As we bring new product online in 2026, our pipeline is well positioned to benefit from tightening fundamentals and continued strength in well-located Class A logistics assets. Across our core markets, we are seeing signs of stabilization and early recovery. New Jersey, vacancy held flat for the first time in 10 quarters with mid-bay product remaining exceptionally tight and the development pipeline near cycle lows. South Florida is among the strongest markets nationally with Broward County vacancy remaining around 5% with rent growth near 5%. Palm Beach is absorbing near-term deliveries, supported by enduring land scarcity and tenant demand. In Central Florida, market strength continues to bifurcate between bulk and mid-bay product. Our focus on mid-bay positions us to outperform. In Baltimore, leasing accelerated in Q3 with roughly 2.9 million square feet executed and vacancy tightening to 7.4%. Modern logistics and manufacturing users continue to drive activity, supported by disciplined new supply and durable rent levels. Bottom line, we are operating in supply-constrained, high-barrier markets where modern infill logistics space continues to command strong tenant interest. With deliveries aligned to improving fundamentals, we are positioned to capitalize on the next phase of industrial demand. We are leaning into the strength across our core logistics markets with roughly [ 400,000 ] square feet of vacancy in Maryland and over 1.25 million square feet of Class A products scheduled to deliver in New Jersey and Florida in 2026. The backdrop is constructive. Vacancies are stabilizing and trending lower and rents remain firm to rising. These conditions reinforce our confidence in achieving efficient lease-up across our portfolio and driving strong value realization. Thank you, and I will now turn the call over to Mark Levy, our new Chief Investment Officer, who we hired in concert with closing on the Altman Logistics portfolio in October. Mark? Mark Levy: Thank you, Dave, and good morning. I'm pleased to join you today. As Matt mentioned, I came to FRP following the company's acquisition of Altman Logistics Properties, where I served as President from the inception of the company in 2001 through closing. My career has been dedicated to institutional industrial investment and development across the Eastern United States, including senior leadership roles at Duke Realty, Prologis and Hilco Redevelopment Partners with a focus on large-scale capital deployment and strategic market expansion. Our team brings deep expertise across development, acquisitions, entitlements and leasing with a strong track record executing complex projects in high barrier supply-constrained logistics markets. Our strategy is centered on creating durable value and generating superior risk-adjusted returns through targeted investment in infill supply-constrained locations, off-market and creatively structured opportunities, value creation through entitlement, redevelopment and adaptive reuse and disciplined execution and delivery of Class A logistics facilities. Limited new supply in our target markets continues to support pricing power and rent growth. Against this backdrop, our pipeline is positioned to outperform as demand normalizes and absorption improves. In the Northeast, one of the most competitive industrial regions in the country, our development pipeline includes Logistics Center at Parsippany, which is a 140,000 square foot Class A redevelopment in Morris County and Logistics Center at Hamilton, which is a 170,800 square foot Class A redevelopment in Hamilton Township, New Jersey. Both projects convert obsolete office assets into modern industrial facilities, demonstrating our ability to reposition underutilized real estate in core submarkets. In Florida, supported by sustained population growth and strong logistics demand, our pipeline spans Central and South Florida. Logistics Center at Lakeland is a 201,000 facility along the I-4 corridor equidistant from Tampa and Orlando and Logistics Center at Delray is a 3-building just under 600,000 square foot logistics campus in Delray Beach, Florida. And finally, Logistics Center at 595 is a 182,773 square foot distribution facility in Southern Broward County that was converted from the legacy hospitality use. This property is located immediately adjacent to Port Everglades and the Hollywood Fort Lauderdale International Airport. As mentioned, the Altman platform historically operated as a merchant development program, earning fees and promote economics alongside institutional partners. FRP expects to continue this model for projects not wholly owned by the company with property level IRRs in the mid-teens to 20 plus prior to promote participation. In addition, FRP plans to retain full ownership of select assets, including Lakeland and Davie, positioning the company to capture long-term value through stabilized cash flow and NAV growth. Across the portfolio, our discipline is consistent, invest in locations with immediate transportation connectivity, deep labor pools, significant supply constraints and dense population centers. These fundamentals support resilient demand, attractive development yields and durable long-term value creation. I look forward to working with the FRP leadership team to advance our development pipeline, deepen our market relationships and scale our logistics platform in a disciplined value-accretive manner. With that, I'll turn it back to John. John Baker: Thank you, Mark, and good morning to those on the call. As Matt touched on, third quarter results, though down, are actually better than they appear at first blush. GAAP net income is down 51% for the quarter and 37% for the year. But adjusted for one unusual item, namely the legal costs associated with the Altman acquisition, adjusted net income is up 21% for the quarter and down 5% for the year. Pro rata net operating income was down 16% for the quarter and 2% for the year. But excluding the nonrecurring cash -- nonrecurring catch-up payment in mining royalties in the third quarter of last year, adjusted NOI is up 1% for the quarter and 5% for the year. This is a very long way of saying that results are where we expected them to be, which is to say more or less flat compared to last year. 2025 was identified by management as a foundational year for future growth, just not necessarily a growth year. In the short term, leasing and occupancy -- leasing and occupying our industrial and commercial vacancies at current market rates is the simplest and fastest way to improve earnings and NOI. Our buildings had real operating costs that are offset by tenant reimbursements, and that's a problem only new leases and tenants will solve. What we don't want to do is be so focused on occupancy that it comes at the expense of leasing these spaces for less than the value they should command. A bad lease will be a headache for us for longer than the short-term pain of the vacancy. In terms of setting the company up for our next phase of growth, as David mentioned, we have 3 industrial projects in Florida totaling 763,000 square feet in various stages of development, all of which will be substantially complete in 2026. We are working to entitle all of the projects in our in-house development pipeline in Maryland to be shovel-ready in 2026. This does not mean we are starting these projects in 2026, but we want to be fully prepared to move on them if someone approaches us about developing any of these parcels ahead of where they fall in our spec development queue. Finally, and most importantly, as we laid out in our call last week, the acquisition of Altman Logistics is essential to our growth strategy. As Mark just described, through this acquisition, we are now the general partner in developing industrial assets in some of the best industrial markets in the world. Through promotes and sales, we will generate a not insignificant amount of cash, which we can use to do entirely in-house projects or JVs where we are a larger partner with family offices or institutional money and generate fees or some of both. And we now have a team in place to be opportunistic and flexible with how and where we decide to proceed. I said this on the call last week announcing the deal, but at the risk of repeating myself, the finances of the deal are attractive, but I think the most important component of this acquisition is the people. Opening a new office and building a separate team would have been a full-time job and a risky one. If you're ever curious about what that's like, you can feel free to call Mark. And any expansion into these industrial markets outside of our traditional Baltimore Sandbox would have to be done by joint ventures, which while effective, is an expensive way to expand because of the development fees and the equity you give up on a successful project. Through this acquisition, we now have the ability to do these same projects in-house or be the partner generating fees and equity if we so choose. It simultaneously solves the problem of additional hires we would have had to make anyway with people plugged into the markets where we want to be. As I said last week, talent is going to be the only differentiator we can count on to deliver value to our investors. Through this acquisition, we have taken on a team with a proven track record that can identify growth markets, leverage contacts for off-market deals, control construction costs and get a building occupied and stabilized quickly with quality tenants. Combining this team with the additional profits earned from these joint ventures on top of our own projects will be what drives this company's next decade of growth. I'll now turn the call over to any questions that you might have. Operator: [Operator Instructions] We do have a question. We'll go to the line of Ted Goins with Salem. J. Goins: Thank you so much for all the discussion this morning and especially for all the energy that you're putting into this endeavor. I would love to talk about the difficult part of the business right now, sorry for this. The Nat Stadium opened in 2008. And -- it just seems to be a problem. You speak of the recovery issues around the Maren. I think maybe this is the same thing that Wall Street Journal was talking about in an article a week or 2 ago with Atlanta as a highlight. But could you put some color on what you all are seeing in that area and the impediments to development and your thoughts around when that might develop again? And I recollect that the transaction with Vulcan was coming up in 2026, which seems a lot closer today than it was a few years ago. And if you could speak to that as well. David deVilliers: Sure. I will start in terms of the district market conditions. And you've heard us talk about this before, but during the pandemic, a lot of, I would say, tenant protective laws were put in place, where tenants were not allowed to be evicted and you weren't allowed to raise any rents. And that really materialized into an environment where tenants just stopped paying their landlords. And we really had no way of getting them out of our buildings. And there was also laws passed where we really couldn't vet tenants. So we couldn't do our due diligence where tenants paid or not paid historically. And if they didn't pay, we couldn't get them out. So our delinquency rate was extremely high, not only ours, but across the market. In Class A buildings, we were seeing 10%, 12% of the tenants not paying. So you might have been 95%, 90% occupied, but that building was really only 80%, considering many of your tenants weren't paying. We are seeing that now subside. The district has truly embraced the fact that this is an issue and new laws continue to be passed to help landlords deal with tenants and protect rent-paying tenants as well. So I think from a legal, eviction tenant landlord relations side, things are changing and evolving. I think crime and security have been a focus as well down in the district, which also is helping to support more people coming out, more people using our ground floor retail. And there are signs that things are changing. There was a number of buildings that were delivered around our buildings, large projects. These projects are over 500 or 1,000 units being delivered. And there's velocity there. They're leasing them. They may not be at the rates that everyone likes, and there's definitely concessions in the market to get these new supply deliveries filled and stabilized. But the velocity is there, the demand is there. And I think we just need to strike a better balance between supply and demand, which we believe is coming. We need to get more of these, I would say, equal tenant landlord laws in place, and we need to make sure that people feel safe and want to be out in the environment, in the district. And all those things we have seen. We have seen change. We are moving away from the bottom. When it flips to a point where we feel development will pencil, is when we start seeing gains at our existing multifamily buildings. And we're starting to see it. We're starting to see renewal rents move up. Trade-outs, as I mentioned, are still pretty flat negative because it's tough to attract tenants into our buildings when new deliveries are given concessions. But it is turning. I feel that we are off the bottom of multifamily. But let's see what the next couple of quarters say. And in terms of the Vulcan lease, we are talking with them. We're in active communications with them, and we look forward to keeping them there. They're a great tenant. They provide concrete to our projects. And until we're ready to develop that site, we'd love to have them there. J. Goins: And how does the development of RFK move things along for you? Or is that just too far down the river? David deVilliers: In my mind, it's too far down the river, but it's great to see government investment. I do think it's a little too far down, but it's always great to have that type of activity in and around where you are. J. Goins: And part of the notion a few years back was that Amazon was going to move forward in Pentagon City or wherever it is right near there. And that would offer a reverse commute to folks in the district near you. How is that developing? David deVilliers: I would say this. I -- we haven't seen any real impact from that development. J. Goins: Okay. And could you speak to Bryant Street? It seems to be getting a little bit of momentum and what you might be doing there that's showing some green shoots? David deVilliers: Yes. Bryant Street, again, we're dealing with some delinquency there. It is stable, and we have seen some small gains. We have seen gains in our rental rates, which is great. I think the biggest green shoot that we have seen is that our retail component, which is fairly large at Bryant Street. The tenants are in, they're occupying, they're paying, and we're -- and we see kind of the light at the end of the tunnel. Bryant Street is more or less stabilized now. And with treasuries where they are, I think we will be in a place to get some good financing at some point. Maybe not now, but potentially in the first half of 2026, and we would be able to lower our debt service to a point where our earnings are relevant. So Bryant Street is a big project. The development of that area really got slowed down because of the pandemic. We're moving away from that. We're seeing rent growth. We're seeing our occupancy tick up. We're seeing delinquencies and concessions burn down. We're in a good, good place from -- we're more stable there than ever. And I think that bodes well with getting the capital stack of equity and debt in a good place and start seeing some meaningful cash flow on the horizon. J. Goins: Again, I just want to say thanks for all your efforts. The efforts, the intentionality that you guys are putting forth are evident to all of us. And so thank you for that. Operator: [Operator Instructions] It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks. John Baker: We appreciate your continued interest and investment in the company, and this concludes the call. Thank you. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Maura Topper, Chief Financial Officer. Please go ahead. Maura Topper: Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners Third Quarter 2025 Earnings Call. With me today is Charles Nifong, CEO and President. We'll start off the call today with Charles providing some opening comments and an overview of CrossAmerica's operational performance for the third quarter, and then I will discuss the financial results. We will then open up the call to questions. Today's call will follow presentation slides that are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the organization. There can be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission, including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Charles. Charles Nifong: Thank you, Maura. Maura and I appreciate everyone joining us this morning, and thank you for making the time to be with us today. During today's call, I will go through some of the operating highlights for the third quarter. I will also provide commentary on the market and a few other updates as I typically do on our calls. Maura will then review in more detail our financial results. If you turn to Slide 4, I will briefly review in more detail some of our operating results for the quarter. For the third quarter of 2025, our Retail segment gross profit decreased 4% to $80 million compared to $83.6 million in the third quarter of 2024. The decrease was primarily driven by a decline in motor fuel gross profit due to lower retail fuel margins for the quarter compared to the prior year. For the quarter, our retail fuel margin on a cents per gallon basis decreased 5% year-over-year, as our fuel margin was $0.384 per gallon in the third quarter of 2025 compared to a historically strong $0.406 per gallon in the third quarter of 2024. In comparison to the prior year, crude oil prices were much less volatile during the third quarter of 2025, which resulted in lower market volatility. And as a result, our retail fuel margins were lower year-over-year. For volume on a same-store basis, our overall retail fuel volume declined 4% for the quarter year-over-year. Our retail volume performance for the quarter was bifurcated between our company-operated and commissioned sites. For our company-operated sites, our same-store volume for the quarter was down slightly less than 3% year-over-year. Our pricing strategy for our company-operated retail sites overall remained unchanged. We strive to be competitive at each location for the market the site is in. For our commission class of trade, our commission same-store site volume was down approximately 7% for the quarter. The decline was due in part to our decision at select sites to adjust our pricing strategy. With many of the sites that we converted throughout last year, we were very aggressive with fuel pricing initially at conversion, which generated strong volume growth and provided us with data about the volume potential of the locations. These sites are now same-store locations. And in the third quarter, we sought to balance the volume and margin performance of these locations, which led to lower same-store volumes in our commission sites in addition to the overall volume decline in the market. Based on national demand data available to us, national gasoline demand is down approximately 2.5% for the quarter. So our company-operated sites slightly underperformed the market volume for the quarter, while our commission sites were below national market volume, primarily due to the deliberate pricing strategy changes we implemented during the quarter. In the period since the quarter end, national retail volume has been down approximately 3.5% and our overall retail same-store volume has been down slightly more than that year-over-year, as we continue to adjust commission pricing strategies relative to the prior year, and we compare against what was for us a very strong volume performance last October. In the same period, retail fuel margins have been significantly higher than the average third quarter retail fuel margins, as oil market price volatility has generated favorable market conditions for enhanced retail fuel margins. For inside sales -- on a same-site basis, our inside sales were up approximately 3% compared to the prior year for the third quarter. Inside sales, excluding cigarettes, increased 4% year-over-year on a same-store basis for the quarter. Our inside sales growth was driven by strong performance in our packaged beverage and other tobacco products categories. Also, our food category contributed to our relatively strong 4% growth in same-store sales for the period. Overall, national demand for inside store sales for the quarter was flat to slightly positive, indicating our relative outperformance for the quarter. On the store merchandise margin front, our merchandise gross profit increased by 5% to $32 million, driven by an increase in sales in our base business and an increase in store merchandise margin percentage. Our merchandise gross margin percentage was up strongly over the prior year, approximately 100 basis points. This was primarily due to strong growth in certain higher-margin categories like other tobacco products and also due to our transition from a commission-based model for certain products in the third quarter of last year into owning and selling these products directly for the current quarter. In the period since the quarter end, same-store inside sales have been approximately flat compared to the prior year. In our retail segment, if you look at our total number of retail sites at the end of the quarter, our company-operated site count decreased by 8 sites this quarter relative to the second quarter of this year. The decrease in company-operated sites reflects the asset sales we completed during the quarter. The divested locations were lower performing sites in markets that we decided were no longer strategic for us. Our commission agent site count also decreased modestly by 3 sites during the quarter relative to the second quarter. Site divestitures this quarter represent our execution on our continued strategic focus on being in retail, in the right markets, with the right assets and positioning our portfolio for long-term success. We continue to look for opportunities in our portfolio to increase our retail exposure and our overall retail strategy has not changed. The Retail segment performed well for the third quarter. On a fuel margin-neutral basis, the segment outperformed the prior year on strong inside sales and expense reduction, which Maura will address in her comments. Our volume performance at first glance underperformed, but this was due primarily to deliberate decisions we made in our commission class of trade to adjust our volume and fuel margin mix at select sites. In the period since the quarter end, we have benefited from a very strong fuel margin environment throughout the month of October. Moving on to the Wholesale segment. For the third quarter of 2025, our Wholesale segment gross profit declined 10% to $24.8 million compared to $27.6 million in the third quarter of 2024. The decrease was primarily driven by a decline in fuel volume, fuel margin and rental income. The primary factor for the fuel volume decline was the conversion of certain lessee dealer sites to company-operated and commission agent sites, which are now accounted for in the retail segment. Rental income declined for the same reason and due to the site divestitures we have completed thus far this year. Our wholesale motor fuel gross profit declined 7% to $15.7 million in the third quarter of 2025 from $16.9 million in the third quarter of 2024. Our fuel margin decreased 2% from $0.09 per gallon in the third quarter of 2024 to $0.088 per gallon in the third quarter of 2025. The decline in our wholesale fuel margin per gallon was primarily driven by movements in crude oil prices and lower prompt pay discounts associated with lower gasoline prices, which reflected lower crude oil prices during the quarter compared to the prior year, partially offset by better sourcing costs. Our wholesale volume was 177.7 million gallons for the third quarter of 2025 compared to 186.9 million gallons in the third quarter of 2024, reflecting a decline of 5%. The decline in volume when compared to the same period in 2024 was primarily due to the conversion of certain lessee dealer sites to our retail class of trade. The gallons from these converted sites are now reflected in our retail segment results. For the quarter, our same-store volume in the wholesale segment down approximately 2.5% year-over-year. So the additional approximately 2.5% drop in volume, the difference between the overall volume decline of 5% and our same-store volume decline of 2.5% for this segment was largely due to converting sites to the retail segment or the loss of independent dealer volume. As I mentioned in my retail segment comments, national demand data available to us indicated national volume demand was down around 2.5% for the quarter. So our same-store wholesale volume performance for the third quarter performed in line with overall national volume demand. In the period since the quarter end, wholesale same-store volume has been down approximately 4.5%, so slightly worse than national volume demand, which has been down approximately 3.5%. Regarding our wholesale rent, our base rent for the quarter was $8.5 million compared to the prior year of $10.4 million, a decrease due to the conversion of certain lessee dealer sites to company-operated sites as well as our real estate rationalization efforts. As we have previously explained, the rent dollars for the converted sites, while no longer in the form of rent, are now effectively in our retail segment results through our fuel and store sales margins at these locations. During the quarter, we continued with our real estate rationalization efforts, realizing approximately $22 million in proceeds from the sale of 29 sites during the quarter that we primarily used to pay down debt. For the most part, we sold sites with continuing fuel supply relationships, so we realized an extremely attractive effective multiple on these divestitures, strengthening our financial position today and positioning our portfolio for the future. Year-to-date, we have realized approximately $100 million in proceeds from asset sales, our biggest year ever. We continue to have a strong pipeline of asset sales for the rest of the year and are building a pipeline of asset sales for 2026. While we don't expect next year to be the record volume of sales that we have executed this year, we do expect it to contribute meaningful proceeds for us to either put into the balance sheet or to invest into the business. Overall, the third quarter was a solid quarter for the partnership. While our EBITDA was below the prior year, on a comparable fuel margin basis, our EBITDA results exceeded the prior year despite us realizing approximately $100 million in asset sale proceeds this year. During the quarter, we continued to make meaningful progress on our strategic goals with another strong quarter of site divestitures, which strengthened our balance sheet by lowering our debt level by approximately $22 million compared to the second quarter and further optimize our operating portfolio for the future. Since the end of the third quarter, we've had a strong start to the fourth quarter, benefiting from a very favorable fuel margin environment. With that, I'll turn it over to Maura to further discuss our financial results. Maura Topper: Thank you, Charles. If you would please turn to Slide 6, I would like to review our third quarter results for the partnership. We reported net income of $13.6 million for the third quarter of 2025 compared to net income of $10.7 million in the third quarter of 2024. This increase in net income was driven by a combination of factors, including a decline in adjusted EBITDA year-over-year, offset by increased gains on the sale of assets that Charles discussed in his commentary and a decline in interest expense. We recorded a net gain from asset sales and lease terminations of $7.4 million during the third quarter of 2025 compared to $4.7 million during the third quarter of 2024. Interest expense declined from $14.1 million during the third quarter of 2024 to $11.8 million during the third quarter of 2025, a material benefit to our quarter as a result of our strategic activities, which I will discuss further later on in my comments. Adjusted EBITDA for the third quarter of 2025 was $41.3 million, a decline of $2.6 million or 6% compared to the prior year period. This decline was primarily due to a decline in fuel and rent gross profit, which was offset by a $4 million decrease in overall expenses during the quarter year-over-year. Our distributable cash flow for the third quarter of 2025 was $27.8 million, a slight increase from $27.1 million for the third quarter of 2024. The increase in distributable cash flow was primarily due to lower cash interest expense, sustaining capital expenditures and current income tax expense, offset by our lower adjusted EBITDA. The decline in interest expense we experienced during the quarter was due to a lower average interest rate during the period and a lower average outstanding debt balance on our capital credit facility during the period, as we have materially applied the proceeds of our asset sale activities to pay down our revolver balance. Our distribution coverage ratio for the third quarter of 2025 was 1.39x compared to 1.36x for the same period of 2024. Our distribution coverage for the trailing 12 months for the period ended September 30, 2025, was 1x compared to 1.26x for the same 12-month period ended September 30, 2024. During the third quarter of 2025, the partnership paid a distribution of $0.525 per unit. Charles provided information in his comments on our top line and gross profit metrics during the quarter and how they impacted our adjusted EBITDA compared to the prior year. I will now touch on the expense portion of our operations. In total, across both segments, we reported operating expenses for the third quarter of 2025 of $57.5 million, a $3.2 million decrease year-over-year. We reported G&A expenses for the quarter of $6.5 million, a $0.8 million decrease year-over-year, resulting in a total expense decrease for the organization of $4 million or 6% over the course of the past year. As I touched on during our last quarterly earnings call, we have cycled through the first year of operations of many of our locations in their new classes of trade, which typically results in elevated expenses to onboard and upgrade the converted locations. As a result, we are experiencing a stabilization of our expense profile in our current class of trade site count. We will, of course, continue to experience seasonality of certain types of operating expenses in our stabilized portfolio, like increased labor in the summer and increased snowplowing in the winter. Returning to our operating segments. Retail segment operating expenses for the third quarter declined $1.6 million or 3%. This was driven primarily by the reduced site count in our retail segment this quarter, specifically the 4% decrease in average company-operated site count year-over-year. On a same-store store level basis, operating expenses in our retail segment were down 2% for the third quarter of 2025 compared to the third quarter of 2024. The decline was primarily driven by reduced repairs and maintenance spending at both our company-operated and commission class of trade locations due to realized ongoing efficiencies in our maintenance operations, offset by normal course increases in store labor costs. Operating expenses in our wholesale segment declined by $1.6 million or 19% for the quarter year-over-year due to declines in site level operating expenses and management fees, as our wholesale segment average site count declined 6% year-over-year. And specifically, our lessee dealer or controlled site count within this segment declined 23% year-over-year due to asset sales and to a lesser extent, conversions to our retail class of trade. Our G&A expenses declined 11% for the quarter year-over-year, primarily driven by lower legal fees and equity compensation expense. As noted last quarter, our G&A expense profile this quarter, excluding event-driven acquisition costs and unit price movements impacts to equity compensation is more indicative of our ongoing run rate in this area. We remain focused across the organization on efficient expense management at our locations, ensuring that we are investing in customer-facing areas that will drive the long-term health and sustainability of our sites and driving operating efficiencies in our above-store operations. Moving to the next slide. We spent a total of $6.7 million on capital expenditures during the third quarter with $4.8 million of that total being growth-related capital expenditures and $1.9 million of that being sustaining capital expenditures. The decline in sustaining capital expenditures versus the prior year is in line with our expectations, as we experienced a stabilization of our current class of trade site count as well as a reduction of our real estate controlled site count. Moving to our growth capital spending during the quarter. Our spend remained focused on our company-operated locations and included the completion of various projects to increase food offerings, both our own and QSRs as well as targeted fuel brand and backcourt refresh projects, supported by our wholesale fuel supplier partners. Our food-related growth investments have and will continue to contribute to our merchandise sales and margin results, as Charles discussed earlier. Turning to our balance sheet. The asset sale activities during the third quarter that Charles reviewed in his comments, meaningfully helped us reduce our credit facility balance by $21.5 million since the end of the second quarter of 2025, ending the quarter at a credit facility balance of $705.5 million. Our year-to-date asset sale activities have helped us to reduce our credit facility balance by $62 million year-to-date. The decrease in our balance, combined with the gains on sale generated from our asset sale activities, resulted in a decrease in our credit facility-defined leverage ratio to 3.56x compared to 4.36x as of December 31, 2024. This leverage ratio continues to provide additional meaningful savings on our credit facility interest expense, as we move forward. Our management team remains focused on the cash flow generation profile of our business, utilizing our normal course operations and our targeted real estate optimization efforts to manage our leverage ratio at approximately 4x on a credit facility-defined basis. Our asset sale activities during the quarter and reduced credit facility balance also helped improve our cash interest expense during the quarter, which decreased from $13.7 million in the third quarter of 2024 to $11.3 million in the third quarter of 2025. We also benefited from a lower average interest rate environment during the third quarter of 2025. Our existing interest rate swap portfolio continues to benefit us as well. At this time, more than 55% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended, which remains an advantaged rate in the current rate environment. Our effective interest rate on the total capital credit facility at the end of the third quarter is 5.8%. In conclusion, as Charles noted, we had a solid third quarter. We successfully completed several asset sales, reducing our debt by more than $20 million and strengthening our balance sheet. These transactions also positioned our operating portfolio for long-term performance. We remain focused as a team on continuing to execute across the business and are looking forward to 2026, maintaining a strong balance sheet and generating value for our unitholders. With that, we will open it up for questions. Operator: [Operator Instructions] Unknown Executive: It doesn't appear we have any questions today. Should you have any questions later, please feel free to reach out to us. Again, thank you for joining us. Have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascades' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I will now pass the call to Jennifer Aitken, Director of Investor Relations for Cascades. Ms. Aitken, you may begin your conference. Jennifer Aitken: Thank you, operator. Good morning, everyone, and thank you for joining our third quarter 2025 conference call. We will begin with an overview of our operational and financial results, followed by some concluding remarks, after which we will begin the question period. Today's speakers will be Hugues Simon, President and CEO; and Allan Hogg, CFO. Before turning over the call, I would like to highlight that certain statements made during this call will discuss historical and forward-looking matters. The accuracy of these statements is subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings. These statements, the investor presentation and the press release also include data that are not measures of performance under IFRS. Please refer to our Q3 2025 investor presentation for details. This presentation, along with our third quarter press release, can be found in the Investors section of our website. If you have any questions, please feel free to contact us after the session. I will now turn over the call to our CEO, Hugues Simon, who will begin with a review of our Q3 performance. Hugues? Hugues Simon: Thank you, Jennifer, and good morning, everyone. Our third quarter performance was stronger than our projections. This was driven by improved volumes, higher average selling prices and lower production costs in both businesses. This reflects the growing momentum achieved by our profitability initiatives. Volume showed steady positive momentum in the quarter. In Packaging, the flexibility of our operating platform enabled us to capture volume above our forecast. We continue to remain laser-focused on our balance sheet, allocating free cash flow to reduce our debt. Consolidated EBITDA of $159 million increased 16% from Q2. As I mentioned, this was driven by a stronger performance in both of our businesses due to higher volume, higher selling price and lower production costs. Year-over-year consolidated EBITDA increased 14%. Results in both businesses benefited from stronger pricing and favorable raw material costs. These offset higher operating costs and lower utilization rate in Packaging. We provide a breakdown of the impact of these factors sequentially and year-over-year on Slide 5. Trends continue to be favorable on raw material input costs. We provide an overview of raw material average quarterly costs and trends on Slide 6 and 7. Moving now to the results of our businesses, which are highlighted on Slide 8 through 13 of the presentation. Beginning with Packaging, our second quarter sales increased 4% sequentially. This reflects stronger volume and improved average selling prices. Demand levels exceeded our cautious outlook with September, in particular, coming in stronger than expected. We provide box shipments data for Cascades and the industry on Slide 8 and 9. Q3 EBITDA increased by 14% sequentially to $136 million. This was driven by higher volumes and selling prices. EBITDA margins improved to 17.1% from 15.6% in Q2. Results in this business have begun capturing benefits from our improved operating cost structure and profitability initiatives. The closure of our Niagara Falls facility went well and production was transitioned to other operating units ahead of schedule. Similarly, we had a strong quarter at Bear Island, and we are pleased with the sequential progress. Production increased 24% to just over 102,000 tons. The mill ran at 90% of our targeted ramp-up curve and 88% of its total production capacity in the quarter. We have continued to see this positive operational pace in October, and we are forecasting a strong end of 2025. We remain committed to closing the gap by year-end. Our employees at Bear Island are driving this momentum and we would like to thank them for their hard work and incredible focus. Year-over-year sales increased by 3%. This reflected higher selling prices and favorable exchange rate, which offset lower volume due to plant closures and softer demand as a result of economic headwinds. EBITDA increased 16% from last year, driven by higher selling prices and lower raw material costs. Margins improved to 17.1% from 15.1% last year. Moving now to our Tissue business. Third quarter sales increased 5% sequentially on stronger volumes. Converted product shipments increased 6% in both away-from-home and retail tissue markets. EBITDA of $46 million increased 21% from Q2 as benefits from volume, mix and lower operating costs mitigated slightly higher raw material costs related to a higher proportion of virgin fiber. Sales increased 6% from last year. This reflected stronger volumes and higher average selling price. Shipments increased 5% year-over-year with a 7% increase in retail and a 1% increase in away-from-home. Year-over-year EBITDA increased by $3 million, reflecting higher volume, higher average selling price and lower material costs. These were partially offset by higher operating costs due to planned maintenance. We continue to focus on our Pryor, Oklahoma mill. We are building a strong foundation to accelerate efficiency improvements. We have started to see benefits in October and are confident that this trend will continue through Q4. Also, our recent investments in Kingsey Falls and Granby facilities are delivering good results. I'll now pass the call over to Allan, who will briefly discuss some of the financial highlights. Allan? Allan Hogg: Thank you, Hugues, and good morning, everyone. Let's start with the specific items recorded during the quarter, which impacted operating income by $12 million on Slide 14 and 15. The main items were $10 million for an environmental provision related to a closure in 2024 of a plant in Canada and $6 million of restructuring charges mainly related to the closure of the Niagara Falls mill. In addition, there was also a $4 million gain on derivative financial instruments. Slide 16 and 17 illustrate the year-over-year and sequential variance of our Q3 adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results. As reported, Q3 net earnings per share were $0.29. This compared to net earnings per share of $0.01 last year and a net loss of $0.03 per share in Q2. On an adjusted basis, net earnings per share were $0.38 in the current quarter. This compared to net earnings per share of $0.27 last year and $0.19 in the second quarter of 2025. These increases were both driven by stronger adjusted EBITDA in the current quarter. As highlighted on Slide 18, third quarter adjusted cash flow from operations was $137 million, up from $86 million in the year ago period and $101 million in Q2. Adjusted cash flow generated in the second quarter improved year-over-year, mainly reflecting stronger operating results and lower financing expense. Capital investments and dividends paid to minority interests were largely unchanged. Sequentially, the increase in levels of adjusted cash flow generated reflects stronger operating results and lower amounts of dividends paid to minority interest, net of higher financing expense paid. Slide 19 provides details about capital investments. New investments for the third quarter totaled $30 million, bringing the year-to-date level to $91 million. For 2025, we expect CapEx to total approximately $140 million, slightly lower than the $150 million stated at the end of Q2. Moving now to our net debt reconciliation as detailed on Slide 20. Sequentially, net debt decreased by $81 million in the third quarter, mainly due to a stronger cash flow from operations and a reversal in working capital requirements. A less favorable exchange rate on our U.S.-denominated debt increased debt levels by $42 million. Our leverage ratio decreased to 3.6x from 3.8x at the end of the second quarter. Our available liquidity under our credit facility stood at $630 million at the end of the third quarter. We also announced that we've completed the sale of the Flexible Packaging operation on October 8. The $31 million of cash proceeds have gone towards debt repayment in the fourth quarter. Including this amount, total proceeds from asset sales amount to $57 million this year. Financial ratios and information about maturities are detailed on Slide 21, and other information and analysis can be found on Slides 26 through 34 of the deck. I will now pass the call back to Hugues, who will conclude with some brief comments before we begin the question period. Hugues? Hugues Simon: Thank you, Allan. We provide our outlook for Q4 on Slide 22. In Packaging, raw material and selling price trends are anticipated to be favorable. However, we remain cautious regarding demand levels due to unusual post-Thanksgiving seasonality and continued macro uncertainty. To this end, we are currently forecasting Packaging results to be in the range of stable to 10% below Q3 levels. This is driven by an expected 5% decrease in volumes, mainly in December. Tissue results are expected to strengthen sequentially with lower raw material and maintenance costs. Corporate costs are expected to be stable. However, share-based compensation costs are expected to be higher given the recent increase in our share price. Before opening the call to questions, I would like to provide an update on our strategic priorities for 2025 and 2026. First, our plan to monetize redundant assets is progressing well, and we are increasing our target to $120 million by June 2026 from the $80 million disclosed previously. Lastly, our culture of excellence focus is starting to show benefits and have helped mitigate the impact from headwinds. On Slide 24, we provide a few examples of what has been done and our current areas of focus. Looking at our most recent quarter, our initiatives contributed approximately $10 million to our results sequentially. We are on track to achieve our $100 million objective of run rate profitability improvements by the end of 2026. With that, we can now open the call to questions. Operator? Operator: [Foreign Language] [Operator Instructions] Your first question comes from Hamir Patel with CIBC Capital Markets. Hamir Patel: Congrats on a strong quarter. Hugues, I wanted to ask about the profitability improvement objectives there, the $100 million by the end of 2026. You mentioned you captured $10 million in Q3. How much have you captured cumulatively to date? And then the sort of longer-term goalpost of over $200 million, what do you see as the time line of achieving that? Hugues Simon: Yes. Thank you for your question, Hamir. If you look at what we've done so far this year, the first 2 quarters of the year was mostly focused on building the foundation to drive improvements. And we really started to see some good benefits in the third quarter. So we're building momentum. And as we stated on the second quarter, like we're really looking at a net run rate of $100 million by the end on the last quarter of 2026. So we expect the momentum to continue. I won't say on a straight curve. But most of it has to be achieved like before the fourth quarter, it's not all going to happen at the end of 2026. So we expect some momentum to be building over the next 3 quarters. And we're focusing on twice of the amount because, obviously, there are some headwinds. You look at the uncertainty in the market today. There's a volume impact. We -- that drove some of our decisions in the third quarter to shut down our Niagara Falls facility. We were able to redistribute the customer mix, focus on linerboard versus medium and look at profitability on a per hour basis, putting the right products on the right machine for the right customer. So that momentum is going to continue to build. And obviously, the focus is to get it as fast as we can. Hamir Patel: Great. That's helpful. And Allan, with respect to the CapEx budget for 2026, $175 million, what are the sort of larger projects that drive the increase there? Allan Hogg: Well, our team are just planning for that. But there's no, I would say, major strategic, but maybe a bit more investment in this year to continue to improve where we need to improve, improve quality, reduce our costs. So -- but there's nothing, I would say, like a major addition to what we have. That's what we have on the table right now. Hamir Patel: Okay. Great. And just the last question I had, and maybe this is for Hugues. Just with respect to what you're seeing in the recovered paper market, do you feel OCC prices are bottoming here? And kind of what are you seeing in your local markets? Hugues Simon: Yes. I mean we just had the latest publication going down $5 here and $10 in the Southeast yesterday. I mean we're getting to a point. It's a low number. We're really tracking the percentage of people that are doing the recycling. We're also tracking the quality of the product that we're getting. Sometimes when pricing deteriorates, you see an impact on quality, and that's something that we pay very, very close attention. There's also more of a headwind for people to export out of North America. But in the meantime, we're also seeing with the shutdown in the U.S., a lower recovery rate or a lower generation of OCC as well as consumers have reduced their spending. So we're -- per region, we're tracking the balance of all that, making sure that our strategy provides for like the low generation that we'll typically get as well after Christmas and match that with our operating rate. But overall, for the next quarter, we see that as if you do the summation of everything I just mentioned, it's a positive trend for us, but paying close attention to the volume generated. Operator: Your next question comes from Sean Steuart with TD Cowen. Sean Steuart: Congrats on a solid result. Hugues, a number of the U.S. packaging comps have provided cautious 2026 guidance with respect to the volumes and margins. Do you have enough visibility in your order file maybe past the fourth quarter to really comment on expectations, I suppose, on the volume side to start with for your Packaging business in 2026? Hugues Simon: Thank you for your question, Sean. I mean the visibility, I mean, we typically guide 1 quarter ahead. All the economic uncertainty right now gives a bit more of a -- it's a bit muddy out there for 2026. If you look back over the last few quarters, we've been very cautious on the guidance, and we've also been cautious on volumes that we put in our operating plan. The key here for us is really we want to be able to capture any uptake in demand. And we've been able to do that in the third quarter. We are able to do that right now in the fourth quarter. If you look at the fourth quarter, our -- the biggest uncertainty is post Thanksgiving, given the U.S. shutdown and how much money the U.S. consumer have to spend. So it's going to be the same reality until we see more stability in the economy, but we'll be ready to capture any uptake. And we're really focusing right now on partnering with customers that are more resilient that don't see too much of a drop that are using basic products. And then we have our mix in Canada and in the West that does behave differently than the U.S. It's very busy in our Western operation. It's very busy in Ontario as well. Quebec is probably the one that is the most difficult market given the type of businesses and the type of product that we produce. So we're working on that as well on a per region basis to partner with the most resilient customers. But as far as visibility, I mean, we'll continue to be cautious. We're not going to be over optimistic, and we'll make sure that we have the quick turnaround time to capture any available business over and above our forecast. Sean Steuart: Second question for Allan. The increase in the asset sales target to $120 million, is that incremental just exclusively the addition of the Flexible Packaging divestiture? And further to that, can you give us a sense of any associated EBITDA tied to these initiatives, i.e., how much are you giving up as you sell these assets down? Allan Hogg: Well, it's not necessarily linked to the Flexible Packaging transaction. As we go, we continue to evaluate what we have, and we see that there may be new opportunities that are coming on the table. So that's why we feel comfortable to increase this target. And there's -- in terms of EBITDA contribution, it's nothing -- I would say, nothing major. And as for Flexible, the approximately $5 million to $6 million a year. So that's no -- nothing significant, and we continue to progress, and we might have new opportunities in the future and some might just be not achievable. So that's why we are comfortable with the level we have right now. Operator: Your next question comes from Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just reflecting back on some of the presentation materials around the time you're constructing Bear Island would suggest there could still be pretty substantial incremental EBITDA to unlock as Bear Island ramps up from, I guess, 88% in Q3 to the full potential of the facility. So recognizing that price input cost spreads and operating costs have evolved over time, how do you think about the incremental EBITDA Bear Island running full to generate compared to what you did in Q3? Hugues Simon: Yes. Thank you, Matt, for the question. The -- if you look at the last 6 months, we saw consistent improvement from an operating rate standpoint or operating efficiencies. We're now to a point where we're at 90% of our ramp-up curve, but also at 80% of the capacity of the mill. So we'll continue to push on that to get to the 100%. And we've now started to look at usage, so cost components, whether it's chemical, all the materials that we use here. So this is going to be a main focus for the next 6 to 12 months is how do we get benefits from both operating efficiencies and usage, so cost structure. We don't disclose profitability per mill, but there's still enough benefits to capture between where we are today versus where we want to be, that remains our #1 priority on Packaging. Matthew McKellar: And would that 6 to 12 months' time line align with when you would expect to essentially hit the full run rate profitability of the mill? Hugues Simon: From an efficiency standpoint, we expect Bear Island by the end of next year to be at the same. You're never at 100% of the capacity all the time, but we'll be running at the equivalent from an operating standpoint of our Greenpac operation. And our cost initiative, I want to say that it's going to take 24 months to get to a full where we are. That being said, we always reassess that, right? So sometimes we're somewhere and then we feel we can get better. And that's a bit of the mindset that we've put in place with our excellence initiatives where we always want to have over $100 million in the pipeline of improvement so that we can take care of headwinds, inflation and other cost components that we have less controls on. Operator: [Operator Instructions] Your next question comes from Nathan Po with National Bank Capital Markets. Nathan Po: Congrats on the quarter. So I want to ask about your Packaging segment because EBITDA came in above expectations this quarter. Were there any onetime incremental volumes that contributed to this? And can you describe whether those are more permanent volumes or temporary given you mentioned you're ready to capture any incremental uptake? Hugues Simon: Yes. No. So there's no onetime incremental volume that we don't feel that are going to come back. We are going to have this normal seasonability, sorry, on the fourth quarter. And now, I mean, we have the economic uncertainties in both Canada and the U.S., could be quite honest, like mostly post Thanksgiving. We saw good traction more than expected in September. That continued throughout the month of October. And we're not really seeing much of a slowdown to date right now in November. But we know that from a season standpoint, it is going to slow down. And you look at the accumulation of negative news for the North American consumers, we want to be cautious. So if you look at our guidance, we took 5% off in volume for the fourth quarter, and it was not front-loaded, but I mean, backloaded in the second part of the quarter, given Thanksgiving and Christmas. That being said, we're continuing to work on customer mix, the right product at the right place on the right machine and improved mix of linerboard versus medium because there is a significant difference in the profitability between the 2 products. So really pushing to have a more resilient volume base, which will enable us to plan better and look long term ahead with more stable volumes. Nathan Po: Appreciate the color. And with the -- talk about the CapEx budget constraints and lowering that guidance and focus on debt repayments, I want to invert that a little. What needs to change in the environment in 2026 or even 2027 for you to revise that CapEx budget upwards or start investing for growth? Hugues Simon: Well, we've said for many quarters, we want to be between the 2.5 and 3. We're at 3.6. So we're making good progress. We're not announcing any significant CapEx for 2026. We have options. Our strategy is to really build different options in both Packaging and Tissue to see what has the best return for Cascades. So I mean, we started looking at what are our alternatives, and we'll continue to do that. But for now, we're going to continue our focus on debt repayment. We're making good progress. We're looking at our forecast at the end of Q4. We'll make additional progress in the third quarter results. That does not include the Flexible Packaging sale, which cash came in, in the fourth quarter, and we're pushing our $80 million to $120 million. So we're really focused on that 2.5 to 3. We're not waiting to get there to assess our options, but we want to maintain a good ratio so that we maintain flexibility in an environment that it's ever changing. So a strong balance sheet will always give us more alternatives and put us more in the driver's seat versus like a 4x ratio on debt. Operator: There are no further questions at this time. Mr. Hugues, please continue. Hugues Simon: Well, thank you, everyone, for your time. We're very satisfied with the quarter. Looking forward for the fourth quarter, and we'll try to maintain the trend. Thank you. Operator: [Foreign Language] Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.
Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust Third Quarter 2025 Earnings Call. [Operator Instructions] I'd now like to hand the call over to Simone Cole, General Counsel and Secretary. Please go ahead. Simone Cole: Thank you. Good morning, and welcome to Choice Properties Q3 2025 Conference Call. I am joined this morning by Rael Diamond, President and Chief Executive Officer; Niall Collins, Chief Operating Officer; and Erin Johnston, Chief Financial Officer. Rael will start the call today by providing a brief recap on our third quarter performance, and provide an update on our transaction activity. Niall will discuss our operational results and our development pipeline, and Erin will conclude the call with a review of our financial results before we open the line for Q&A. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance and exceptions that are not historical facts. These statements are based on current estimates and assumptions and are subject to the risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and assumptions that were made in applying and making these statements can be found in the recently filed Q3 2025 financial statements and management discussion and analysis, which are available on our website and on SEDAR+. Finally, new to this quarter, our call will feature presentation slides. If you've joined by webcast, you will see these slides presented on screen. If you have dialed into the call by phone, these slides will be available on our website following the call. And with that, I turn the call over to Rael. Rael Diamond: Thank you, Simone, and good morning, everyone. Welcome to our Q3 conference call. We delivered another strong quarter, driven by strong tenant demand in our national grocery-anchored retail portfolio and new leasing activity across our well-located industrial assets. We maintained near full occupancy of 98%, up 20 basis points from last quarter. We achieved healthy overall rent spreads of 10.8% during the quarter, which included a significant amount of Loblaw renewals that we'll speak more about shortly. Our Loblaw leases continue to be a stable source of cash flow growth, and we're equally encouraged with the robust leasing activity from our third-party tenants in the quarter. Excluding the Loblaw renewals, our average rent spread was approximately 23%. This leasing activity underscores the strength of our overall portfolio and our team's ability to manage through uncertainty. We delivered FFO per unit growth of 7.8% this quarter, supported in part by lease surrender revenue from our ongoing Loblaw rightsizing initiative. These initiatives remain a part of our active asset management strategy as we support Loblaw in evaluating its space requirements nationwide while creating opportunities to introduce other high-quality, strong covenant tenants that enhance the overall quality of our sites. Excluding lease surrender revenues and other nonrecurring items in both comparative periods, FFO per unit growth was a very strong 3.5%. Erin will provide more detail on our financial results and an update on our 2025 outlook later in the call. Our strong performance this quarter comes amidst a backdrop of ongoing macroeconomic uncertainty driven by trade-related risks in Canada and abroad. Despite this, our portfolio continues to demonstrate its resilience and our commitment to prudent financial management has enabled our teams to execute on our growth initiatives. Turning to our portfolio. We continue to see a tight retail market nationwide, fueling strong demand for our grocery-anchored neighborhood centers. We're also seeing particular strength among necessity-based and discount retail tenants. Our national portfolio is well positioned to continue capturing this momentum and benefit from these favorable market dynamics. Our team remains active in new leasing initiatives at our existing assets, while our industry-leading balance sheet and strategic partnership with Loblaw enables us to continue delivering new retail space through intensifications and greenfield development. With a strategic focus on expanding our high-quality retail portfolio and a proven track record of execution, we are well equipped to deliver sustained growth and maximize value. In the quarter, we delivered 7 new retail intensification projects at attractive yields, further intensifying our neighborhood centers, something Niall will expand on shortly. In addition to intensifying our existing sites, we also continue to leverage our balance sheet and relationship with Loblaw to pursue new greenfield opportunities. During the quarter, we completed a $9 million acquisition of a 50% interest in a greenfield site in Ottawa. This 13-acre site will feature a new shopping center totaling approximately 120,000 square feet anchored by No Frills and a Shoppers Drug Mart, which we will develop and manage on behalf of our partner. Our industrial portfolio remains in excellent shape, and our team delivered another strong quarter of leasing activity as occupancy increased 30 basis points to 98.3%. Leasing spreads were robust at nearly 38%, driven by third-party tenant renewals. While the overall industrial market continues to normalize, our portfolio remains well positioned to drive further growth given the meaningful gap between in-place and market rents. We also maintained a significant industrial development pipeline, including approximately 220 acres of developable land remaining at Choice Caledon Business Park. In the quarter, we announced our intention to begin the next phase of our Caledon project on a speculative basis. This decision was supported by our conviction in the GTA industrial market, the location of our site, the competitive advantage provided by low land cost basis and the increased RFP activity we're experiencing on the site. Lastly, in our mixed-use and residential portfolio, we saw a quarter of solid momentum. Our office portfolio is primarily leased to affiliate entities and occupancy in the quarter was largely stable. On the residential side, we continue to experience some pressure from new supply at certain assets. However, looking ahead, we continue to have a strong conviction in the quality of our residential product and are optimistic about the long-term residential fundamentals in major urban markets in Canada. Turning to our transaction activity in the quarter. We remain focused on maintaining our portfolio quality through capital recycling, completing approximately $118 million in total real estate transactions during and subsequent to the quarter. This included the $9 million retail land acquisition in Ottawa that I mentioned previously and $109 million of noncore asset dispositions. On the disposition front, we sold our 50% interest in a non-grocery-anchored shopping center in Edmonton for approximately $9 million. And subsequent to quarter end, we completed 3 additional dispositions, including a retail portfolio of 4 assets in Ontario for $67 million, a 50% interest in a retail asset in Camrose, Alberta for $23 million and a Canadian Tire land lease and COU at a retail site in Fort Saskatchewan, Alberta for approximately $10 million. All transactions were completed at or above IFRS values. We expect to remain roughly balanced for the rest of the year, positioning us as net acquirers this year in line with our transaction activity to date. Our industry-leading balance sheet supports -- continues to support us being net acquirers in the future, complementing our existing cash flow growth and development growth pillars, and we will continue to maximize value for unitholders. With that, I'll turn the call over to Niall to discuss our operational results in more detail. Niall? Niall Collins: Thank you, Rael. Good morning, everyone. As Rael mentioned, our portfolio delivered another solid quarter of operational results, and we continue to see strong tenant demand and leasing spreads across each of our portfolio types. Overall portfolio occupancy remained strong, ending the quarter at 98%. This was a 20 basis point increase to the prior quarter. During the quarter, we had over 3.7 million square feet of lease expiries and renewed approximately 3.6 million square feet, resulting in a retention rate of 96%. Overall, the portfolio renewals were completed at an average rental spread of 10.8%. Excluding the Loblaw renewals, our renewal spread was a very healthy 23.1%. We also completed 291,000 square feet of new leasing, resulting in positive absorption of 135,000 square feet, largely driven by our Ontario industrial portfolio, Quebec retail portfolio. Turning to each of our asset classes. In our necessity-based retail portfolio, occupancy was unchanged at 97.8%. During the quarter, approximately 3.2 million square feet of leases expired, including 2.8 million of Loblaw maturities. We renewed approximately 3.1 million square feet, including 2.7 million square feet from the Loblaw tranche for a retention of 97%. Given the lack of new retail supply, vacating tenants or early terminations have provided opportunities to backfill space at elevated rental rates with stronger covenants. Lease renewal spreads averaged 9% above expiring rents and 12.9%, excluding the Loblaw tranche, with broad-based strength across all of our regions and categories led by value retailers. We also completed 148,000 square feet of new leasing. Average rents over the lease term are 42% higher than our average in-place rents. This largely offsets the 95,000 square feet of expiries that did not renew in the quarter. Our team has already backfilled a portion of the space at rents 49% above previous rates and remain confident in the leasing activity on the remaining space. Turning to our industrial portfolio. Occupancy increased 30 basis points from our last quarter to 98.3%. This quarter, 491,000 square feet expired, primarily in our Alberta and Atlantic portfolios, and we renewed 430,000 square feet for a healthy 87.6% retention rate. We had 2 vacancies in the quarter, one of which has already been backfilled for Q4 and negotiations are underway for the other property. Lease renewal spreads remained strong, averaging 38.3% above prior rents, driven by the Alberta and Ontario portfolios. In the Ontario portfolio, we completed 1 renewal for 57,000 square feet at a rent spread of 183%. Excluding the 189,000 square feet of Loblaw renewal, the average renewal spread for the portfolio was approximately 62%. We also completed 142,000 square feet of new leasing against 61,000 square feet of vacates, resulting in positive absorption of 81,000 square feet. New leasing rents averaged over the lease term are 32% higher than our average in-place rents. Lastly, our mixed-use and residential portfolio continues to perform well with occupancy at 95.5%, which is up 10 basis points from the last quarter and has increased 140 basis points year-to-date, primarily from strong performance within our mixed-use assets. Turning to our developments in the quarter. Our team continues to advance our development pipeline across each of our strategic asset classes with near-term focus on commercial development. This quarter, our team delivered 7 retail intensification projects totaling 107,000 square feet at a blended yield of 6.3%. Project deliveries included 2 Shoppers Drug Marts in Ontario and Alberta, totaling 34,000 square feet at yields in the mid-6s and 7s, and we have another 7 Shoppers Drug Marts currently in active development. At T&T and CRU in Mississauga totaling 44,000 square feet, 2 CRU units in Alberta with an international cosmetic retailer, totaling 7,000 square feet at yields in the high 8% range. And finally, 2 ground leases at a property in Ontario and Alberta totaling 22,000 square feet at an average weighted yield of approximately 11%. One of the ground leases with Nautical with whom we have a deep relationship and the other ground leases with a tenant in the automotive sector. As Rael mentioned earlier, this quarter highlights our team's ability to unlock incremental value from existing retail portfolio and land bank through intensifications and new development. These type of retail initiatives remain a cornerstone of our broader development strategy, and we will continue to actively pursue opportunities to deliver high-quality retail projects. Looking ahead for the balance of the year, our major active development project continues to be our industrial pipeline at Choice Caledon Business Park. The NLS building totaling approximately 624,000 square feet, of which we own 85% was transferred to IPP on November 1 and rent commencement is on track for April 2026. With this delivery, our team is now focused on the next phase of our industrial development in Caledon. This quarter, we announced our intention to begin construction of a 1 million square foot building on spec before the end of the year. Permits are submitted and delivery is scheduled for Q2 2027. Overall, our active development pipeline totals 12 projects of approximately 1 million square feet at an average forecasted yield of approximately 6.9%. Our development pipeline continues to be a reliable source of long-term cash flow and NAV growth for our portfolio. I will now pass it over to Erin to discuss our financial performance. Erin Johnston: Thank you, Niall, and good morning, everyone. We are very pleased to report another quarter of strong financial performance. Our reported funds from operations for the second quarter was $201.4 million or $0.278 on a per unit diluted basis, reflecting an increase of 7.8% compared to the third quarter of 2024. Included in our results this quarter, we had approximately $10 million of lease surrender revenue. Last year, we had approximately $5 million of lease surrender revenue and $3.3 million of nonrecurring G&A expenses related to outsourcing. As Rael mentioned, our lease surrender revenue is mainly due to our rightsizing activities with Loblaw, where we are able to add high-quality third-party tenants to our sites and Loblaw is able to rightsize their store to a smaller footprint. These initiatives demonstrate the benefits of our strategic partnership with Loblaw and do not occur consistently throughout the year. Excluding these items, FFO per unit growth remained strong at 3.5%. FFO growth was primarily due to strong operational results and contributions from net acquisitions and development transfers over the last 12 months, partially offset by higher net interest expense. AFFO this quarter was $0.192 per unit, which was impacted by the earlier timing of executing on our maintenance capital projects. On a full year basis, we expect our 2025 maintenance capital and AFFO payout ratio to be relatively consistent with the prior year. Turning to our operational results. Same-asset cash NOI increased by $7 million or 2.8% compared to the third quarter of 2024, driven by higher base rents from rent steps and strong leasing activity. By asset class, retail same asset cash NOI increased by $5.8 million or 3.1%. The increase was primarily driven by leasing activity, which included the impact of our Loblaw lease renewals in the quarter and higher base rent on contractual rent steps. Retail growth was also favorably impacted by higher capital recovery revenue. Industrial same-asset cash NOI increased by approximately $0.8 million or 1.6%. The increase was primarily due to higher base rent from contractual rent steps and leasing activity. Growth in the quarter was tempered by prior year property tax recoveries and other income items. Including prior year items, same-asset cash NOI growth would have been approximately 3.3%. Mixed-use and residential same-asset cash NOI increased by approximately $0.4 million or 4%. Moving to our balance sheet. Our IFRS net asset value or NAV for the quarter was $14.53 per unit, an increase of $111 million or approximately 1% compared to the second quarter of 2025. NAV growth was driven by a net contribution from operations of $56 million, a net fair value gain on our investment properties of $13 million and a fair value gain on our investment in the units of Allied Properties. As a reminder, we are required under IFRS to mark-to-market the investment in Allied to its trading price at each period end. Our fair value gain on investment properties in the quarter was primarily driven by cash flow growth, favorable leasing and backfill initiatives in our retail segment. This more than offset a fair value decrease related to certain asset-specific leasing adjustments in our industrial portfolio. This quarter, we also completed several successful financings, most notably our $500 million dual tranche unsecured debenture offering in August. The transaction included a $350 million Series W unsecured debenture at a 4.628% coupon with a 10-year term and $150 million Series X debenture at a 5.369% coupon with a 30-year term. The dual tranche offering carried a weighted average coupon of approximately 4.85% and a 16-year average term, extending our debt maturity profile to 6.8 years. Our team capitalized on a very strong credit environment with the issuances representing both the tightest ever 10- and 30-year spreads for Choice. We saw exceptional demand for these issuance with the combined offering being over 9x oversubscribed. This transaction continues to demonstrate our strong position in the market and our ability to source low-cost capital while also accessing the long end of the curve, providing the flexibility needed to prudently manage our balance sheet and maintain a well-structured debt ladder. Proceeds from the offering were primarily used to repay maturing debt, including the redemption at par of our $200 million Series F unsecured debenture in September and approximately $100 million of mortgages that matured in the quarter. The remaining proceeds were used for general purposes and to pay the rebalances on our revolving credit facility. Looking ahead to the remainder of the year, our team has largely addressed the few remaining maturities with our next significant debt maturity not occurring until our unsecured debenture due in November 2026. We ended the quarter in solid financial position with strong debt metrics, ample liquidity, including approximately $1.5 billion of available liquidity, including credit on our corporate facility and available cash and $13.7 billion of unencumbered properties. Our debt-to-EBITDA ratio was 7.1x, which was down 0.1x from last quarter as we capture earnings related to our acquisition activity earlier in the year. Supported by our strong year-to-date operating performance, including our team's ability to execute on a transaction strategy and deliver on our rightsizing initiatives with Loblaw, we have increased our guidance for 2025 FFO per unit to approximately $1.06 to $1.07, representing year-over-year growth of approximately 3% to 4%. With that, Rael, Niall and I would be glad to answer your questions. Operator: [Operator Instructions] And our first question today comes from the line of Mark Rothschild from Canaccord. Mark Rothschild: It sounds like you're comfortable progressing with industrial development now. And I'm just curious your thoughts on undertaking new developments on larger mixed-use projects at a time when general residential development, especially in the condo market is stopped or slowing, projects take quite some time. Are you looking at advancing any of these projects now? Or still do the numbers maybe just not work right now? Rael Diamond: Mark, it's Rael. Hope you well. Look, I think the way we think about it is we're a long-term owner of real estate. And if you start one of these projects now, you're only going to deliver it in 3 or 4 years, and you're going to be leasing it up in a very different environment than we are today. So given we take that long view, our balance sheet is strong. And there are quite a few available incentives at the moment our team is working on trying to capture. So we actually think we're going to be in a position to launch one of these in 2026 because we believe it's the right long-term investment. I don't know, Niall, if you want to add anything else. Niall Collins: Yes. Just to add to that, Mark, there's been a progressive decline in costs that come down approximately 15% over the last couple of years. So it's really improving the dynamics of how we're evaluating some of these performance. There is a lot of appetite in the market for new projects. So we think schedules will improve as well. So overall, we're seeing a change in dynamics that I think could be accretive very quickly. Mark Rothschild: But I guess, Rael, we should wait a little bit to hear your announcement on which project it is and what the plan is? Rael Diamond: Yes. So we hope to have something in the early part of 2026. Operator: Your next question comes from the line of Himanshu Gupta from Scotiabank. Himanshu Gupta: So your retail occupancy continues to be strong. Should we expect occupancies to be stable from here? Or do you expect any uptick in the near term? And at the same time, any pockets of like softer leasing demand within the retail side? Niall Collins: Himanshu, it's Niall. Just to respond to that. On our retail going into Q4, we're expecting a little bit of growth in occupancy improving. And in our industrial portfolio, we see occupancy improving as well. Himanshu Gupta: Okay. That's fantastic. And on the retail, I mean in the context of this population growth has slowed down and GDP growth also slowed down. So it sounds like no pocket of weakness you guys are seeing. Niall Collins: I'd say, look, there's a lot of catch-up from the immigration that has happened over the last number of years and retail and residential and industrial are still trying to catch up with that, particularly in retail. Himanshu Gupta: Okay. Okay. That's fair enough. And maybe my next question is on that Caledon industrial property. I mean, it sounds like you're making progress on that 1 million square feet of development on spec. Do you have a sense of what kind of tenant demand will be there for that kind of product? Niall Collins: Yes. We're very encouraged by the responses we've been getting to RFPs. It's a mix of logistics, electronics. There's a lot of growth there. We're seeing build-to-suit as well as interest in our spec as well. So there's a good variety there for us. Himanshu Gupta: And what kind of yields will you be underwriting on that project? Niall Collins: Similar yields that we've been achieving to date on our IPP portfolio. And our NLS project is transferring in the next quarter. We expect to see yields similar to that. Himanshu Gupta: Got it. Okay. Maybe just last question. I mean, on your Allied holdings, and I know it's a small part of the NAV. Any thoughts if there's a distribution cut, what could be the impact on your FFO... Rael Diamond: Look, Himanshu, I think just go back to what we've always said. We've always said that our view that the underlying real estate is great long-term real estate. We also recognize that office fundamentals are starting to improve. And then we don't need the capital right now. Look, we don't know exactly what the distribution cut is going to be until they officially announce it. But it's not going to have a material impact on our business. Our business is strong, and we'll provide an update when we know the magnitude of the cut. Operator: Your next question comes from the line of Sam Damiani from TD Cowen. Sam Damiani: Certainly interested to see the retail shopping center development kickoff in Nepean. I'm just wondering if, Niall, perhaps you could share a little bit of sort of thoughts about how you underwrote the opportunity and expected rents versus cost kind of yields. Like is this an opportunity that has opened up just in the recent year, let's say, with the rise in market rents? Is this an opportunity that could really expand more so in a bigger way across the country? Niall Collins: So, Sam, what I'd say, look, we have a number of opportunities for locations across Canada that we're working on for grocery stores and CRU. We are seeing rents improve to underwrite. But they're where they need to be for underwriting, so they're in the 50s. But we'll give you more input when we talk to you in Q4. Sam Damiani: Okay. That's helpful. And maybe, Rael, I mean, since you guys have been acquiring these industrial outside storage assets over the last few years, the asset class has become more popular. Are you still seeing opportunities in that space to acquire going forward? Rael Diamond: Sam, we haven't seen any real interesting new opportunities since we acquired the portfolio. I can tell you that numerous people have reached out to us to acquire portions of that portfolio at significantly higher values than we paid, which I think leads to your comment on the significant investor interest in the asset class. Sam Damiani: Okay. That's helpful. And just lastly, Mark asked about, I guess, residential construction. So I look forward to, I guess, seeing some details when that's announced. But do you have any initial thoughts on the federal budget announced a couple of days ago and how that sort of impacts the way you look at building new rental residential in Canada? Niall Collins: Look, we've been digesting it as it's been coming out over the last couple of days. You can see that there's a lot of emphasis towards infrastructure, which we feel is very important for some of our very large master plan projects. We're not quite sure how the impact on DCs is going to be trickling down to the provinces and the municipalities. So I think we're waiting for more information to come out. And Build Canada Homes, we're waiting to see how that's going to work as well. So I think there's more information to come out as the budget gets discussed over the next couple of weeks. Operator: Your next question comes from the line of Tal Woolley from CIBC Capital Markets. Tal Woolley: I was just wondering on the retail business, where Loblaw is -- where you're sort of terminating some of these leases or looking to downsize, are they switching banners while they're doing it? Erin Johnston: Tal, it's not necessarily them switching banners. I mean, they could. It's more they'll look at a store and say we have a store that's 150,000 to 160,000 square feet. Could we make the same amount or service -- do the same sales on a smaller footprint of, say, 120,000 square feet, 125,000 square feet. So it's more of that. And then what happens is Choice will go out to the market and see if we can find a third-party tenant. And only when we do, we'll tell Loblaw, we're okay for them to reduce the space. But if we don't have a good third-party tenant, we would never let them reduce the store footprint. Tal Woolley: Sorry, go ahead. Pardon me, Rael. Go ahead. Rael Diamond: I will tell you that the interesting thing, and maybe Niall can also comment is that our leasing team is saying that on the size that we're backfilling on the downsizing, there's really a lack of available space in the market. So we've had really strong tenant interest in that space, which has been a positive to offer that space to tenants. Niall Collins: Yes. And maybe add that I see, we had a lot of interest in our land bank and our opportunities and trying to find large space is difficult for our tenants that are looking to grow in a number of sectors. So rightsizing is definitely a solution and also some of our new developments for greenfield as well are providing opportunities for them, too. Tal Woolley: And is there a theme on any of these? Like is it a certain region or a certain size store that sort of predominates this group? Rael Diamond: No, I wouldn't call it on a theme. I think it's -- we've done ones in Toronto, in Montreal and in Alberta. But I don't think it's a regional theme. That's opportunity as well, refreshing the interior of their store, we work with them, too. Operator: Your next question comes from the line of Giuliano Thornhill from National Bank Financial. Giuliano Thornhill: Just wondering on the 8.6% renewals with Loblaws. I'm just wondering what would be required to see this kind of reach the maximum and looking out like further out to 2027, kind of where is that trending? Rael Diamond: It's Rael. Look, I think you have to understand there's 40, call it, 45-ish leases rolling a year. And the nature of our leases are that they can be no less than the expiry of -- the expiry rent and no more than 10% growth. So we actually think 8.5% is a really healthy lift given the nature of all the leases. And look, we don't have yet visibility on '27, and we're happy to share it when we have it. But I think it would be very difficult to get to the maximum 10% because it would imply that every single lease is at least 10% below market when it's rolling. And remember, these leases were set in 2013 at market rents. Niall Collins: Giuliano, just one thing to add is the geographic spread on these locations as well. It's across Canada and various markets. Giuliano Thornhill: Right. And then just going back to kind of Tal's line of questioning. Just how many more kind of opportunities do you think are for these larger developments? And where has kind of been the lack of grocery under construction in the country over the last little bit? Rael Diamond: Look, I think one of our big competitive advantages is that we're working with Loblaw to say, where are you trying to expand and how can we help you find land. For example, just on the grocery side, we had announced, I think, 1 or 2 quarters ago that we were building, call it, 6 new grocery stores. And I think in pretty much most cases, we're building additional CRU as well. Like I don't want to lean too much into where the locations are. I can tell you where the 6 are, but I don't want to lean too much into where the locations of the future opportunities we're looking at with Loblaw. But Niall can maybe just comment on where the, call it, the 5 remaining are. Niall Collins: Look, currently, they're typically out West and in Ontario. And as we go through and look at our pipeline, we think we're going to see more coming in from Quebec as well. So it's a national -- we're seeing a national opportunity in Ontario, out west, Edmonton and Calgary and some opportunities in Quebec that we're evaluating at the moment. Giuliano Thornhill: Right. And then just lastly, there's a conservatory group was kind of put up for sale recently. I'm wondering if any of the assets there kind of catch your interest within the portfolio. Rael Diamond: Look, I think we've just signed the NDA to get access to the data room. And hopefully, there will be something that fits our criteria, but nothing to share yet. Operator: Your next question comes from the line of Pammi Bir from RBC Capital Markets. Pammi Bir: Just on the lease termination income from Loblaw, just how many properties did that relate to? And then secondly, just to clarify, has all of that, I guess, terminated space been re-leased? Erin Johnston: So Pammi -- sorry, this is Erin. It related to 3 properties, and we actually put in 5 different CRU tenants across those properties, it would be like Dollarama, Goodlife, LCBO, and it's all been re-leased. When we do these, they are re-leased before we go ahead and do them. Pammi Bir: Okay. All right. And then should we -- as we think about just looking ahead for 2026 and maybe even beyond, is this process likely to continue maybe at the similar sort of volume annually? Or is this a bit of a unique period in terms of their rightsizing? Erin Johnston: Yes. So I'd say we've had this for the last couple of years. I think there'll be a few in 2026 and maybe '27. I wouldn't expect large volumes to continue. It will all depend on tenant demand market and Loblaw looking at their stores and where they're renovating, but we do have some in '26. Pammi Bir: Okay. And then just lastly, on the $100 million of dispositions, I guess, after the quarter, what was sort of the range or the cap rate range on those asset sales? And maybe just if you could comment on the likelihood of further capital recycling next year. Rael Diamond: Yes. I think the average cap rate or the range, it was all close to a 7. So a 7% cap. And as we said on the call, look, our balance sheet is in great shape. And this year, we were unbalanced from a capital recycling point of view, i.e., purchasing more than we sold, and we've done a significant number of transactions. And I think we're in a position to continue to do that in future years as well. Pammi Bir: And maybe as an extension to that, would that include perhaps monetizing some of the residential density as it gets owned? Or is that not really on the table at this stage? Rael Diamond: I think in this environment, it's tough at the moment. It's something we may consider in the future, but not really something we're considering at the moment. Operator: Your next question comes from the line of Gaurav Mathur from Green Street. Gaurav Mathur: Just one question on the disposition activity so far. Is there -- is it fair to say that there's a lack of liquidity now in the market when compared to probably 9 to 12 months ago as you were looking through your capital recycling plans? Rael Diamond: No. Look, I think from our standpoint, we wouldn't agree with that statement. We actually think for the product that we've been selling, there's been lots of liquidity. So used even the portfolio, there was roughly $100 million. The average asset size was each $25 million. And the pool of buyers, it's deep, it's institutions, it's advisers, sometimes even it's a private individual. So we actually -- for the product we've been selling, we haven't seen a lack of liquidity. Gaurav Mathur: And by extension, would that also be applicable to the industrial market? Rael Diamond: Again, if you look at this -- again, there hasn't been a lot of trading on the industrial market. There's been -- I think in -- I think this past quarter, there were 2 significant trades. And again, they were large assets with, from our point, seem to have good liquidity on it, too. And I will share with you as well on -- I'll also share with you when we sold the small bay portfolio earlier in the year, there was strong investor interest and appetite for more of that as well if we would be willing to sell more assets. Operator: Your next question comes from the line of Sam Damiani from TD Cowen. Sam Damiani: Just a quick follow-up on the Loblaw space that was given back and generated the lease surrender fees. That is all in respect of store downsizing. There were no stores completely closed. Is that correct? Erin Johnston: That's correct, Sam. Operator: And I will now turn the call back over to Rael Diamond, CEO, for some final closing remarks. Rael Diamond: Thank you, Rob. As I mentioned at the start of our call, our portfolio and balance sheet are in excellent shape, and our team remains focused on achieving our growth objectives. Thank you all for your interest in Choice and for joining us this morning. We look forward to providing you another update on the business in the new year. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Scott Dressel, AVP, Corporate Finance and his colleagues at NETSCOUT are on the line with us today. I would now like to turn the call over to Scott Dressel to begin the company's prepared remarks. Scott Dressel: Thank you, operator, and good morning, everyone. Welcome to NETSCOUT's second quarter fiscal year 2026 conference call for the period ended September 30, 2025. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer; and Tony Piazza, NETSCOUT's Executive Vice President and Chief Financial Officer. There is a slide presentation that accompanies our prepared remarks. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within the Investor Relations section of our website at www.netscout.com, including the IR landing page under Financial Results, the webcast itself and under Financial Information on the Quarterly Results page. As discussed in detail on Slide #3, today's conference call will include certain forward-looking statements about NETSCOUT's views on expected results of future performance and business strategy. These statements speak only as of today's date and involve risks, uncertainties and assumptions that may cause actual results to differ materially, including, but not limited to, those described in the company's most recent annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. As discussed in detail on Slide #4, today's conference call will also include discussion of certain non-GAAP financial measures that the company believes to be useful to investors. While this slide presentation includes both GAAP and non-GAAP results, other than the revenue and balance sheet information, we will focus our discussion on non-GAAP financial information. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations of all non-GAAP metrics to the nearest GAAP measures are provided in the appendix of the slide presentation in today's financial results press release and on our website. I will now turn the call over to Anil for his prepared remarks. Anil? Anil Singhal: Thank you, Scott, and good morning, everyone. Thank you for joining us today. We delivered another solid quarter in Q2, driven by revenue growth from both our cybersecurity and service assurance product lines as we continue to advance our strategic initiatives, including AI-driven product innovation. Our strong top and bottom line performance also benefited from the acceleration of some orders originally anticipated in the second half of the fiscal year. Given our strong first half performance, we are raising our revenue and earnings per share outlook, which Tony will detail in his financial review. Let's turn to Slide #6 for a brief recap of our financial results for the second quarter and the first half of fiscal year 2026. Revenue was approximately $219 million, representing an increase of nearly 15% year-over-year, driven by solid growth in both our cybersecurity and service assurance areas of our business, along with the acceleration of certain orders originally anticipated to occur in our second half. We expanded both our gross and operating margins during the quarter and delivered diluted earnings per share of $0.62, an increase of approximately 32% year-over-year. For the first half of the fiscal year or the 6 months ended September 30, revenue was approximately $406 million, an increase in approximately 11% year-over-year, which benefited from a solid growth in both cybersecurity and service assurance area of our business, along with the previously mentioned acceleration of certain orders. We expanded both our gross and operating margin during the first half of the fiscal year and delivered diluted earnings per share of $0.95, an increase of approximately 27% year-over-year. Now let's turn to Slide #7 for some perspective in our business and some market insights. Starting with our Service Assurance offering. Revenue in the first half of the fiscal year increased approximately 10% year-over-year, driven by growth from both our enterprise and Service Provider customer verticals. We achieved solid growth across most of our major enterprise sectors with the federal government being particularly strong in the first half. This sector benefited from both underlying demand and the acceleration of certain orders expected in the second half. In the Service Provider area, growth was largely attributable to the timing of maintenance renewals, including back maintenance that processed in Q2 versus Q3 in the prior year. Our Enterprise customers are continuing to invest in digital transformation initiatives related to enhanced visibility, Observability and AIOps initiatives. Accordingly, we are driving intelligence into Observability and AIOps to feed the need for actionable telemetry derived from wire data and to leverage the unmatched power of our scalable DPI and metadata technology. We also recently launched our Omnis KlearSight Sensor for Kubernetes, which provides comprehensive observability within the complex cloud environment. It delivers deep, actionable and real-time insights into the system performance, health and cost drivers. The solution reflects our vision of visibility without borders and is specifically designed to support dynamic and distributed architectures, which are challenging environments to monitor due to their encrypted nature. On the Service Provider side, domestic and international carriers continue to align their investment with clearly defined 5G monetization opportunities such as fixed wireless access and private 5G. Although the Service Provider space remains challenging, we remain optimistic that NETSCOUT can capture further opportunities by delivering differentiated value as we continue to navigate the current environment. For example, we recently announced solutions to support cable providers and multiple service operators or MSOs with Omnis AI Insights, which generates a high fidelity curated data set to provide real-time network visibility, ensuring a high-quality user experience for video streaming and over-the-top services to help MSOs deliver high-quality user experiences more cost effectively. Moving to our cybersecurity offering. Revenue in the first half increased nearly 13% year-over-year, driven by growth in both our Enterprise and Service Provider customer verticals. Organizations continue to prioritize this area as they seek to protect themselves against an increasingly complex and expanding cyber threat landscape. In late August, we released our latest research detailing the evolving Distributed Denial-of-Service attacks landscape and how such attacks can destabilize critical infrastructure. Just in the first half of this year, Activist groups launched hundreds of coordinate attacks each month, targeting communications, transportation, energy and defense system. What is particularly concerning is how DDoS-for-hire services has made sophisticated attack tools available to virtually anyone. These attacks now use AI-enhanced automation, multi-vector approaches and carpet bumping techniques that overwhelm traditional defenses. Bot are compromising tens of thousands of IoT devices, servers and routers to deliver sustained attacks that cause real disruption and are creating an unprecedented level of cyber risk for organizations and Service Provider networks. NETSCOUT's solutions are designed to mitigate this risk by leveraging our unparalleled visibility into global attack trends. Moving on to customer wins. Our solution continued to gain traction with customers seeking to enhance their visibility, observability and cybersecurity capabilities, leading to combined solution wins across our Service Assurance and cybersecurity offerings within customer orders. Highlights for the second quarter include an Enterprise deal with multiple orders totaling an amount in the 8-figure range, part of which we received earlier than anticipated related to a U.S. government agency that we have been a loyal and long-standing user of our solution. These orders are follow-on orders from orders received last quarter and consist of both Service Assurance and cybersecurity solutions, including our new AI and cyber intelligence product. This user values our solution for the smart data we provide, which they are leveraging to enhance their user experiences and support AI-driven operations initiatives as they modernize their technology environment. Additionally, in the Service Provider area, we won a low 7-figure deal with a major U.S. telecommunication company that's another loyal and long-standing customer. This deal included our Adaptive DDoS and Distributed TMS cybersecurity solution that the customer had opted to purchase on a subscription basis. The cybersecurity solution purchase are designed to defend against the kind of carpet-bombing DDoS attacks that recently targeted a large number of high-profile platforms. The deal also included solutions from our Service Assurance offerings related to the customers' 5G expansion. The cybersecurity and Service Assurance purchases were implemented to improve the subscribers' user experience and to reduce churn among their 5G and Wi-Fi customers. In all, these developments reflect our momentum in executing our long-term strategy. With that, let's move to Slide #8 to review our outlook. Looking ahead, we remain focused on driving product innovation, returning to annual revenue growth and enhancing our margin through disciplined cost management. Accordingly, based on our strong first half performance and our pipeline of opportunities, we are raising our revenue and earnings per share outlook. Tony will provide more details on the outlook in his remarks. As we navigate the second half of the fiscal year, we will continue monitoring the uncertain macro environment while remaining motivated by strong and positive customer feedback, including at our recent Annual Engage Technology and User Summit. We hosted this event in September and showcased our latest solution focused on Observability, AIOps and Cybersecurity. It is clear that our customers rely on our highly curated data to drive improved business outcomes across all ecosystems, which we believe positions us well to capture new opportunities through our differentiated solutions. As always, we are committed to empowering our customers to meet the demands of today's complex digital landscape by delivering mission-critical solutions that address performance, ensure availability and safeguard security. We look forward to sharing our progress with you throughout the remainder of our fiscal year. With that, I will turn the call over to Tony. Anthony Piazza: Thank you, Anil, and good morning, everyone. Thank you for joining us. I'll start by walking you through the key financial metrics for the second quarter and first half of our fiscal year 2026. After that, I'll share some additional commentary on our outlook for the remainder of the fiscal year, including some color on our expectations for the third quarter. As a reminder, other than revenue and balance sheet information, which is on a GAAP basis, this review focuses on our non-GAAP results and all reconciliations with our GAAP results appear in the presentation appendix. I will note the nature of any such comparisons accordingly. All comparisons are on a year-over-year basis unless otherwise noted as well. Slide #10 details the results for the second quarter and first half of our fiscal year 2026. Focusing on the quarterly performance, total revenue for the second quarter increased 14.6% to $219 million. Product revenue increased 16.9% to $94.7 million, which benefited from the acceleration of certain orders expected in the second half. Service revenue increased 12.9% to $124.3 million, reflecting both underlying growth and favorable timing of maintenance renewals, including some back maintenance that was processed this quarter. Adjusting for these timing benefits across both areas, underlying total revenue growth for the quarter was in the mid-single digits year-over-year, demonstrating solid momentum in our business. The gross profit margin increased 1.7 percentage points to 81.4% in the second quarter, primarily driven by product volume and mix. Quarterly operating expenses increased by 11%, which, as previously disclosed, included the shift of our Engage User Summit into the second quarter compared to the third quarter last year as well as the timing of commissions and variable incentive compensation, all of which are expected to normalize, resulting in a low single-digit increase in operating expenses for the full fiscal year. We reported an operating margin of 26.5% compared with 23.1% in the same quarter last year. Diluted earnings per share increased 31.9% to $0.62. Let's turn to Slide 11, where I'll walk you through the key revenue trends by product lines and customer verticals. As a reminder, revenue presented is on a GAAP basis and all comparisons continue to be on a year-over-year basis. For the first half of fiscal year 2026, Service Assurance revenue increased by 10.1% and Cybersecurity revenue grew by 12.7%. During the same period, our Service Assurance product line accounted for approximately 65% of our total revenue and our Cybersecurity product line accounted for the remaining 35%. Turning to our customer verticals. For the first half of fiscal year 2026, our Enterprise customer vertical revenue grew 12.7%, while our Service Provider customer vertical revenue grew 8.4%. During the same period, our Enterprise customer vertical accounted for approximately 60% of our total revenue, while our Service Provider customer vertical accounted for the remaining 40% Additionally, one customer accounted for 10% or more of our total revenue during the second quarter with no customer accounting for more than 10% of our revenue for the first half of the fiscal year. Turning to Slide 12. This slide shows our revenue split between the U.S. and international markets. For the first half of fiscal year 2026, 57% of our revenue was generated from the United States, with the remaining 43% coming from international markets. Additionally, all geographies grew in the first half of the fiscal year. Slide 13 shows some key balance sheet items along with our free cash flow for the period. We ended the second quarter of 2026 with $526.9 million in cash, cash equivalents, short and long-term marketable securities and investments, representing an increase of $34 million since the end of the fiscal year 2025. Free cash flow for the quarter was $4.3 million. During the second quarter, we repurchased approximately 741,000 shares of our common stock for approximately $16.6 million at an average price of $22.34 per share. We currently have capacity under our share repurchase authorization and subject to market conditions, intend to remain active in the market during the remainder of fiscal year 2026. From a debt perspective, we have no outstanding balance on our $600 million revolving credit facility, which expires in October 2029. As previously disclosed as a Q1 subsequent event, on August 4, 2025, we completed the sale of our entire foreign investment highlighted in past quarters for the equivalent of $11.8 million. The original purchase price was $7.5 million. To briefly recap other balance sheet items, accounts receivable net was $130.2 million, representing a decrease of $33.5 million since March 31, 2025. Days sales outstanding, or DSO, at the end of the second quarter of fiscal year 2026 was 51 days compared with 53 days in the same period in the prior year. The improvement in DSO in the second quarter reflects the timing and composition of bookings. Let's move to Slide 14 for commentary on our outlook. I will focus my remarks on our revenue and non-GAAP earnings per share targets for fiscal year 2026. As Anil noted, our strong first half performance gives us increased confidence in our full year outlook. We are raising our full year expectations for both revenue and non-GAAP diluted earnings per share from what we shared in August on our first quarter earnings call. We now expect revenue in the range of $830 million to $870 million compared with our prior range of $825 million to $865 million. Non-GAAP diluted earnings per share is now anticipated to be in the range of $2.35 to $2.45 compared to our prior range of $2.25 to $2.40. The full year effective tax rate is expected to remain at about 20%, and we are assuming approximately 73 million weighted average diluted shares outstanding, reflecting our first half share repurchase activities. In closing, let me provide some color on our third quarter expectations. Given the acceleration of orders we saw in the second quarter, orders originally expected in the third quarter, we are anticipating third quarter revenue in the range of $230 million to $240 million. We expect non-GAAP diluted earnings per share in the range of $0.83 to $0.88 for the third quarter. That concludes my formal review of our financial results. Before we transition to Q&A, please note that our upcoming IR conference schedule is provided on Slide 15. We will be attending the RBC Global TIMT and Needham Tech conferences in November and the UBS Global Technology and AI conference in December. We hope to see many of you at the events. Thank you, and I'll now turn the call over to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Matt Hedberg with RBC Capital Markets. Simran Biswal: This is Simran on for Matt Hedberg. Congrats on the quarter. To start, I just wanted to double-click on the strength that you saw in the quarter. Could you talk a little bit about the acceleration of orders that were originally expected in the second half? And what drove that shift? And then on the Fed piece, that was also great to see. So if you could speak to some of the demand trends there as well. Anil Singhal: Well, I think this was always -- when we look at the Fed orders, especially, they are always on the edge of the end of the fiscal year. Sometimes we get it end of the federal fiscal year, which is September. So sometime in the past years also, we get it afterwards. And this time, we got -- we had the reverse effect. And second thing, as Tony talked about, we had some big maintenance order, which was recognized later in the year. And those were the 2 big factors. Tony, anything else you think? Anthony Piazza: No, those were 2 of the factors that pushed us into the -- exceeds expectations. But it was a strong federal quarter. Some of that, again, was the acceleration of that particular order. And we did see the acceleration, we believe, because they were prepping for the federal government shutdown, so accelerated those orders into our second quarter to be prepared when that shut down. Simran Biswal: Got it. Got it. And then just one more for me. On GenAI, could you speak to a little bit about what's been resonating with customers on your AIOps offering and then how Enterprise customers have been leaning into it? Anil Singhal: Yes. So I always talk about and you may have -- I mean, in the script, you notice all the time, we use the word differentiation because that's the starting point. Before we say we are better, we have to differentiate and get the year plus out. So what's different for NETSCOUT in the generative AI and observability and AI world is that we have smart data telemetry, which we have never shared outside our own applications in the past because the data lakes and other solutions were not ready to consume it like a company like Splunk, ServiceNow, AWS and things like that. So how we are differentiating is not that we have better algorithms in that area because there are so many available even in open source. We're feeding smart data to algorithms in a unique way so that they have better outcomes. So we are basically using our branding as a smart data company, but that smart data was not experienced by third parties because we were not willing to share the data. So we created a new product called AI sensor, AI Insight, basically, which allows it makes it easier to mix our data with other data set, but more importantly, now they can apply their algorithms, whether it's in the ChatGPT area or any other observability to our data, and that's very unique in the industry. Operator: We'll take our next question from Eri Suppiger with B. Riley. Erik Suppiger: Congrats on a very solid quarter. A couple of questions. First off, on the 10% customer, can you comment as to whether that was a service provider, federal or enterprise? And then on the threat landscape, you talked about for denial of service. Can you discuss how some of these attacks are evolving and whether your end customers are capable of defending against some of the changes in the attack landscape? Anil Singhal: So on the first part, Tony, do you want to cover that? Anthony Piazza: Yes. So on the first part, the over 10% customer's related to the federal government orders. So it was a channel partner. Anil Singhal: Okay. On the second one that -- so when we talk about security area, we believe that DDoS market is underserved. A lot of people are looking at more sophisticated attacks. But the DDoS attacks are much, much more easier to orchestrate and they are getting more sophisticated, but they're still easier to orchestrate and they create a new sense factor. like, for example, a carpet bombing attack, a previous DDoS attack will attack a target or a server. The carpet bombing attack is an evolution of that. It's not that difficult to be orchestrated by botnets, which goes after multiple targets at the same time. So now instead of one server or 10 machines, you have hundreds of machines who have to defend themselves. So that's what is happening in the DDoS area. We believe that the industry is doing a great job outside of DDoS area. But within the DDoS area, it's only relegated to specialists and yet nation state actors and even the university students can orchestrate the DDoS attack. So what we did, Erik, in the last 3, 4 years is as we integrated the Arbor DDoS business into NETSCOUT, we brought our scalable DPI technology to that solution. And that was necessary to deal with these new and more sophisticated DDoS attacks. Erik Suppiger: And what is the timing of some of this evolution? Is this taking place this year? Is this something that's been just kind of gradually evolving over a few years? And how is the state of the market right now? Anil Singhal: So we released an option to our product called Adaptive DDoS last year. And that includes this functionality. One of the reasons it's called Adaptive is that -- and that Adaptive DDoS option is sold as a subscription. And because we will keep adapting every 6 months, a new release to deal with new attacks and people can just take advantage of that with the subscription. So some of the adaptive DDoS revenue is already in this year's numbers. And so the adaptive DDoS is our definition of dealing with these new and evolving attacks on a periodic basis through that option. Operator: We'll go next to Kevin Liu with K. Liu & Company. Kevin Liu: I'll add my congrats on the results as well. Just on the impact of the government shutdown, it certainly sounds like it accelerated some orders. I was wondering if you could talk about what's happening with kind of the existing pipeline there, whether deals are essentially paused or if they continue to move forward? And then whether there's any sort of fulfillable backlog that was associated with the government orders secured and whether they would still continue to take those even amidst the shutdown? Anthony Piazza: Yes. I mean I'll let Anil talk a little bit about his perspective on the government. But with regard to the backlog or fulfillable orders, there was some backlog related to the federal government order. And so we already have that order, and so that's already been fulfilled. Anil Singhal: Yes. Overall, I think the shutdown has not affected the nonfederal business and even federal business so far not affected, but we are sort of watching it. And so if you look at the uncertainty in the second half, potential uncertainty is the shutdown. If it lingers on, it may affect -- we are expecting more orders in that from the same customer. And second is the impact of tariff. That situation is still evolving, potential impact of that on nonfederal customers. So those are the things we are watching and continue to be -- see whether that affects anything in the second half. Kevin Liu: Understood. And Anil, since you mentioned the tariffs, to the extent those are rolled back, what sort of benefits or would you expect to see either from your existing customer base or even if your own business has been impacted, which I don't think it has? Anil Singhal: You said benefit? Anthony Piazza: Yes. I think, Kevin, we haven't really seen any detriment of it at this point. From a business perspective, as we talked about before, given that a lot of our product comes from Canada, the U.S. and Mexico and right now is protected under the various agreements, we haven't seen an impact from a cost perspective. From a customer perspective, I think what Anil is referring to is if they were to change behavior, but we've heard noise around it, but really haven't seen a large impact. Anil Singhal: I think the impact will be like on the end user pricing, not necessarily margin because we sell software, which is very high margin. So the potential impact on certain deals are budgets were set up, let's say, 8, 9 months ago. We have long sales cycles, 6 to 12 months. And now if the tariff affects the total price of even the hardware portion, which is they're buying it, then we may have to just make them whole. But it's just all up in the air right now, and we just need to watch. Anthony Piazza: And Kevin, just on the federal government, we do have a strong pipeline opportunity with the government, the federal government orders. And so we continue to look at that. I think we're a little bit insulated in the near term because of the pull forward of orders as they prep for the shutdown. So we'll continue to watch that. Kevin Liu: Got it. And just lastly, if I could ask about your product gross margin, that's as high as I've seen it before. Is there anything in terms of how you guys are going to market or which products are in demand from customers right now that's contributing to that? And how sustainable do you think this level is? Anil Singhal: Well, I think the biggest part is that we are generally counting on selling our AI. And so we have 2 segments, as you know, the core business, DDoS and Service Assurance. The AI solution will be marketed to the Service Assurance customers. Largely that, I mean, less than 10% will be new customers. And Cybersecurity solution, which we call it Omnis Cybersecurity will be marketed to DDoS customers. So we are looking at these products as sort of adjacencies to the existing product line and yet attracting new budgets. So that's a good situation, and we don't need to hire a lot of salespeople or train them to do that yet we have new opportunities. Anthony Piazza: Yes. And so I'd say, Kevin, for the quarter, our product gross margin was in the high 80% range, where it's typically in the mid-80% range. And it was particularly strong given the volume of software sales in the quarter. And in the future, we're continuing to move more and more to software-related type sales. Operator: Ladies and gentlemen, with no further questions at this time, this will conclude our call. Thank you for joining us today.
Operator: Good day, and thank you for standing by. Welcome to the Second Quarter 2026 Haemonetics Corporation Earnings Conference Call. [Operator Instruction]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Olga Guyette, Vice President, Investor Relations and Treasurer. Please go ahead. Olga Guyette: Good morning, and thank you all for joining us for Haemonetics Second Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and James D'Arecca, our CFO. This morning, we released our second quarter and year-to-date fiscal 2026 results and updated full year fiscal '26 guidance. The materials, including our earnings release, Form 10-Q and supplemental earnings presentation are available on our Investor Relations website and through this morning's press release. Before we begin, I'd like to remind everyone that we will use both organic and reported revenue growth rates. In case of organic growth rates, those exclude the impact of FX, the divestiture of the whole blood product line and the exit of certain liquid solution products. Organic growth ex CSL also excludes the impact of the previously disclosed transition of CSL's U.S. disposable business. We'll also refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. A full list of excluded items, reconciliations to our GAAP results and comparisons with the prior year periods are provided in our earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's earnings release and in our SEC filings. We do not undertake any obligation to update these forward-looking statements. And now I'd like to turn it over to Chris. Christopher Simon: Thanks, Olga. Good morning, everyone, and thank you all for joining us. Second quarter revenue was $327 million and $649 million year-to-date, each reflecting a 5% reported revenue decline driven by $48 million and $101 million in last year's portfolio transitions, respectively. Excluding these transitions, organic growth ex CSL was 9% in the quarter and 11% year-to-date. Adjusted EPS increased 13% in the quarter and 11% year-to-date to $1.27 and $2.36, respectively. Our results reflect disciplined execution, delivering strong core product growth, record margin expansion and solid earnings that convert to cash, while advancing our portfolio and company transformation to sustain this momentum well beyond our long-range plan. The focus on NexSys, TEG and VASCADE continues to advance our leadership and fuel growth. We are gaining plasma share through best-in-class collection solutions. We are reinforcing TEG leadership in viscoelastic testing, and we are executing targeted vascular closure initiatives to strengthen performance and return Interventional Technologies to growth. Turning now to our individual business performance. Hospital revenue was $146 million in the second quarter and $285 million year-to-date, up 5% on a reported basis and 4% organic in both periods. Strong Blood Management Technologies performance offset softness in Interventional Technologies, underscoring the resilience and diversified of our diversified portfolio and multiple drivers of performance. Blood Management Technologies delivered strong growth, up 12% in the quarter and 13% year-to-date, driven by sustained strength in hemostasis management. Growth was fueled by higher TEG disposable utilization and the ongoing rapid adoption of the global heparinase neutralization cartridge. In October, we reinforced our global leadership in viscoelastic testing by launching the HN cartridge in EMEA and Japan. The broader portfolio also contributed to growth with transfusion management achieving double-digit growth, supported by heightened demand for transfusion safety and efficiency. Interventional Technologies declined 5% in the quarter and 6% year-to-date, reflecting softness in the esophageal cooling against accelerating PFA adoption. While modest in size at approximately $3 million in revenue in the second quarter, esophageal cooling remains a disproportionate driver of near-term underperformance. Vascular Closure grew 2% in the quarter and 3% year-to-date, led by MVP and MVP XL and electrophysiology growing 4% and 5%, respectively. These gains were partially offset by continued softness in legacy VASCADE concentrated in lower growth coronary and peripheral procedures. We remain confident in the strong clinical and economic differentiation of our vascular closure portfolio, and we are taking decisive actions to strengthen execution to accelerate growth. We are also making solid progress with SavvyWire in the U.S., delivering consistent double-digit growth as we build its foundation and broaden our relevance in structural heart. We are updating our hospital revenue growth guidance to 4% to 7%, both reported and organic, reflecting sustained double-digit growth in Blood Management Technologies and little to no contribution from Interventional Technologies. This outlook reflects our focus on taking the steps necessary to drive long-term value creation with Interventional Technologies expected to play a larger role in accelerated growth and margin expansion beyond FY '26. Moving to Plasma. Revenue was $125 million in the quarter and $255 million year-to-date, down 10% and 7% on a reported basis, respectively, reflecting the CSL transition. Excluding CSL, organic revenue grew 19% in the quarter and 23% year-to-date. Second quarter results were driven by share gains, robust growth in U.S. collections and ongoing benefits from innovation. Our plasma business is stronger than ever, delivering revenue growth and margin expansion, enabled by best-in-class solutions that help improve customer performance to drive our share gains. Based on customer forecast and strong sentiment from PPPA, we have renewed confidence in the sustained robust growth of the plasma therapeutics market, particularly immunoglobulins. Our second quarter results reinforce that view with U.S. collections growing in the high single digits and European collections continuing to grow double digits. Given stronger-than-anticipated first half performance, we are raising our full year reported plasma revenue guidance to a decline of 4% to 7% or 14% to 17% organic growth ex CSL. Second quarter collections growth was very encouraging. However, our guidance remains grounded in the factors we can control, primarily share gains. Blood Center reported revenue decline of 18% in the quarter and 21% year-to-date, reflecting the impact of the whole blood divestiture. Organic revenue grew 4% in the quarter and 5% year-to-date, driven by resilience in our core apheresis business. We are raising our full year Blood Center guidance to reflect this performance, now expecting reported revenue to decline 17% to 19% as we fully anniversary the Whole Blood divestiture and organic growth to be approximately flat. Overall, revenue momentum remains strong, underpinned by growth and expanding profitability across our businesses. Despite $153 million in last year's portfolio transitions, 2 of our 3 growth franchises continue to deliver outsized organic growth while we strengthen our commercial execution for renewed sustained success in IVT. Reflecting better-than-expected first half performance across more than 80% of our portfolio, we are raising full year revenue guidance from a reported decline of 3% to 6% to a decline of 1% to 4% and organic growth ex CSL from an increase of 6% to 9% to an increase of 7% to 10%. Over to you, James. James D'Arecca: Thank you, Chris, and good morning, everyone. We delivered another strong quarter of profitable growth. Our results highlight the benefits of our strategic portfolio transformation, ongoing productivity initiatives and disciplined approach to cost management, contributing to continued improvement in margins and earnings growth. Adjusted gross margin reached 60.5% in the second quarter and 60.6% year-to-date, up 380 and 460 basis points, respectively. The expansion was driven by the continued adoption of our Persona technology, price initiatives across the portfolio and favorable product mix, all of which are expected to continue to support margins in the second half. Software license fees in the first quarter contributed roughly 100 basis points of gross margin benefit year-to-date. Adjusted operating expenses in the second quarter were $111 million, a decrease of $1.5 million or 1% -- the decline reflects lower freight costs, coupled with disciplined expense management and continued focus on efficiency across G&A while prioritizing targeted investments to support innovation and long-term growth. Adjusted operating expenses year-to-date were $229 million, slightly up from $227 million last year, predominantly due to the timing of certain R&D investments. The strength of our core portfolio and our ability to drive margin expansion is evident in our results. Year-to-date, we've absorbed $101 million of revenue impact from last year's portfolio transitions, all while growing our adjusted operating income. This performance reflects the strength and higher profitability of our base business and disciplined cost management, holding G&A flat and delivering additional productivity savings that help offset continued strategic investments in growth initiatives that strengthen our long-term trajectory. Adjusted operating income increased 5% in the second quarter to $87 million, with adjusted operating margin expanding 250 basis points year-over-year to a new record of 26.7%. Turning to the segment level performance in the second quarter. In hospital, adjusted operating margins expanded by 370 basis points, predominantly on continued strong momentum in Blood Management technologies, and higher operating leverage. In Plasma, adjusted operating margin expanded by 190 basis points, driven by prior technology upgrades, share gains and the full transition of our legacy U.S. PCS2 business, partially offset by additional investments into innovation. Blood Center adjusted operating margin expanded 320 basis points, driven by the whole blood divestiture, a stronger core apheresis mix and continued productivity gains from the ongoing portfolio rationalization. Adjusted operating income for the total company year-to-date was up 7% to $165 million, with adjusted operating margin of 25.4%, an improvement of 270 basis points versus the prior year. We expect continued margin expansion in the second half and reaffirm our total company full year adjusted operating margin guidance of 26% to 27%. The adjusted tax rate was 24.7% for the quarter compared with 25.1% in the prior year. Year-to-date, the adjusted tax rate was 24.8%, and we expect it to remain consistent for the remainder of the fiscal year. Adjusted net income rose 5% to $60 million in the second quarter and 4% year-to-date to $114 million. Adjusted EPS increased 13% to $1.27 in the quarter and 11% year-to-date to $2.36. The combined impact of share repurchases, tax, interest and FX provided a $0.06 benefit to quarterly adjusted EPS and a $0.05 benefit year-to-date. We are raising our full year adjusted EPS guidance to $4.80 to $5 a share. At the midpoint of our revised fiscal year guidance, we assume approximately $35 million in interest and other expenses, generally comprised of net interest expense and foreign exchange hedge contracts and approximately 47.6 million in diluted shares outstanding at year-end. Turning to cash flow and the balance sheet. We continue to enhance working capital management to optimize value creation, generating $111 million in operating cash flow in the second quarter, up 128% year-over-year. Year-to-date operating cash flow was $129 million, a sixfold increase when compared with the same period last year, primarily due to improved inventory management, including the build-out of NexSys devices, which impacted our cash flow in the prior year. Free cash flow was $89 million in the quarter and $91 million year-to-date, with the free cash flow to adjusted net income conversion ratio of 147% and 80% in the quarter and year-to-date, respectively. Our ability to generate cash remains strong, supported by disciplined execution and renewed focus on cash efficiency. We are raising our full year free cash flow guidance to $170 million to $210 million and reaffirming our expectation for the free cash flow to adjusted net income ratio to be in excess of 70% for the full fiscal year, underscoring our commitment to performance, cash discipline and capital stewardship. Turning to the balance sheet. We ended the quarter with $296 million in cash, down $10 million from the beginning of this fiscal year, primarily reflecting $75 million in share repurchases and additional strategic investments, partially offset by higher net income, translating into an even stronger cash flow. Our capital structure remains unchanged with total debt of $1.2 billion, no borrowings under our revolving credit facility and a net leverage ratio of 2.5 as defined by our credit agreement. This positions us well to meet near-term debt obligations, fund operations and pursue value-creating opportunities, including additional share repurchases when appropriate. Before we begin Q&A, I'd like to close with a few thoughts. We continue to execute our plan with strength and discipline, delivering profitable growth, expanding margins across all segments and translating our adjusted earnings to cash. Despite $153 million in last year's portfolio transitions impacting this fiscal year, most of which are now behind us, we remain on track to achieve our updated guidance for the year and meet all our long-range plan targets. Our growth and profitability are anchored in the success of our 3 core products: NexSys, TEG and Vascular Closure, supported by company-wide initiatives that continue to drive productivity and operational excellence. Margin expansion remains a hallmark of Haemonetics. And with plasma and blood management outperforming and progress underway in Interventional Technologies, we are building a strong foundation for continued margin expansion beyond fiscal '26. Across the company, our results reflected disciplined execution and a high-performance culture. And when combined with strong cash generation and a solid balance sheet, this positions us to further enhance long-term value creation. For fiscal '26, our priorities remain focused on meeting debt obligations, returning excess cash to shareholders via buybacks when appropriate and advancing targeted investments in our growth products. Thank you. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Rohin Patel of JPMorgan. Rohin Patel: I just wanted to start off with some of the revenue drivers. You had a nice quarter in plasma and are raising the guidance, and you mentioned high single-digit collections growth in the U.S. So I just want to ask what you're assuming in the second half for collections versus share gains versus pricing? And are you seeing any meaningful kind of recovery in collections intra-quarter? And how should we reconcile that with the strong ex CSL growth maybe with your longer-term sustainable outlook in plasma? Christopher Simon: Rohin, it's Chris. Thank you for the question. We had a really stellar quarter with Plasma, a stellar first half. And I think you see that in the organic results. The second quarter was propelled by 3 things in order of priority, share gains as we continue to pick up additional centers on our devices, the benefits of innovation pricing, premium pricing for us, what is a superior product. And now collections volume growth. We had always predicted volume growth in the back half of the year. It started early in the second quarter. And that's a powerful trifecta. To be specific about the volume growth we experienced high single digit in the U.S., double-digit growth in Europe. And we see that as a return from the normal cyclicality that has defined this industry for a very long period of time. So we remain really bullish on the end market demand for Ig-derived therapies, and you see that in our customers' earnings discussions as well. So plasma goes from strength to strength. We're very optimistic about its continued success. Rohin Patel: Great. And then also just turning to hospital. Maybe if you can provide an update on some of the commercial work to get IVT back on track. I appreciate the additional color and disclosure you provided in that business. And also just it seems from your disclosures that the hospital business actually drove a lot of the incremental margin benefits in the quarter. So maybe if you could just talk about some of the levers you're pulling to drive operating margin and how you're balancing that with any of this additional commercial spend to get those products back on track. Christopher Simon: Sure. Again, thank you. Yes, hospital was the single largest contributor to what continues to be really robust margin expansion. We're trying to provide more detail to be as transparent as possible. As we calculate the segment P&Ls, the hospital operating income expanded 370 basis points in the quarter. And to your point, that's mix, that's volume. And increasingly now, that's operating leverage, which we're really keen to see. Obviously, there's 2 parts to hospital. Blood Management Technologies continues to excel, which is allowing us to put the appropriate focus and resources on driving IVT. And so IVT is defined by vascular closure. You saw the numbers in the quarter. Happy to go through as much detail as you want on that. But we remain confident in both the clinical and the economic differentiation of our vascular closure portfolio. And we're taking the right actions. We're being decisive to regain growth momentum in the latter part of this year and into FY '27. Operator: Our next question comes from the line of Marie Thibault of BTIG. Marie Thibault: Congrats on a nice quarter. I wanted to follow up there on Rohin's question about the IVT commercial efforts. You've mentioned some of the progress underway. Can you give us a little more detail on what exactly is happening, some of the green shoots that you're starting to see? Just any more detail on that turnaround? Christopher Simon: Yes. Thanks, Marie. Good to hear from you. So I'd summarize it this way. I am highly confident in our team. They're taking the right actions in the right way, and they're fully resourced. And so the things we are highlighting, that commercial leadership group from first-level sales supervisors on up to the business president, many of them are new. They come with the exact right background experience and relationships to excel, particularly in electrophysiology, but also interventional cardiology. You know that at the beginning of the year, we bifurcated our field force. It's an 80-20 split with 80%, of course, going to vascular closure. That gives us over 200 personnel in the field driving the product. We feel that's quite appropriate for the opportunity set. We've put a number of tools in place to drive sales force excellence, and I won't drag you through the details, but we're closing vacancies. We've upgraded our training. We have a new set of tools to track and monitor. The quotas have been aligned. The incentive comp is state-of-the-art. So we feel quite good about sales force excellence. The other part of this is we've meaningfully strengthened our corporate accounts group that will help us with IDNs and increasingly with the ASCs as those become an important driver for the market where we think our value proposition is even more distinct. We have successfully completed the MVP-XL trial, and we're able to make a timely submission to FDA prior to the shutdown. So that should bode well as we get here later in this fiscal year and next in terms of stronger clinical evidence and opportunity to leverage that trial outside the U.S., particularly in Japan. And then we've gotten very targeted in our competitive response. And I know there's concern about is this going to meaningfully diminish your gross margins. It will not. We think we can actually maintain excellent margin and execute well to hold, to regain and to expand share across the board. Marie Thibault: Yes. Very helpful, Chris, and thanks for all that detail. It sounds like things are improving for sure. And then I wanted to follow up here and talk about Blood Management Technologies. Again, very, very strong performance. Help us think about the sustainability of that over the next few quarters. How should we think about the cadence of launches that you've recently put out, the length of kind of the rollouts and some of the benefits that you tend to see, again, sort of growing above historicals? Christopher Simon: Yes. Thanks for the question. I think Blood Management Technologies continues to be on or undersung hero in the portfolio, grew 12% in the quarter and 13% year-to-date. That's, I don't know how many quarters now in a row of double-digit growth. We feel from the launch of the global heparinase neutralization cartridge that, that franchise has hit a new inflection point. And we think that double-digit growth is absolutely sustainable for about as far as we can see. It's driven by a combination of capital equipment, disposable utilization and, of course, the adoption of that heparinase neutralization cartridge. I called out in the prepared remarks that we were pleased to launch the cartridge, both in Europe and Japan here in October. And we think that helps us, again, go from strength to strength for a business that's -- it's a market that the team helped create -- and we have the leadership share, 70% plus, and we intend to build and expand upon that. Fortunately, for us in the quarter, Blood Management Technologies was also benefited from transfusion management growing double digit, which is -- it's a smaller line of business, but one that is really attractive on many dimensions and continues to contribute positively. So we're excited about the prospects for Blood Management Technologies going forward. Operator: Our next question comes from the line of Mike Matson of Needham & Company. Unknown Analyst: It's [ Joseph ] on for Mike. Could you just touch on blood center growth a little bit? Just, I guess, why was it so strong? I think 4% organic. Can you just talk about some of the growth drivers there, what you benefited from in the quarter? Christopher Simon: Yes. Happy to talk about it, Joseph. Yes, Blood Center, again, that's the real unsung success story here, I guess, and it's meaningfully benefiting from focus. As you know, at the end of last calendar year, we divested the whole blood franchise and some of the supporting products, liquids, et cetera, that were really a drag on our margin and the distraction from a focus area. So with those behind us, we've really been able to focus on what is increasingly plasma apheresis done in blood centers often with our NexSys device. And you see that growth, 15%, 15% of the corporate revenue, but it's a solid source of EBITDA and return on invested capital and free cash flow, as you see from our numbers in the quarter. The operating income in that business on a stand-alone segment basis, we estimate expanded its operating margin by 320 basis points, again, benefiting from the divestiture and an ongoing effort to rationalize that portfolio. We talk about the regional market alignment program. That's the focus there. So that gave us a lot of confidence to raise the guidance. And now on an organic basis, we expect that business to hold serve and finish flat for the year. Unknown Analyst: Okay. Great. Yes, it's very clear you guys are benefiting from the rationalization. And then I guess 2 more unrelated, but they're quick. I'll just ask them together. How much did the share repurchase add to the EPS in the quarter -- or sorry, the EPS raise for fiscal '26? And then I guess just on VASCADE and Vivasure, are you still committed to the large bore market? And are you still planning on proceeding with that acquisition of Vivasure? James D'Arecca: Yes. It's James here. I thought I'd jump in on the first question on the share buyback in the quarter. It was a few cents, and it's included in the $0.06 below the line item that I gave earlier. Christopher Simon: Yes. And just jumping over to Vivasure large bore closure. We are very committed to consummating that acquisition. That's -- I would describe that as near final successful submission to the FDA. If anyone has an opportunity to attend the most recent TCT, you would have heard about some really impressive results coming out of the patch trial, just in terms of reduction in vascular complications, medium time to hemostasis near instantaneous, really, really exciting. We think that it will be an FY '27 event just given the timing of FDA release, but that's a $300 million high-growth market for large bore arterial access in TAVR and EVAR -- the product is meaningfully differentiated. It's fully absorbable, sutureless implant-free. Really, as we look at it from the submission to FDA, it was a best-in-class safety and ease of use. And for us, it's highly synergistic. It is a closure product, which is our primary focus in IVT, and it goes against structural heart, which will have call point synergy with our SavvyWire business. So yes, we're excited. There's more work to be done, but we'll have more to say about that, I think, later this year. Operator: Our next question comes from the line of David Rescott of Baird. David Rescott: Congrats on the progress here. Two questions from us, and I'll ask them both upfront. First, on the plasma side, it seems like a pretty substantial step change in the U.S. collection volumes that are going out. I know you've talked in the past and have remain committed to the fact that there's ebbs and flows in the market and had expected it to get better in the second half of the year. It's clearly coming sooner than expected. So I'm curious on what you're seeing on the ground level as to why, again, a multi-quarter kind of low single flat growth number has now stepped up to this high single-digit level in the U.S. And just interested to hear on your confidence that maybe this isn't just a onetime thing. Should we expect the cyclicality on a quarterly basis, maybe to even step back down and step back up as this multiyear return to high single digit plays through? That's the first question. And then second, on the VASCADE business, I know there were some comments around some of the competitive nature in that market. Last quarter, you're focusing on getting the sales force initiatives realigned here. So just curious to hear if you could parse out maybe the benefits you've seen from the work that you've done versus the overall market acceptance versus some of the things on the competitive side that again give you the confidence that you can continue to progress here through the year. Christopher Simon: Yes. Thank you, David. So first on U.S. plasma collections, again, high single-digit volume growth on top of the pricing benefit from the technology advancements and ongoing share gain. We're very bullish that the cyclicality of this market. When we talk to our customers, when we walk the floor at PPTA and see the association's forecast, we think what we observed in the quarter is absolutely sustainable through the second half of the year and beyond. And we're benefiting because our customers are taking share in the end market, enabled by NexSys and the outperformance there. The guidance that we put forth, right, because we grew 23% through the first half. The guidance we put forth is more modest, and we don't control collection volume. While we have every confidence that they continue and grow from here. Our guidance reflects what we can control, which is share gains and the annualization of those prior technology rollouts, which are happening this quarter, third quarter. So from our vantage point, we'll guide to what we control. We have continued share gains at hand, and we feel great about that. And so that's what you see in our forecast. With regards to VASCADE and the competition, it is a competitive market. We clearly woke up both of the direct competitors we face there. But when we look at the trial data coming off of Excel, when we look at the actual head-to-head in accounts, we are very confident that we can regain share. We have green shoot examples of that as we speak. And we think that we go from strength to strength there. You'll know and you'll see our progress in the upcoming results. It will be first and foremost with VASCADE in electrophysiology. SavvyWire is an important contributor, much smaller, but SavvyWire will be -- is the second priority for that team, and we expect continued double-digit growth ex OEM. And then when I spoke a minute ago about PercuSeal Elite coming in from Vivasure, that will be a third priority when we get into FY '27. So the guidance there is more modest. We felt like the right path was just to be prudent. And so we've narrowed and lowered that range. We don't expect a meaningful contribution this year, but the green shoots we are observing tell us that, again, right team, right actions being done in the right way to reestablish growth in that category going forward. Operator: Our next question comes from the line of Travis Steed of BofA Securities. Unknown Analyst: This is [ Anja ] on for Travis. I wanted to ask on VASCADE. I understand the competitive discounting environment and lapping the Japan launch. Do you think the sales force changes really get you back to market -- above-market growth? And when should we expect the Japan label expansion? How significant would that be? Christopher Simon: Yes. We absolutely have confidence that the changes we've made will return us to above-market growth rates and beyond. And so it's a really good product, clinically economically differentiated in the right hands. There's a lot of upside potential, particularly with MVP and MVP XL in electrophysiology. With regards to Japan, yes, historically, Japan this fiscal year was an important growth contributor for us -- the launch of PFA changes the dynamics. But PFA looks meaningfully different in Japan, as you would hear from some of the folks behind that, right? It's a much more modest uptake in part because I think the Japanese market prioritizes safety first. So we see a slower adoption curve and then the mix within that adoption is much more evenly split between the lead players, which is important for us because they've accepted MVP-XL into the market, and we have reimbursement on the base label. And that's important because we're now indicated for so many more of those procedures, in fact, all but one modality at this point. That gives us confidence that the second part of this year and beyond, Japan becomes an important contributor. They've also agreed to accept the U.S. data as part of our submission for regulatory approval and release for the larger access site indications. So there's more to be done. I don't want to call the timing on that because we don't control it. But as we get both the approval for the expanded label and that reimbursement, which has been very favorable for MVP and MVP XL and their base indications, we have a lot of confidence, particularly in the distributor we're using there. There'll be some movement quarter-to-quarter order timing, et cetera, but Japan will be a source of growth for us going forward. Operator: Our next question comes from the line of Joanne Wuensch of Citi. Unknown Analyst: This is [ Anthony ] on for Joanne. Could you maybe characterize a bit more? I know it's early, but just how the launch of the HN cartridge is going in EMEA and Japan and if it's tracking similarly to how the U.S. launch was in the first few months? Christopher Simon: Yes. So it will look different in those markets because the markets -- the viscoelastic testing is really different. We -- the product gives us broad-based application. And if what we see in the U.S. holds true, we're just seeing a far higher number. The dollar revenue per device is meaningfully increased with the heparinase neutralization cartridges here in the States. We expect that part of the launch will be very similar. But it is a different starting point. We don't have nearly as many TEG 5000, the predicate product in the market in either of those places. So less opportunity for that conversion. They are smaller markets. But again, we have the ability to lead and our teams are excited. They are -- those markets reflect more of a hybrid approach. Some of them are direct, for instance, the U.K., Germany and parts of Japan. Others are through distributors. So there'll be a lag time as those distributors come up to speed on the new product, new cartridge and get established in the market. But long term, it's an important source of sustainable double-digit growth for that business and that franchise. Operator: Our next question comes from the line of Andrew Cooper of Raymond James. Andrew Cooper: Maybe starting, I think, Chris, you said a couple of times VASCADE was economically differentiated. Can you just give a little bit more color on sort of what you mean by that versus the competition? And then talk a little bit about how pricing and your approach to the market there has evolved competitively. Have you made changes to price? And do you feel like from here, we're in the right spot where it's going to be a little bit steadier. I know you said margins would hold in there, but just would love any thoughts on the top line and the price component. Christopher Simon: Sure. Thank you, Andrew. Yes, the product, when you look at the metrics in terms of time to ambulation, time to discharge, it is at or above anything else in the marketplace. The real benefit, and I think you're seeing this with a heightened focus even in the post-PFA environment, is the improvement in workflow productivity. As a center adopts MVP and MVP XL, their ability to really move quickly with these patients, get them closed, get them ambulated and in almost all cases, send them home the same night, really powerful. The other factor, and you hear this in the verbatim from the clinicians repeatedly is it's a pain-free solution. Suturing works and suturing has a reasonable profile, but it hurts a lot and often comes with the use of narcotics, which have their own complications. We eliminate all of that. And so the speed in the workflow, the absence of pain medication and just a much better patient verbatim helps a lot. As I said earlier, as this market increasingly moves to the ASCs, that difference will be all the more powerful. And so we're enthusiastic about it. And with regards to pricing, as we've dug into this, we look very carefully now with the account level detail that we have at where we're gaining, where we're losing. It's almost never about the actual price of the product. We may have needed to be more flexible with regards to initiation trials or other work done jointly with VAC to get those remaining accounts converted. But in the head-to-heads that we're observing, very modest degree of flexibility on price tends to be driving the desired outcomes. And you see that, again, I just go back to we're -- the hospital operating income margin was the primary driver of our overall margin growth at 370 basis points of OI. So from our vantage point, -- and to be clear, both BMT with TEG and IVT with VASCADE were equal contributors to that gross margin expansion. So what you'll see going forward is as we layer on the volume is increasing operating leverage. So we don't have any worries. The investments have already been made in OpEx and the price concessions are modest at best. And so from our vantage point, our margin expansion and the growth that we're anticipating top and bottom line are absolutely achievable. Andrew Cooper: That's great. And then I wanted to ask one more on Blood Management as well, just given the traction there, not to jump too far ahead of ourselves, but it's clear that the HN cartridge has done a lot for driving that growth. When you look into the future from an innovation perspective, are there other menu items to add that could be similar in magnitude? And if so, can you give any color on what they might be or maybe when we could think about more of that menu expansion to continue driving penetration with TEG? Christopher Simon: Yes, Andrew, we absolutely see additional opportunity for the growth of visoelastic testing. We target, for example, in the U.S., a T700. Nearly half of them have not adopted visoelastic testing. We have 70 share of the market. Obviously, we intend to retain and grow that. But our biggest opportunity is taking visoelastic testing to the other sector of the market that doesn't have it. Hp neutralization helps do that because it gives you a broader spectrum of testing. But we also have additional indications that we are pursuing and additional applications of the product that -- we'll talk about more probably in the spring when we do our next Investor Day. We'll pull back to Vail a bit and talk more about the really exciting portfolio pipeline that we've got going behind TEG. Operator: Our next question comes from the line of Michael Petusky of Barrington Research. Michael Petusky: So Chris, and I will admit, I missed it. There's a ton of companies reporting this morning and I missed part of your prepared remarks. So I'm just curious on Vascular Closure, if you're looking at over the last 12, 13, 14 weeks since we last talked on a conference call and you put in all these initiatives to try to sort of turn the business, and I'm sure you're looking at this, if not day by day, certainly week by week. I mean, are you -- I certainly heard the green shoots commentary, but are you seeing progress week by week, even through the end of the quarter into where we are now? Like are you seeing enough evidence to say, yes, we've bottomed, we've turned this. It's not an overnight back to where we were, but we've turned this or at least now we're trading punches as opposed to just taking punches. Like where what are you seeing? And where are you sort of in -- if you're calling us a sort of a comeback story, hopefully, where are you in that? Christopher Simon: Yes. Thanks, Mike. I appreciate the question. And I appreciate the interest on this. We are absolutely anticipating a comeback story, right? And I think this one is going to be exciting and interesting to watch as it develops. We are confident that the actions that we have taken year-to-date have stabilized this performance. And so we don't expect any further deterioration in performance. we see green shoots with new account openings. We see green shoots with greater utilization. We see green shoots with competitive win backs or just healthy head-to-head that we've come out on top on. So we do expect meaningful growth going forward. However, we're going to be prudent in our guidance. And at this point, the guidance for IBT writ large, and it's important. We didn't talk about this probably enough, but that franchise is unfortunately dragged down by esophageal cooling, and I'm happy to come back and give some more specifics there because I'm not including cooling as part of my commentary. I'm talking specifically about closure. In closure, we put very little in for the second half, but that's us being prudent because it's a tough market, and I'd rather be on the conservative side of that. We've heard that loud and clear from the market to call it when you see it, but not before. Our results from here will speak for themselves, okay? Michael Petusky: Okay. All right. Great. And just a quick one for James. James, as you -- obviously, you guys have been aggressive here recently with share repurchase. As you just sort of think, I guess, longer term, not looking for specific guidance for next year or longer term, but just generally speaking, I mean, would you expect the share count to sort of remain sub $50 million over the next few years? Like are you guys going to continue to be pretty active in share repurchase as you think about capital allocation beyond fiscal '26? James D'Arecca: Yes. Thanks, Mike. So there's roughly 47 million-ish shares outstanding now. So I think a lot would have to happen to get above that $50 million mark. So the thought process here is that certainly, we would aim to keep dilution in check for sure. And then I mean, let's face it, one of the benefits of having a strong balance sheet is that we do have some optionality on capital deployment. So yes, that includes buying back shares, also debt pay down and so forth. But yes, for the foreseeable future, lower than $50 million, pretty good bet. Christopher Simon: Yes, Mike, it's Chris. If I could just pile on there. From a capital allocation perspective, exactly as James just highlighted, we're going to focus on paying down our debt, being opportunistic with the share buybacks. We'll make targeted organic investments as we have to advance new technology into the market. But again, we feel we've fully resourced from an OpEx perspective. You see that. You see that in our leverage. And obviously, you see that in our robust cash flow and a really healthy free cash flow to net income conversion ratio. But we're focused on what we have. We're focused on making the most of the portfolio. As I've said repeatedly, we'll do Vivasure when the final set of milestones are hit, and we're ready to go there. Beyond that, M&A is off the table until we have IBT exactly where we need it to go. Operator: I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Block Third Quarter 2025 Earnings Conference Call. Today's call will be 45 minutes. I would now like to turn the call over to your host, Matt Ross, Head of Investor Relations. Please go ahead. Matthew Ross: Hi, everyone. Thanks for joining our third quarter 2025 earnings call. We have Jack and Amrita with us along with Owen Jennings, our business lead; and Nick Molnar, sales and marketing lead for Block. . We will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from conference call participants. We would also like to remind everyone that we will be making forward-looking statements on this call. All statements other than statements of historical facts could be considered to be forward looking. These forward-looking statements include discussions of our outlook strategy and guidance as well as our long-term targets and goals. These statements are subject to risks and uncertainties, including changes in macroeconomic conditions. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also, note that the forward-looking statements, including earnings guidance for 2025, discussed on this call are based on information available to us and assumptions we believe are reasonable as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law. Further, any discussion during this call of our lending and banking products refer to products that are offered through Square Financial Services or our bank partners. Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40, we are evaluating the sum of our gross profit growth and adjusted operating income margin. Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter, and our historical financial information spreadsheet on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call and the transcript for Jack and Amrita's opening remarks will be available on our website shortly. With that, I'd like to turn the call over to Jack. Jack Dorsey: Thank you all for joining. My intention for these calls going forward is to bring in more voices from across the company to share more perspectives on what we're building and why. This quarter, you'll hear from Owen and Nick, who are joining us for the Q&A today. Owen is our business lead and he'll be able to share more on our product velocity and what's coming next on our roadmap and Nick leads sales and marketing across the company. He and his team are responsible for the momentum we've seen in our go-to-market motions and he'll be able to share more on what's ahead. . I hope you all read our letter on where Square is headed and how we're delivering for our sellers. And with that, I'll turn it over to Amrita. Amrita Ahuja: Thanks, Jack. We had another strong quarter, delivering for our customers and exceeding expectations across gross profit and adjusted operating income. Gross profit grew 18% year-over-year to $2.66 billion, accelerating from 14% growth last quarter, driven by Cash App. Each of our profitability metrics grew on a year-over-year basis. Adjusted operating income was $480 million, showing strong profitability even in a quarter where we leaned into investments to drive long-term growth. Cash App's 24% year-over-year gross profit growth in the third quarter accelerated from 16% in the second quarter. Our focus on reaccelerating active growth and increasing network density is working as we reached 58 million monthly actives in September. This growth was driven by improvements in experiences across the app, including onboarding, referrals, and core payment flows, reducing friction while boosting engagement and retention. We've also seen success in our go-to-market campaigns focused on increasing brand awareness and reengaging actives who use Cash App infrequently. Our strategies to deepen engagement continue to show up in our numbers. Cash App's gross profit per monthly transacting active grew 25% year-over-year to $94. Primary banking actives grew 18% year-over-year to 8.3 million, up from 8 million in the second quarter. And new products like post-purchase Buy Now Pay Later on Cash App Card are continuing to scale, reaching $3 billion in annualized originations in early October. Last quarter, we shifted the origination of the majority of Borrow loans over to our bank, SFS. This quarter, we expanded Cash App Borrow to eligible actives in new states and expanded in existing states through underwriting improvements, growing originations 134% year-over-year while delivering stable risk loss and strong annualized net margins of 24%. We are bringing the successful Square Releases format to Cash App with our first Cash App Releases on November 13, set to showcase our roadmap and share more about the future of AI in Cash App and how we're driving growth across our banking products. Turning to Square. Gross profit grew 9% year-over-year in the third quarter and GPV grew 12% with an acceleration of growth in both the U.S. and internationally. Our product and go-to-market strategies are working as we continue to gain profitable market share in our target verticals like food and beverage, with larger sellers and outside the U.S. In Jack's shareholder letter this quarter, we outlined our strategy to power the neighborhood by being the best platform for sellers to grow and run their business. We're focused on 3 key opportunities. The first is connecting sellers and consumers at scale in a way that we believe only Block can. At Square Releases, we introduced Neighborhoods on Cash App to connect our sellers with Cash App's massive network of 58 million monthly actives, Neighborhoods provides sellers the power of an enterprise-grade mobile app and the ability to offer customizable local rewards, tied to free marketing and discovery tools, all with a 1% processing rate for all in-app orders. Second, we are delivering world-class AI tools to sellers so they can put more of their operations and finances on autopilot. We've launched Square AI, a business partner built right into the tools sellers use everyday, which is empowering our sellers to get insights about their business in minutes that would have previously taken hours. At Square Releases, we announced AI-driven Order Guide to help sellers better manage procurement, and Voice Ordering to automate incoming phone orders during peak demand times. Third, we're focused on making selling easier with software solutions and commerce tools for our sellers. We believe we're the only company that designs the hardware, operating systems, software, commerce capabilities and financial tools for sellers. This vertical integration is an advantage for us, letting us move faster and serve more customers in a differentiated way. At Square Releases, we announced a number of new products, including multichannel menu management, unified third-party delivery app management and improved kiosks, enabling 30% faster order times for our sellers. These product strategies are positioning us well as we scale our go-to-market efforts to serve every seller that wants to work with us. We've seen an inflection in new volume added or NVA, our proxy for volume growth from new customers. Sales-driven NVA is up 28% year-to-date as our field sales and partnerships continue to expand. We've also seen accelerated growth in NVA from self-onboard marketing channels. Marketing drives the significant majority of our self-onboard volume, and we are seeing strong NVA growth and very healthy 4- to 5-quarter payback periods. We expect to deliver our strongest NVA performance ever in 2025 through expanding field sales, partner programs and targeted marketing. In the third quarter, we saw notable strength upmarket, with GPV from sellers above $0.5 million in volume, growing 20% year-over-year, reflecting our strongest growth rate for these sellers since the first quarter of 2023. In our international markets, GPV grew 26% year-over-year as we're seeing particular strength in our telesales channel. As we mentioned last quarter, our decision to increase operational flexibility at a processing partner modestly increased processing costs. This was an approximately 2.6 percentage point headwind to Square gross profit in the third quarter, which we expect to lap in the second quarter of 2026. In Proto, our Bitcoin mining business, we generated our first revenue, seeding what has the potential to become our next major ecosystem. We monetize Proto's innovation in hardware and software through hardware sales across ASICs, mining hashboards and full mining rigs that provide many of the key advanced components to mine Bitcoin. In the third quarter, we sold our first rigs to our first customer. And while it's only a modest contributor to the second half of this year, we are actively pursuing a robust pipeline for 2026 and beyond. From a profitability standpoint, adjusted EBITDA was $833 million, and adjusted operating income was $480 million in the third quarter. Adjusted operating income margins were 18% in the quarter. Product development costs remained flat year-over-year, while our growth initiatives across sales and marketing spend directly contributed to our growth in both Cash App and Square. Transaction, loan and risk loss expense grew 89% year-over-year as we invested in scaling our lending products, most notably Borrow and the recent launch of post-purchase BNPL. We continue to see healthy trends as we scaled post-purchase BNPL and Borrow losses continue to trend below our 3% target. So far this year to the end of September, we have repurchased approximately $1.5 billion of stock, and we intend to continue returning capital to shareholders as we generate cash. We're excited to share more about our capital allocation priorities at our upcoming Investor Day. Turning to guidance. We are increasing our full year guidance for both the Q3 beat and our raised Q4 expectations. For the fourth quarter of 2025, we expect to accelerate gross profit growth again with gross profit growing over 19% year-over-year to $2.755 billion. We expect to expand adjusted operating income margins year-over-year to 20% and deliver $560 million in adjusted operating income. Taken together, we expect to be approaching Rule of 40 as we head into 2026. Our full year guidance reflects our Q3 outperformance and our increased expectations for the fourth quarter. We expect to deliver $10.243 billion in gross profit for the full year, reflecting more than 15% year-over-year growth, consistent with the initial outlook for 2025 that we provided a year ago. We expect adjusted operating income of $2.056 billion, growing nearly 28% year-over-year despite meaningful investments in sales and marketing and scaling Borrow and other lending products. Finally, to help in your modeling for Q4 and the upcoming years, we want to provide some details on tax rate and interest expense. We expect our 2025 and long-term tax rate to be in the mid-20% range, relatively consistent with where we've landed in the first 3 quarters of the year. We expect net interest expense of $45 million in the fourth quarter, reflecting our recent debt raise and the latest benchmark rates. These figures are also good representations of our long-term expectations across both line items. We typically provide preliminary forward year guidance during this earnings call. But with Investor Day coming up, we're excited to go much deeper on our outlook for both 2026 and our long-term financial performance in a few weeks. Throughout 2025, our gross profit growth has accelerated, and we've expanded our margins. Most importantly, we've improved our velocity to deliver more for our customers faster. Ultimately, these strong results reflect our focus on building for our customers, and we're incredibly excited to welcome you in person and virtually to our Investor Day on November 19, where we'll share so much more. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Appreciate it. It's nice to have Nick and Owen on the call. So I'll ask, Owen, the question, if that's okay. I've heard Owen you talk about Cash App actives growth and [indiscernible] on that topic, I know Jack's been pushing towards network density overall. So can you just give us a progress report on that now? When might we see an inflection in network growth, given some of the investments you're making? Owen Jennings: Sure. Thanks so much for the question. We're really happy with where we landed in September. We've made some pretty massive progress here over the past few months. And of course, we still have a lot of work to do, and we see a lot of opportunity ahead. So we reported the 58 million number for September. But the underlying trends are strong as well. So what we've seen is an acceleration in year-over-year growth for monthly actives since we declared this a top priority at Block and at Cash App. And we actually saw that acceleration in year-over-year growth for monthly actives again in October, which is great. I guess stepping back, how we think about growing monthly actives overall is there's really 2 pieces. First, there's net new acquisition for new customers who haven't used Cash App before and then also engagement is a key piece of the equation as we can increase engagement and drive quarterly actives or annual actives to increasingly become monthly active, weekly active, daily active. And so that's really how we've been approaching it. Some of the key focus areas on the development side have been, first, what we call network enhancements, which is basically just looking at our core flows and making sure that it's simple and easy for customers to successfully use our app and complete transactions. On the multiplayer money side, this has been 1 of our key focuses. I know you all saw the launch of pools. We saw 1 million pools created through the end of September and then now 1.5 million pools created through the end of October. And we're really continuing to invest here, not just in pools, but just how we think about social primitives and what we can build to allow our customers to connect with one another and that drives meaningful engagement. And then third is probably on the teens and family side. We continue to invest here. We've achieved massive scale on the teens and family side, we have 5 million monthly active teen accounts that are using Cash App, and we continue to invest to serve them. A couple of weeks ago, we've launched high-yield savings for our teen customers, and we're going to continue building, both for teens and for parents. And then I would say more broadly, we just continue to focus on high quality, high velocity. And that goes for the marketing development side as well as the product velocity side. On the marketing side, we're focused across the funnel, across channels. We're really leveraging incentives to drive customer behavior, and we've seen really strong ROI there. From a product perspective, I think it's not just the network expansion work. It's really everything that we're building on Cash App. I see as contributing to network expansion and monthly actives growth, either on a first order basis or on a second order basis. If we're building useful, simple things for our customers, that's going to reliably compound and drive active growth. So overall, I think we have a lot of room and a lot of opportunity on the active side. We also have massive opportunity on the engagement side. We reported inflows per active grew 10% year-over-year, that's a pretty good -- that's a pretty good signal of just engagement on the platform. Also gross profit per active was up 25% year-over-year in September. And so all of our investments across Cash App Borrow, Cash App Afterpay, post purchase, our banking suite, our Bitcoin products, that's going to continue to drive healthy engagement as well. So that's a bit of a snapshot just in terms of how we're approaching it. I think pretty happy with 58 million, but so much more work to do and a lot of opportunity ahead. Operator: And our next question comes from the line of Tim Chiodo with UBS. Timothy Chiodo: I think this is probably a good one for Nick giving Nick's on the call. So I want to talk a little bit about the field sales teams and their productivity and then a little bit around the GPV and the gross profit contributions that those teams will be bringing, so on the field sales teams, I gather, and if you could put some color around this, that there are certain things that you're doing to help make these sales people as productive as possible, whether it's other tools or systems you have in place, technology you're using? I'm hoping you could shed a little bit of light on that to bring it to life. Gather the paybacks are quite healthy. I think you've talked about the field sales teams being in roughly the 5 to 6 quarter range. And then as a related follow-on, it's very logical to think that these salespeople and the ISO channel, they're going to be bringing on a larger merchant with probably a longer L in the LTV equation. So we'll be around with you for much longer. It's also logical to think that they'll be paying slightly less in terms of their monetization rate per unit of volume. But the absolute GPV and the absolute gross profit growth that they'll be bringing will be at much higher levels. And I was hoping you could shed some light on both of those topics again, the field sales productivity and then the contributions that they'll bring. Nicholas Molnar: Yes, of course. Thanks so much, Tim. Our go-to-market motions in general and field more specifically have been performing really well. As you mentioned, we're seeing really strong paybacks and the marginal ROI on our incremental head count that we bring on to the team continues to scale in a really nice way. But to be honest, we actually have some meaningful room to continue to invest as we focus on that marginal ROI sustaining and growing into the future. Amrita mentioned in her opening remarks, our sales-led NVA was up 28% year-to-date through September and we expect to grow last quarter to over 40%. So I feel like we're going to exit the year with Q4 in a nice way that takes us into 2026. A lot of that has been as a result of how we've shown up culturally through the right tactics, the right sales motions, really gearing our reps up to hit the ground running and be able to close the deal in the least possible time. But we've already significantly scaled our team over the course of the year. If I think about from the start of the year, we had next to no field sales ramped reps, we're now over 100 field reps scaling fast. And so I understand your point from a gross profit per -- gross profit relative to GPV. But while we have scaled our team, it's still pretty early from a field sales perspective. And of our U.S. NVA is coming from field in '25. But as that team continues to ramp, we believe they'll continue to compound. And we're seeing pretty stable margins as we're scaling our team, ISO does have a longer L as you referenced, but I don't think field is in the same category. Certainly, as we move up market, that can mean a different gross profit to GPV profile. But candidly, it's not really how I think about our economics. I think about how do we maximize our variable profit dollar growth head count that we have in the team. And if we can continue investing into our cohort curves and seeing that NVA grow per quarter, I believe that will translate to faster GPV over time, which will ultimately mean really strong gross profit growth. And I know you didn't specifically ask about our self onboarding motion. But while we have seen sales strength, it [Audio Gap] self onboarding. We're seeing Square hold a really strong organic motion, still with 70% of our NVA coming from sellers who self onboard, which is a result of a combination of flow optimization, really leaning in on the AI front. We're now the #1 -- we show up #1 for F&B-related keywords on AI-related search and feeling really good about our self onboarding is continuing to grow and scale some of the best growth rates that we've seen in web and app since 2017, and a lot of that is a function of how marketing has continued to scale, driving really strong lead flow and really strong return on investment. Amrita Ahuja: Now I'll just add a couple of perspectives as well, Tim. Ultimately, our focus and belief is that compounding growth in GPV will drive gross profit, which will drive incremental variable profit dollars, which is our core focus across the business. What we see, as Nick has talked through, ultimately, are indicators of underlying health across that growth algorithm and across the platform from new seller acquisition trends to ROIs to opening up new distribution channels to be able to reach incremental sellers. And I think you see that coming through, whether it's outsized growth in food and beverage at 17%, or with mid-market sellers or larger sellers at 20% or in markets outside the U.S. at 26%. So we're seeing that strategy play out and work. As you know, there's some idiosyncratic things that I mentioned in the interim remarks in last quarter as well around a decision that we made for operational flexibility that hit Q3 by about 2.6 percentage points from a gross profit perspective, ex that operational flexibility point, which we expect to lap in the second quarter of next year, gross profit growth and GPV growth are relatively equivalent to each other in the third quarter, and we'd expect that they would be as well in the fourth quarter ex that change from an operational flexibility standpoint. So our focus again is on driving incremental sellers into our platform through the distribution channels that Nick has talked about, where we're seeing strong execution take hold. Operator: And our next question comes from the line of Andrew Jeffrey with William Blair. Andrew Jeffrey: My question is around the Borrow product and maybe to a lesser extent, BNPL. I think there's been a lot of investor concern about the credit quality of these products and the long-term profitability of these products and the 24% Cash App gross profit growth is awesome. I wonder if you could touch on why you think as we do, that these are superior products for consumers, short-term liquidity products that address really pressing needs that traditional financial institutions have not been able to bring to market. And so maybe touch on the value proposition as you see it and also on some of the distinctive Block brings to market, Cash App brings to market in terms of underwriting, be that data-driven or AI to give investors a sense of why you think that's such a good business as do we. Amrita Ahuja: Awesome. Thanks for the question. Yes. I'll start us off on Borrow. First, Andrew, as you called out the broader purpose of the product and why it's resonated so strongly with our customers. And then secondly, go into some of the metrics where we see it as a good business for us. First of all, these credit products are a really important part of our business in how we expand credit access, especially frankly, the segments of consumers who are often overlooked by the traditional financial system. These products provide financial mobility, cash flow flexibility and growth for our customers. As a result, we've seen incredibly strong product market fit and growth in our system on the back of really healthy unit economics. We're able to do this responsibly fundamentally because of the deep capabilities that we bring to bear from an AI and ML-based underwriting perspective. So zooming into what we're seeing in real time in these metrics, Borrow performance was incredibly strong in the third quarter with origination volume up 134% year-over-year, reaching nearly $22 billion on an annualized basis in the third quarter and even higher growth from a gross profit perspective. This is on the back of a couple of different initiatives. First, just core underwriting model improvements which we were able to deploy across both existing states and new states as well as expansion nationwide on the back of the migration to our bank, SFS, which enabled us to unlock more states, in which we can steadily ramp the Borrow eligibility offering. And then third, providing Borrow eligibility and getting more nuanced with limits for our existing customers who are highly engaged in the platform, whether those are primary banking actives or direct deposit customers. So those 3 strategies at play have helped us expand Borrow, but maintain very healthy risk loss rates, below our 3% target despite this triple-digit originations growth. And see, therefore, annualized net margins at the 24% range in the quarter above our internal targets. Very importantly, we also see that these borrow actives have meaningful lifts in engagement metrics that carry through the entire Cash App ecosystem relative to non-borrow actives. We looked at this from the 12 months ending in August. And what we saw was that borrow actives have 3x higher inflows per active, 2x higher Cash App Card spend. Now 3x higher retention rates relative to non-borrow actives, so it's a key piece of the broad engagement story for us around banking within Cash App. And we think more experimentation and more product innovation here around Borrow can help us drive growth in other parts of our business. So finally, I guess, what I would say is what powers all of this, whether it's Borrow or other lending products like post-purchase BNPL where we've also seen -- earlier in its life but also seen very strong growth is fundamentally our Cash App credit score, which is an internal score that we use that's truly a core asset that we have that we can deploy across the range of our lending products. And we think, ultimately, the model that underpins that is advantageous in that it has data that covers a wide range of financial activity across our entire platform, near real-time insights based on that activity and then advanced modeling using AI, ML and data science over a decade-plus of experience of serving lending products to our customers which ultimately then results in being able to expand access while still maintaining the strong loss rates and unit economics that we've been able to maintain here. So we're incredibly excited about the metrics that we see here with Borrow. We'll obviously be very watchful on a real-time basis on how they trend, but what we've seen so far has been extremely strong momentum. Operator: And our next question comes from the line of Darrin Peller with Wolfe Research. Darrin Peller: I think this is a good follow-up to Amrita, what you were just talking about to some degree. I mean, because even when we back out the growth contribution from Cash App Borrow, I mean, we're calculating an acceleration of Cash App gross profit without the Borrow benefit from what was, I think, around high single digits last quarter to double digits, low double digits this quarter. So it sounds like MAUs, but also the flywheel effect of more Cash App inflows -- Cash App Borrow inflows is driving a lot of it. So maybe just talk through the different levers, putting aside purely the year-over-year comp on Cash App Borrow itself of what you see really driving that and sustain that growth well into the double digits. And if you think it's sustainable now if you're going to have MAU growth continuing to drive that or if there's other variables we should think about too. Owen Jennings: Sure. Thanks, Darrin. I appreciate the question. I'm happy to offer a bit more color here. I think fundamentally, it's important just to think about Cash App as an ecosystem. So we kind of think about the 4 key parts as our network products, inclusive of peer-to-peer, our banking products inclusive of direct deposit, our commerce products and then our Bitcoin products. We've made meaningful progress from a product development perspective and on the marketing side across all 4 pieces. And so all of this is coming together to drive that acceleration in growth that you're talking about. I touched on some of the items on the network expansion and the active side before, and we expect to continue to see that pay dividends. On the banking side, things like direct deposit attach and really seeing that primary banking activity. We've launched some recent experiments and architectural changes that are helping there. I mean on the commerce side, we're operating at tremendous scale, and we're also seeing really healthy growth. And so card GPV is growing at 19% year-over-year. Cash App Pay GPV growing at 70% year-over-year. I think Amrita mentioned the acceleration on the Cash App Afterpay side, going from $2 billion in annualized originations to $3 billion in annualized originations now in early October. And so we're going to continue to invest across the entirety of the ecosystem. And I think what you get there is just a portfolio of diverse products and diverse business lines that come together and are able to deliver that durable growth over and above, something of a steep acceleration on the Borrow side. But I would also, if I may, like we don't really see the world in this, like gross profit ex Borrow sort of way. Amrita touched on this to some extent, but Cash App Borrow and our ability to extend liquidity to our customers is just -- it's a fundamental part of the Cash App ecosystem. On a first order basis, it just has an incredible return profile. We have like -- we have a 30% return on invested capital for Borrow. I've looked all over the place. I haven't been able to find a lending product that has a return profile that looks like that. So on a first order basis, it's fantastic. But then also when we think about the strength of market fit, it's really the second order effects that got me the most excited. When we offer a Borrow loan, a large share of those funds actually move through the Cash App ecosystem. So you get kind of that double hit. And then this is one of the products, such a large share of the U.S. population is living paycheck to paycheck and has to smooth through their pay period that we see tremendous market fit for this offering. And then I think, increasingly, we're going to be able to leverage that as a carrot to incentivize certain behaviors. So we've been doing some experiments in terms of eligibility and limits and fees for our Borrow product and how we can kind of tune that to drive let's say, primary banking activity. And I'm really excited for what that can mean going forward. We'll have some announcements next week at Cash App Releases. And then I'm excited to talk about the durable growth profile for Cash App in depth at Investor Day in a couple of weeks. Thanks. Operator: And our next question comes from the line of Adam Frisch with Evercore ISI. Adam Frisch: Great to have Nick and Owen on the call and I hope that continues. I think a big issue for the right now is the macro versus the company specific. And given the significant and accelerating momentum on both sides of the business, plus a pretty tricky macro backdrop that I think some companies may be using as a crutch for subpar performance, can you speak, Amrita, to your visibility and how all of that is translating into your calculus around the 4Q guide and provide some color maybe on consumer spend. And then, Nick, on the company-specific stuff, if you could speak to your go-to-market strategy and what you're doing to drive such terrific growth acceleration on the Square side. Amrita Ahuja: Yes, Adam, thanks for the question. I'll get us started here on the 4Q guide and macro. Obviously, it's a dynamic environment. We're paying close attention to the range of potential outcomes here. What we used to inform our guidance is what we see most recently in both our third quarter performance as well as in October. What we've seen so far has been strong. Obviously, third quarter performance had acceleration across a number of key input metrics or operating KPIs that indicate the health of our underlying ecosystems, whether it's Square GPV or its inflows per active on the Cash App side, we saw acceleration from 2Q into 3Q. We continue to see really healthy returns on our investment in our go-to-market spend and then obviously strong underwriting outcomes as well across each of the different pieces of our lending portfolio. We saw only isolated impacts from tariffs and sort of the de minimis tax exemption changes that appeared in our Buy Now Pay Later business. But even with that, GMV growth remained strong at 17% or 18% on a constant currency basis in the third quarter. Based on what we saw in October was relative consistency across a number of different metrics that we track, whether it's average transaction sizes, Borrow origination volumes, loss rates, we're not seeing meaningful changes that indicate a change in the macro environment yet. Cash App performance was strong in October. I think you heard Owen speak to some of this earlier. We've seen strong active growth inflows per active and monetization in Cash App. In Square, we did observe slightly slower GPV growth towards the end of October that we believe was primarily weather related, but we're also seeing some of the strongest new volume added NVA that we've seen in a long time across self onboard and sales, obviously off a very large base. So look, ultimately, what we've seen has been healthy, but we're going to be data-driven and read our metrics on a daily basis as ever. And our philosophy here is that we have the ability to shift, whether it's on marketing or underwriting or how we run our business as needed. And those are kind of the key elements that underpin the guide that we put forward, which we think is a strong guide based on the momentum that we've got heading into the fourth quarter. Nicholas Molnar: Thanks, Amrita. And maybe I can just give a little bit more color on the go-to-market side. I spoke a little bit earlier about the strength of self-onboarding growth that we've seen. And more specifically, some of the flow [Audio Gap] AI work, the contribution that marketing has had and similarly, I spoke about scaling our sales headcount, particularly in the field sales team as we're seeing really strong marginal ROI. Just to be clear, I believe we have a huge amount of room to continue to scale our headcount. Our field sales team to date is only effective in our U.S. market, and we have a lot of room to keep growing. We know we have a lot of room as a function of proprietary data that we have available and more specifically, being able to leverage and look at the Cash App Card data to understand our penetration in local geographies and local neighborhoods and local markets, really gives us line of sight of how far we believe we can push our headcount envelope and then begin to scale internationally. We've seen some really strong wins up market, whether it's Katz's Deli or Purdys Chocolatier. We're proving [Audio Gap] just for small businesses and coffee shops that we're able to win large and complex sellers. And we have a massive TAM that we're excited and we continue to execute against, we've seen incredibly strong partnership momentum, 2 specific examples are Grubhub, which saw our ability to bring more of the Block assets to the partnership, but we can look at these as not just a feature exchange or an individual deal, but how do we think about this across Square and Cash App combined. And then similarly, from a Cisco perspective, we're seeing a strong feeling of new sellers joining the platform as a result of the strength of that partnership. So all in all, I feel like just given our ability to articulate a very considered and consistent strategy, we've been able to [Audio Gap] execution across our development teams, product engineering designs through our marketing campaigns, through how we shop from a sales perspective, and it's that coordination that's leading to us winning more against competitions, leading to delivery of features that we've been waiting for, for quite a while that are now coming to fold and seeing real strength in outcomes like multi-location, menu management, food delivery services, just features that we didn't have before that were table stakes for some of these upmarket sellers. So I'm really excited about what's to come, and I believe we'll exit Q4 in a really strong position going into 2026. Operator: And our next question comes from the line of Dan Dolev with Mizuho. Dan Dolev: Great results here. I wanted to ask about Square Bitcoin was announced earlier this quarter, fully integrated payments. I know it's going to be launched later this month, but I wanted to see maybe if you've done any testing or anything that could give us an indication because if it works, it could be huge in our view. So wanted to get your views on that. Jack Dorsey: Yes. So we're really excited to launch this to all of our sellers next week, actually and it's going to be available to everyone, and they just have to make a simple switch in their settings and they'll be able to start accepting Bitcoin. We do have beta merchants that have been on for quite some time and have found it really easy, and it's something that they want to promote heavily because there's no fees associated with accepting Bitcoin. So we've offered kind of placards and just the stickers in ways to show that like this business does now accept Bitcoin. We have a lot of hope for this. I think the challenge is going to be making the payment side and getting people comfortable with paying with Bitcoin. But that's just a matter of making the interface more accessible and more usable. We do a lot there within Cash App and also within BitKey and our Spiral debt team works constantly on payment adoption and making sure that we can see Bitcoin as everyday money. And it's something we're super excited about. And we're going to look for every opportunity to both educate all of our sellers on why accepting Bitcoin is the best option and why buyers would want to use it as well. Operator: And our next question comes from the line of Jason Kupferberg with Wells Fargo. Jason Kupferberg: So you've made it really clear that you feel pretty good about the competitive momentum on the Square side of the business. And I wanted to get a sense, you talked about all that new volume coming in. Is it coming more from sellers, who haven't made the move to a cloud solution yet? Or is it coming more from other cloud-based providers? And then I'm just wondering if there's been any changes in the Square pricing environment, either in terms of seller sensitivity to price or pricing posture that you're seeing exhibited by your competitors? Owen Jennings: Yes, why don't I take this? So let me just start with the pricing point. I don't believe there's been any major significant payment pricing moves that we've made as a result of focusing on our go-to-market and as I scale the team. From my perspective, it's been pretty business as usual. And more specifically, I think a lot of what we've seen is [Audio Gap] we're showing up in a lot more conversations as a result of getting out in the field. The field sales team going from basically 0 to over 100 today, and it will be meaningfully larger by the end of the year. That, from my point of view is a major contributor of our ability to have greater consideration and put us in more conversations to have the chance to win. We're also seeing our telesales growth rate improving and pretty meaningfully internationally, we've seen a significant acceleration of NVA growth. And so very excited, yes, about the U.S. and how we're showing up, but our telesales performance in all our global markets is seeing a highly accretive NVA growth curve. We're also seeing some of the lowest churn rates that we've seen since Q2 2023. And I think a lot of that is a function of the investments that we have made [Audio Gap] talked about earlier, our account management team and how we're showing up and supporting our partners. And just to wrap up the question, a lot of the wins that we're having, yes, some of them are kind of the legacy point-of-sale systems. But we, in recent times, have had like pretty meaningful win backs of those that have gone to direct competitors. And so we're seeing really strong win rates across all aspects of our competitor base -- and many -- once they had left are seemingly coming back as we're continuing to show up and have those conversations. So I'm really proud of the team and proud of what's been delivered this quarter. Unknown Executive: And then just to touch on pricing a little bit. We did update our pricing on the Square side for our software products earlier this year. I think we went through it at Square Releases a few weeks ago. . The reason for that from a customer perspective, a seller perspective, it was really all about simplicity. On the business side, it's really about ARPU expansion and SaaS attach rates. So we used to have more than a dozen individual software products that sellers could attach to. We combine this into a really simple 3-tier system where we have a free tier, we have a plus tier and then we have a premium tier for more complex sellers. It's just a massive improvement in terms of how we've simplified and streamlined the Square ecosystem. When we look at that relative to the competitive set, it's just clearly a lower cost of ownership when you go with Square versus some of our direct peers, we are actually including a lot of things that our competitors are charging separately for. So think like loyalty or marketing tools or team management tools or so on and so forth. And Nick and the sales team are able to kind of show that breakdown when we're having a conversation, and we're trying to win a deal. So when I talk to people on Nick's team, account executives are saying, yes, we're seeing stronger close rates in these deals. When I talk, they're loving the simpler structure. So overall, I think that's a great tailwind. But also I would say there's definitely some deals where we're up against the direct competitor and a cloud-based point of sale, but also we have to remind ourselves, this is a massive TAM. This is trillions and trillions of dollars. I think it's like $1 trillion in TAM just for food and bev and so just secularly, there's tremendous tailwinds here over and above kind of specific pricing dynamics. Operator: We will take our next question from Bryan Keane with Citi. Bryan Keane: Congrats on the results. Nick, I wanted to ask you about your baby Afterpay, maybe you could talk about some of the unique opportunities you see ahead with the asset that might differentiate you from the competition. I think volumes were up 18% on a constant currency basis. But obviously, there's probably a lot of growth to come, especially with the post purchase on BNPL and some of the other initiatives, but I'd love to get your thoughts there. Nicholas Molnar: Yes. Of course, thank you so much for the question. Yes, as you mentioned, GMV was up 18% on a constant currency basis, and gross profit was up 23% year-on-year, the significant driver of growth was post-purchase Afterpay and the Cash App Card, which was key driver of growth in the third quarter. Adoption and our conversion is trending ahead of our expectations. As Owen said before, we crossed $3 billion in origination run rate in early October, and we expect to continue to expand eligibility and increase attach rates and when we compare post-purchase Afterpay to Borrow's early trajectory, we're seeing the Afterpay and the Cash App Card scale in a meaningful way that pace is well ahead of the early trajectory of Borrow, which is really encouraging for us to see. And as we scale, we've had a resolute focus on our loss profile and our loss rates on consumer receivables in Q3 remained in line with our expectations. So healthy loss rates and strong growth rates. We have been very focused on rolling Afterpay out into Cash App, and we begin to turn our attention to the core Afterpay business across the world. We've signed a number of new partners over the last few months, including Uber and Amazon in Australia, Hibbett and Jenni Kayne in the U.S., and we're expanding our commerce network and our advertising business. So yes, I feel like we're focused on the right things as to how Afterpay is showing up both within Block and in partnership with Cash App and with Square, but also as it's core network and really investing in the growth of reacceleration of the core Afterpay business. Operator: And our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I was wondering if you could just spend a few minutes on AI here? Amrita touched on some of the AI tools that you are enabling for sellers. But I was wondering more just bigger picture at Block, Jack. What kind of impact do you see AI having at Block? Just touch on how you are currently -- what you're currently doing with AI? What are some of the use cases that might be interesting here in the short term, like, let's call it, a year or two, and then I guess like really, at the end of the day, is AI going to be more of a cost side benefit for Block? Or is it more of a growth driver? Jack Dorsey: Just to answer that question right away, I would see it as both. I think it will allow us to grow a lot faster, monetize our capabilities even more. Just as one way to envision that is right now on the Square side, for instance, and even within Cash App, people have to navigate our interface to find features and products that we offer. We'll be able to surface them immediately as they need them based on the understanding and the data we have around how they run their business or how they run their financial portfolio on Cash App. So it's definitely something we're looking at for growth. But also, we imagine it really reduces our costs as well, especially at the company level. Our goal, ultimately, like I believe that AI will be transformational for our company. Our goal is to automate our company as much as possible and really take away a bunch of the mundane tasks that we have to do to serve our customers, so that we can focus on more creativity, and we can ship features and products much faster. That has been proving out. We started about 2 years ago with Goose, which is very small projects to help automate engineering tasks. And now it's grounded into something that nearly every single person in the company uses, not just engineering roles, but nearly every single role in the company has touched it and benefited from it and saved some time from their day-to-day so they can focus on more important tasks. And that has contributed a lot more to our overall velocity over the past -- over this year, actually. And we expect that only to increase as we continue to build on this platform. The most interesting thing is Goose allowed us to put a lot of this functionality directly into Square, with Square AI, and we're going to be doing the same thing with Cash App as well. And you'll see some of that next week in Cash App Releases. But more importantly, you'll see it at the Investor Day, where we'll go pretty deep on how we're touching every one of our product services with AI and what to expect from it. On the seller side, we want to build a virtual COO or manager for our customers, our sellers such that it can be very proactive because we have this deep understanding of their business. And on the Cash App side, effectively a virtual CFO so that people can really make the most of their money. And our goal is to help people to even build wealth as well. And AI is going to be instrumental in doing this. And I think we have something really unique in that we have all this real-time living data that comes in every single second of every day and we can tune these models not to be trained off the Internet, but actually to be trained off real human data as it happens. And it can be a whole lot more proactive. So you don't need to come to Square or to Cash App and know which question to ask. It can actually be proactive about things you might want to consider, products you might want to try out, features that you want to turn on and do so in a very friendly and human way that makes sense. And both of these are in testing right now, and we're getting really good feedback from our sellers and individuals. Operator: And our next question comes from the line of Harshita Rawat with Bernstein. Harshita Rawat: I want to ask about Cash App banking users. Good to see kind of the 8.3 million number user growing nicely. You talked about ways to deepen engagement here. You've had marketing campaigns recently, the product velocity appears to be improving. My question is, what do you think you need in terms of brand perception of product or otherwise to attract more inflows into the app, which I know accelerated a little bit this quarter and drive more commerce spend per user, which I think can get a lot higher. Unknown Executive: Thanks for the question. I love this question. It's actually 1 of the key things that I'm going to be focusing on next week at the Cash App Releases event. I think fundamentally, what we need is a platform that supports our understanding of primary banking behavior and what a customer, who is a primary banking active actually is. And so that's really where we've been focused. On the 8.3 million number, that primary banking actives were up 18% year-over-year in September, it's actually accelerated pretty meaningfully in October. So for October, we actually saw 8.7 million primary banking actives, so 400,000 net adds there. And then we saw the year-over-year growth rate accelerated from 18% to 20%. I think the key perspective here is that we don't want to be too narrowly focused on just paycheck deposit actives. It's not actually reflective of the modern earner and how the next generation is actually participating in the economy. And so we've been running a lot of tests and rolling out new products and new platforms that support this world view. And I think we love systems like that because then we're able to really optimize flows to twist knobs and turn dials and we have a track record of doing that across a number of these programs that we've run, like our referrals and notifications program, our instant discounts program Boost. And really, this is connected back to one of the conversations we're having about Cash App Borrow. There are ways that we have within the app to incentivize a certain amount of behavior and bring Cash App Card to the top of wallet. One of the advantages that we have versus some of the other neo banks is we have that base of 58 million monthly actives. And so -- and we have 26 million Cash App Card actives on a monthly basis right now. And so we're able to play this like cross-sell, upsell, attach rate game as well. And so a big part is just driving engagement. In terms of the why and why we're so focused on this, it's just the ARPU and the LTV for primary banking actives is just so much greater than it is for the average customer. So every time that we convert your average Cash App customer or your average Cash App Card customer to a primary banking active, there's a huge ARPU uplift. And so we're going to be pulling a lot of levers here. We're going to be looking at everything we can offer from limits to overdraft coverage, to rewards, to Borrow eligibility to Cash App Afterpay and so on and so forth to build a really, really, really compelling banking suite. And we think that when we go to market with that, and we have campaigns about that, it's going to lead to some of the outcomes that you mentioned. Operator: And we will now take our final question from James Faucette with Morgan Stanley. James Faucette: I want to go back to the work that you're doing on Square and the product and distribution enhancement to us seems like it really could expand the appeal to a broader range of merchants. You made that pretty clear in talking about the responses you're looking to go upmarket, how should we think about, though, the impact to things like pricing and profitability? And I guess 1 of the other questions I have in terms of market fit is, what segments of the market are really responding or what enhancements or the segments where you're seeing traction? What are they really responding to thus far in features, et cetera, on that you can lean into. Owen Jennings: Yes. I'm happy to take this. So why don't I just start at like the Block level, and then I can talk about the Square specific components. From a Block perspective, I think this is 1 of the really strong benefit [indiscernible] to where we're able to go to market leveraging the combined value of Block for our partners and our consumers. So when we're showing up and we're speaking to a partner, we're speaking to them about Cash App's network of 58 million actives, we're speaking to them about the scale of the Cash App Card that already exists on their platform. We're able to illustrate the value of Square, where we have millions of sellers across a very broad set of industries, and we have both Pay Now and Pay Later that is a global network, not just a U.S. specific network. So that means that we can have very strategic conversations with our partners. And that's where I think these like distribution opportunities truly start to unfold because we're having conversations at a different altitude that's looking at what are the benefits that Block could bring as a whole that does create sometimes a more complexity in the partnership motion. But I do think that if we can be a little bit patient, knowing what [Audio Gap] I feel really good about what's to come and how do we think about these things global that are more all-encompassing across our platform. And then when I think about just the overall competitive advantage of Square, number one, we're addressing a very significant TAM. We're addressing a very broad set of verticals. I mentioned earlier around some of the more recent product features like menu management, delivery platform integrations and others from an F&B perspective, which has been our focus. But we are showing up across a broad subset of verticals, and we are starting to bring Cash App into that conversation as well, where we can talk to our Square partners, not just about the features that we can provide them, but we can talk to them about our ability to drive growth, the great work that Brian and team are doing from a Neighborhoods' perspective and how do we start to bring those 58 million in Cash App into the Square sellers and illustrate, we can drive foot traffic into store. Like we can be a growth partner for our sellers, not just a point of sale. And I think that is our fundamental competitive advantage over the long term. I don't think this is about price and profitability. I think it's about scaling the team with the right marginal ROI profile and the incremental headcount and having a team that is appropriately represented for the TAM that we're servicing, and showing up with the right tactics, the right framework, the right ability for an account executive to do a deal when they're standing in front of the seller. And that's all we're seeing today. We're seeing really strong NVA growth, and I believe that it will continue to accelerate into Q4. So thank you for the question. Operator: And ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the OceanaGold Corporation Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. And I would now like to turn the conference over to Haley Myers. Thank you. Please go ahead. Haley Mayers: Good morning, and welcome to OceanaGold's third quarter 2025 operating and financial results webcast and conference call. I'm Haley Mayers, Vice President of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer; Marius van Niekerk, Chief Financial Officer; and Bhuvanesh Malhotra, Chief Operating Officer. The presentation that we'll be referencing during the conference call is available through the webcast and our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U.S. dollars. I will now turn the call over to Gerard for opening remarks. Gerard Bond: Thank you, Haley, and good morning, everyone. The third quarter was a solid one, in line with our expectations, where we safely and responsibly executed to plan. We are now in high-grade ore at both Haile and Macraes, which is why we expect the fourth quarter to be the strongest of the year. This also underpins our confidence in meeting full year guidance, lowering our unit costs and generating significant free cash flow in this fourth quarter. As a fully unhedged gold producer, we continue to benefit from today's favorable gold price environment. Most of the gain in average realized gold price was converted to the bottom line, and we delivered yet another strong quarter of free cash flow generation to the tune of $94 million. We have a superb balance sheet with 0 debt and cash of $335 million, up 12% from the last quarter. This increase in cash is after investing in our business and after the $46 million of capital returned in both dividends and buybacks during the quarter, reflecting our disciplined capital allocation framework. Our balance sheet strength provides us the flexibility to continue investing in our organic growth pipeline, which remains a focus for us. I'm pleased to say that the early works construction activities at the Waihi North project are progressing well, and we remain on track for fast track permit approval of this project by year-end. We are very much focused on maximizing shareholder returns. And this third quarter was one in which we generated strong free cash flow ahead of market expectations, increased our cash balance and returned a record amount of cash in the quarter to shareholders via dividends and buybacks. As of today, we have completed $100 million of share repurchases this calendar year at an average price of CAD 19.64 per share. I'm pleased to say that the OceanaGold Board has approved a substantial 75% increase in our share buyback program for this 2025 year, raising the total amount of planned buybacks up to $175 million. Widening the lens, I want to highlight just how focused we are on generating and sustaining an attractive return on capital. Our rolling 12-month return on capital employed is 17% over the last 12 months. Over the same period, we delivered $422 million of free cash flow, which represents a free cash flow yield of approximately 15% on our average market capitalization over that same period. Both of these metrics demonstrate how we are executing well, how we are successfully converting the strong gold price into bottom line results that we're generating significant free cash flows and that we are deploying capital effectively. Looking ahead, we are confident that the fourth quarter will be our strongest of the year from a production standpoint, and we remain on track to meet our 2025 full year guidance. Our consolidated gold production at the end of the third quarter represents 70% of the midpoint of our guidance range, in line with plan, while our year-to-date all-in sustaining cost is at the top of the guided range. The projected strong fourth quarter production is expected to drive our all-in sustaining costs back within our full year guidance range, which is exactly how we always expected this year would play out. Total capital investment is expected to be in line with guidance. Sustaining capital and growth capital expenditures are anticipated to be higher in the fourth quarter, including further spending on early works associated with the Waihi North project. In summary, we are pleased with the strong operational and financial performance year-to-date. And looking forward, we remain confident that we are well positioned to achieve full year guidance, progress our growth options and continue to increase returns to shareholders. I'll now turn the call over to Marius, who will discuss our financial results in detail. Marius van Niekerk: Thank you, Gerard, and good morning, everyone. This quarter, our focused operational performance translated into a record quarterly revenue of $449 million, supported by a record average realized gold price of just under $3,500 per ounce, which is still well below where spot gold prices are trading today. I'm pleased to highlight a few other key metrics this quarter. Adjusted EBITDA reached $211 million and was up 18% compared to Q3 last year, resulting in a healthy margin of 47%. Adjusted net profit was $93 million and adjusted EPS was $0.40, representing increases of 40% and 48%, respectively. Operating cash flow per share was $0.93, up 41% versus last year. We generated a strong free cash flow of $94 million in the quarter, bringing the year-to-date total to $283 million. The balance sheet is clean. We have 0 debt and our cash balance increased to $335 million. These results highlight our focus on maintaining cost and capital control and reinforcing our financial strength to continue delivering shareholder value. With our balance sheet in the strongest position ever, we have the flexibility to continue funding our exciting organic growth opportunities while also returning capital to our shareholders through our dividend and our upsized share buyback program. In addition to maintaining our quarterly dividend this quarter, we bought back $39 million of shares at an average price equivalent to around CAD 24 per share. Having fulfilled our previously announced $100 million buyback program for 2025, the Board has now approved a 75% increase for the remainder of the year, raising the targeted share buyback to $175 million for 2025. Together with $24 million in share repurchases made last year and our doubled dividend in 2025, by year-end, we expect to have delivered over $225 million in capital to shareholders, and that's over the previous 18 months. This demonstrates our clear commitment to delivering capital returns to our shareholders while maintaining a strong balance sheet and funding our growth projects. I'll now pass it over to Bhuvanesh to discuss our operating performance at each of our sites. Bhuvanesh Malhotra: Thank you, Marius, and hello, everyone. Ore production at Haile was 30,000 ounces in the third quarter, which was our planned lowest production quarter of the year as we advanced phase stripping at Embeda Phase 3, which unlocked fresh ore towards the end of the period. We are confident that the fourth quarter will be a strong quarter comparable to the first quarter, driven by the high-grade ore from Ledbetter 3, positioning us to achieve our full-year guidance. Third quarter all-in sustaining cost was above our guidance range as expected, reflecting the lower production volumes and capital investment on waste stripping and increased sustaining capital. We maintain our all-in sustaining cost outlook for the year as we expect unit costs to decrease significantly in the fourth quarter, in line with the expected improved production profile. During the quarter, we also released some exciting exploration results at Haile, highlighting the high-grade mineralization at several deposits across the property, notably at Ledbetter Phase 4, Horseshoe Underground and the early-stage Pieces and Clydesdale targets. The exploration success enjoyed year-to-date continues to highlight attractive upside for low-risk organic opportunities. Work on Ledbetter Phase 4 trade-off study continues to progress well. We are on track to release an updated NI 43-101 technical report by the end of quarter 1, 2026 with the results of this work. Now on to Didipio. During the quarter, Didipio delivered gold production of approximately 22,000 ounces and copper production of 3,100 tonnes, in line with our full year plan. In the quarter, we successfully completed the dewatering of the decline and expect to be at normal underground mining rates by the end of 2025, keeping us well on track to meet our full year guidance. We continue to pursue our underground optimization plans to support our growth. In the third quarter, we increased our investment in sustaining capital with planned spending on underground pumping infrastructure and ongoing lifts to the tailings storage facility. We expect this investment to continue into the fourth quarter. With the investments in mine water resilience in the second half of 2025, we expect all-in sustaining costs to be around the top of the guided range for the full year. We remain excited about our exploration prospects with ongoing drilling at multiple targets. This quarter, we continue to explore our near-mine targets, Napartan and D'Fox. In the fourth quarter, drilling will resume at True Blue, an area of known mineralization approximately 800 meters away from the Didipio mine. Additionally, resource conversion drilling from the underground is expected to resume shortly following the successful dewatering of the decline. We're making good progress and remain on track to reach our targeted underground mining rate of 2.5 million tonnes per annum by the end of 2026. We expect to release an updated technical report in the first half of 2026, outlining this plan to the market. We remain excited about Didipio's future growth opportunities. Moving on to Macraes. This quarter, Macraes delivered improved gold production of 33,000 ounces as waste stripping at Innes Mills 8 began unlocking fresh ore towards the end of the period. Looking ahead, with access to fresh ore at Innes Mills 8, we are confident in the significant fourth quarter uplift in production, positioning us well to achieve our full year guidance for production and costs. We remain excited about our potential opportunities to unlock value at Macraes. We are continuing to evaluate many options available to extend the mine life given today's high gold price environment, leveraging the value of our industry-leading low mining unit costs. We expect to share more with the market in an updated technical report at the end of quarter 1, 2026. Waihi delivered another strong production quarter of just under 19,000 ounces of gold, maintaining the progress achieved with the underground improvement plan initiated in 2024. This marks the fourth consecutive quarter of stronger performance at Waihi, which is testament to all the hard work done by the team there. This great turnaround at Waihi in recent quarters has positioned the site to deliver gold production around the high end of its guidance range for 2025. Now on to our exciting Waihi North project. I'm pleased to say that our fast track application progressed through the commenting phase in the third quarter and is currently in the panel consideration phase, which includes of responding to requests for information. Our expectation remains that we will be permitted by year-end and will be able to start the underground decline towards Wharekirauponga in 2026. Early works activity continued to progress with the construction of the service trench, civil works and Velos bulk earth works all commencing this quarter. We are on track to spend our guided $45 million this year, helping the project to be ready to start in earnest when we receive that approval. Turning to exploration at Wharekirauponga. Exploration focused on confirming the extent of mineralization of the southern end of the deposit, which remains open. As part of our fast track application, we are also seeking approval to increase the number of drill sites and double the number of allowable drill rigs, which will accelerate efforts to define this exciting deposit. Back at Waihi, exploration drilling is focused on resource definition and conversion and expansion of the Martha underground. With the improved underground performance and solid progress on permitting of the Waihi North project, we remain very excited about Waihi's future. I will now turn the call back to Gerard. Gerard Bond: Thank you, Bhuvanesh. In summary, this was another good quarter for OceanaGold and in line with our full-year plan. We expect the fourth quarter to be our strongest of the year, setting us up well to meet our full year guidance and generate substantial free cash flow at today's gold prices as a fully unhedged gold producer. Our balance sheet is in excellent shape. We returned a record amount of capital to shareholders through dividends and buybacks. Our 2025 buyback program has been substantially increased by 75% and the fast-track permitting approval of the Waihi North project is expected by year-end. We're also targeting a listing on the New York Stock Exchange in April 2026, which we believe will provide enhanced trading liquidity and access to a wider range of potential investors, both of which should drive value for shareholders. All this is possible through the dedicated efforts of the many tremendous people who work at OceanaGold and a big call out of thanks to them for all their hard work. I'll now turn the call over to the operator, who will open up the lines for any questions. Operator: [Operator Instructions] And your first question comes from the line of Ovais Habib from Scotiabank. Ovais Habib: Gerard, congrats to you and your team on a great quarter and really great to see Haile and Macraes in the higher grade ore. Also, really great to see the significant increase in the share buyback program. So that was really good to see and really depicts how confident you guys are on your free cash flow profile. A couple of questions from me, Gerard. Number one, starting off with -- you've got a lot of studies coming up in 2026. There's the Haile tech report, Macraes tech report. You've got the Didipio underground PFS as well. In terms of the free cash flow and free cash flow profile that we see going into 2026, that seems to be very strong. So the question is, do you see any major CapEx projects going into 2026 based on these expected studies? Gerard Bond: Firstly, thanks for the questions. Look, I mean, the cash flow requirements of those studies or the mine plans that will be reflected in those studies will be available in 2026 when we release them. But there's nothing -- unlike, say, the Waihi North project, there's nothing more than we're doing than updating the mine plans for latest reserves, latest reserve assumption and latest estimates of activity and the mine plan itself. There is nothing of a vastly different nature in capital that we're expecting to be associated with any of those 3 assets, Haile, Macraes or Didipio. Ovais Habib: Fantastic. And just kind of moving on to Didipio then. Q3 looked fairly similar to kind of Q2, things have improved. Obviously, there were some underground water issues at the beginning of the year. Is that all now behind us? Any color on that would be great. Gerard Bond: Well, I think Bhuvanesh covered it in the call, and I'll hand it over to Bhuvanesh again. But as he said, we have completed the dewatering of the decline. And by the end of this year, we expect to be at normal underground mining rates in full. Bhuvanesh, anything else to add on that? Bhuvanesh Malhotra: No, I think you covered it well. Thanks, Gerard. Ovais Habib: Okay. And then just moving on to Waihi. Waihi is expected to finish the year around the top end of its production guidance. And this is definitely a big improvement over the past couple of years. Are you now confident in this performance continuing to 2026? Gerard Bond: Bhuvanesh do you want to take that? Bhuvanesh Malhotra: Yes, sure. Thanks, Ovais. Yes, we are very confident about our production profile moving forward from Waihi. I think we now have a very great handle of the mining in out there as well. So yes, we feel very confident about our ability to capture and maintain that rate. Operator: And your next question comes from the line of Harrison Reynolds from RBC Capital Markets. Harrison Reynolds: Congratulations on delivering another strong quarter. It sounds like well set up heading into the end of the year. Wondering if you might be able to provide a bit more detail on these upcoming tech reports for Haile and Macraes. I know you touched on it a little bit in the last question, but sort of trying to understand what they might include. I think about the Macraes mine life extension. And I think that's underappreciated, but trying to maybe think about which phases are actually going to get included in this report. And over at Haile, some of this exploration has been interesting, but I'm wondering, are we going to get details around those targets at all? Or is it just going to be updating production schedules and costs? Gerard Bond: Everyone wants a spoiler alert ahead of the -- you're going to rob all the excitement of February to keep talking. Look, I mean, Haile, we've been saying that for a while now we're studying how we're going to approach the mining of LedBetter 4. It was always in the last technical report shown to be an open pit mine. But as a result of the great drill results we had and the shape of the ore body as defined by that drilling, what the study will do is make a determination and reflect the decision on how we're going to mine that LedBetter 4 ore body. So that's probably the primary change. The -- we've had some tremendous drill results at Haile as foreshadowed, but I don't think much of that's going to alter the mine plans beyond what I've said in relation to Ledbetter 4. At Macraes, its last reserve estimate was done for the whole company was at a reserve price of $1,750 an ounce. And we said that we are going to -- we're looking at having a higher reserve price for Macraes and all sites. And when we update that technical report at a higher reserve price, the amount of mineralization at Macraes is such that you can expect that a degree of mine life extension of some magnitude because it is an ore body that's sensitive to price. And so, at these higher gold prices, and we're always going to make sure that our reserve price isn't chasing too spot gold, we're going to make sure we have a very healthy margin on mining activities at all sites. But Macraes is sensitive to the gold price, and we expect that, that increase will allow us to mine more ore for longer at Macraes. And they are the primary reflections. Harrison Reynolds: That's great detail. And maybe just one more for me. I think it's exciting to see that there's going to be more drills on the Waihi North project post permitting. But can you talk a little bit about what's going to be targeted from those drill rigs? Is that going to be more infill drilling? Or are you going to start to do step outs and define the size of this ore body? Gerard Bond: Yes. Great question, Harrison. I mean, to put it in context, we're doubling the amount -- well, doubling the amount of drill pads that we can drill from. That will give us tremendous flexibility and choice as to how we approach the drilling as opposed to being limited to the drill pads that we have had for a many number of years. And as I said, doubling the amount of drill rigs. We'll always have a choice, and they're not mutually exclusive. We can do a bit of both. It is an exciting ore body. I think there is merit in doing some infill drilling and there's merit in doing step-outs. And again, we're only to date focused on one of the veins. There's also the opportunity to focus on some of the other veins in the region. I think Wharekirauponga, the district has a long period of time to unveil what's possible there. And again, this next year is going to be a step change in drilling activity to help unveil all that. Operator: And your next question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: At Waihi, it sounds like the underground improvement plan is going really well. You've seen higher throughput, higher grades, lower cost. Are there similar opportunities at other mines in the portfolio to bring costs down? Gerard Bond: Short answer is yes, but I'll let Bhuvanesh color that in for you, Fahad. Thanks for the question. Bhuvanesh? Bhuvanesh Malhotra: Thanks, Fahad, for the question. Yes, there are other opportunities across our portfolio to really factor the cost. Currently, we are undertaking all of those opportunities as well and probably Haile being a nice one to take that into account as well, specifically when you look at the trade-off study between the open pit and the underground. So that's a great example to factor that outcome. Similarly, at Macraes, we can -- we're looking at all opportunities as a part of the mining studies that are in out there as well. And at Didipio, the way we basically have been mining at Didipio, specifically in relation to how our stope sequencing work, we are always looking at those opportunities as to how to get the cost of the all-in sustaining cost down. Operator: And your next question comes from the line of Cosmos Chiu from CIBC. Cosmos Chiu: Maybe my first question is on something interesting that you mentioned in your MD&A. As you mentioned in your MD&A, you'll be releasing your 2026 guidance with full year 2025 results, and it will reflect updated economic influences from current market and operating environment. So I guess my question is, Gerard, is that an indication that you'll be looking at sort of inflationary factors? Or are you looking at sort of changes from the higher gold prices and changing opportunities? You kind of answered that question in your answer to Harrison on the Macraes in terms of potentially bringing in more ore. But is that what we're talking about, inflation? Are we talking about opportunities from a higher gold price? What do you mean by that statement? Gerard Bond: Yes. I mean it's everything costs, right? I mean we start with the physicals and then we have to have an overlay of what it's going to cost and what we're going to be investing in. And the mine plans will direct the activity and the activities can shift ever so slightly depending on what the mine plan takes us to and the experience of the year. And market costs, they can reflect anything, including inflation, exchange rates. I mean, we operate -- 50% of our business is outside of the U.S. And so, we update as to the New Zealand dollar and the peso, input costs and so forth. So it's a comprehensive normal update of what we expect the economics and physicals of the business are going to be. Cosmos Chiu: So pretty much everything. But I guess to ask it more concisely, have you thought about what gold price assumption you might be using for your technical reports coming up that could drive how you run the business at least into 2026? Gerard Bond: Short answer, and I think I alluded to it and we said it previously, we are going to increase the reserve price. The reserve price of $1,750 is too low. So it will go up. It doesn't change the activity set of any of our assets in 2026 at all. And the primary change that -- and it doesn't change much of the reserves of any site with the exception of Macraes because as I said on the call, it's the one that's most sensitive to price. And you can just see the difference between the reserves and the resources at Macraes and the resources at Macraes are booked at $1,950. So as we migrate from reserve to resource, you're going to see some level of those resources come into reserve, and that will extend life, but it won't alter the activity of 2026, all that much from what we expected otherwise. Cosmos Chiu: Great. Maybe switching gears a little bit. Gerard, as we all know, Q3 was going to be the weakest quarter for the year for Oceana . And despite that, you still generated very good free cash flow, $94 million positive free cash flow. Can you remind us of any kind of seasonality in your free cash flow quarter-over-quarter? For example, I know that you need to pay for your FTAA each and every April. But is there anything else that we should be aware? Gerard Bond: Not really, Cos. I mean I think the largest single lump is -- and I'll give Marius time to think and he can color in if I've missed something. But the largest single item of the lumpy spend is that additional government share that's paid in April of every year, and that's flagged in the full year results that we released in February. We -- through the course of this year, we did have some seasonality in the electricity price that we experienced in New Zealand, but it's kind of not all that significant. But -- and then the other seasonality, we can have weather events affecting shipping of copper concentrate out of Didipio, but that all washes out in the course of the year anyway. So nothing material. Marius, anything come to mind or Bhuvanesh? Marius van Niekerk: The only 2 that come to mind is obviously your CapEx spend profile, cars, depending on where you are in that quarter. And then also from a shipment perspective, yes, you have -- you could have weather events impacting it or you could have some stockholding at either site per quarter at the back end of the period. So that would influence, for instance, Didipio this quarter had some sales that came from inventory in the prior quarter. Cosmos Chiu: Great. And maybe one last question. Great to see share buybacks, you've reached your $100 million target, now increasing it to $175 million. But I guess my question is, as Marius mentioned, you repurchased shares at CAD 24. Oceana shares have done very well. Now CAD 31.85. So I guess my question is, is there some kind of upper limit in terms of when you might start considering or reevaluating the velocity in which you repurchase shares? Gerard Bond: Yes. We do have -- we are mindful of value, Cos. We have our own view on value having regard to modeling and various assumptions, and we don't go above that limit. Cosmos Chiu: Okay. And at this point in time, Gerard, can you share with us, are we going to expect share buybacks of $75 million in Q4? Or is that, again, based on what you're observing in terms of value in terms of the share price? Gerard Bond: I can say that we will be commencing that buyback at today's share price. And what happens thereafter, Cos, is, again, subject to the parameters we put around it. But I think what we have shown is that when we said we were going to buy back shares at the start of the year of $100 million, we executed to that. And I think just generally, at a macro level, I think that gold equities, not all gold equities, but certainly OceanaGold equities still have a way to go to reflect fully or even part of the uplift in spot gold. Operator: And your next question comes from the line of Don DeMarco from National Bank. Don DeMarco: First off, to these technical reports, Gerard, what is the timing of both the Haile and the Craisech reports? Are they going to both be out before 2026 guidance is released? Gerard Bond: No. They will come out in the end of the first quarter of 2026. But the essence of them will be reflected in the '26 guidance. Don DeMarco: Okay. And of course, as has been discussed in some of the questions, with the Haile tech report, you're looking at -- you faced with the decision of how to approach LedBetter 4. This analysis is ongoing. We'll look to report for what your decision is. What are some of the variables that you're including in your analysis that might drive the decision grade, CapEx, differences in throughput between the different scenarios in the mine life? What are some of the factors that you're looking at and weighing both options? Gerard Bond: Sure. Great question. Bhuvesh, do you want to take that one? Bhuvanesh Malhotra: Yes, sure. Thanks, Don. So we've been looking at the value-based decision as well. So the decision basically is more about the NPV that we will generate and then the IRR that we'll get out of the decisions that we need to make as well. And as you know, probably in the case of the open pit, given the amount of waste that we need to strip to the ore, that probably is a huge amount of time that we spend in that space as well. So we're taking a value-based decision that probably generates the best outcome. This is what the trade-off studies will be taking into account. Don DeMarco: Okay. Great. And great to hear that Q4 is going to expect to be the best of the year. And really, there's a clear path into 2026 as well. Would you expect that stretch to continue into '26? I mean, in a general sense, and of course, we'll look for details of the guidance, but it seems like a clear path carrying on the strength from Q4 into next year. Gerard Bond: Yes. Whether the quarter volume is exactly the same, but the drivers of that uplift definitely carry through into '26. I mean this has all been about accessing grade at our 2 largest operations, Haile and Macraes this year represent 70% of our projected production. And next year, that combination grows even larger because of this access to the higher grade ore and Innes Mills 8 at Macraes and LedBetter 3 that we've been investing in this year. That's what I think is particularly exciting. We have been investing in the access of those large open pits this year, still generating tremendous free cash flow. And then next year, when you're feeding higher-grade ore that's what's the primary driver of the uplift in gold production in 2026. Operator: And there are no further questions at this time. I will now hand the call back to Gerard Pan for any closing remarks. Gerard Bond: That concludes our webcast and conference call today. Thank you, everyone, for joining us. A replay will be available on our website later in the day. On behalf of the management team and everyone at OceanaGold, I wish you a very pleasant rest of the day. Bye. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.