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Operator: Good morning, and thank you for standing by. Welcome to the Flowers Foods Third Quarter 2025 Results Conference Call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead. J. Rieck: Hello, and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks and view the slide presentation that were all posted earlier on our Investor Relations website. After today's Q&A session, we will also post an audio replay of this call. Please note that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman and CEO; and Steve Kinsey, our CFO. Ryals, I'll turn it over to you. A. McMullian: Okay. Thanks, J.T. Good morning, everybody. Welcome to our third quarter call. Our proactive efforts to strategically align our portfolio with consumer demand are yielding positive results. By effectively targeting areas of opportunity with differentiated offerings, we're finding pockets of growth amid ongoing pressures in the bread category. To address these challenges, we're redefining traditional loaf, incorporating value and better-for-you attributes that align with evolving consumer preferences. While it will take time, we're confident our strong portfolio of brands will successfully enable this transformation. I'd like to take this opportunity to thank our dedicated Flowers team for their hard work and resilience during this period of change. We are also grateful for the ongoing support of our shareholders as we strive to enhance long-term performance. And finally, I'd like to acknowledge that this will be Steve Kinsey's final earnings call after 18 years as our CFO. His contributions to Flowers have been invaluable, and we're deeply appreciative of his leadership throughout the years. We wish him all the best in his future endeavors. And with that, Daniel, we're ready for questions. Operator: [Operator Instructions] Our first question comes from Scott Marks with Jefferies. Scott Marks: First thing I wanted to ask about, you made some comments in the prepared remarks about consumer sentiment reaching a low point for the year in Q3, but you also made comments about expecting category demand to normalize as the economy strengthens. So maybe if you can just help us understand how you're thinking about that and maybe what gives you confidence in the recovery of the category and the normalization of demand? A. McMullian: Sure. Thanks, Scott. Of course, it's tough to pinpoint the exact time line, right? But we do think over time, the category will stabilize. This is a very large category. It's a staple in many households in the United States. I think we've just got to get some of this noise out of the way. People are still very concerned about tariff situation. The job market now with the government shutdown and the disruption that, that has brought, I think it's going to take a little bit of time to work our way through that. So we do see the weakness continuing at least partway into '26 from where we stand right now, but we do think over time, it will stabilize. I think in the meantime, it's important for us to continue focusing on the consumer, continuing to invest in the consumer, bringing those both value and better-for-you offerings to the consumer, which is clearly where they're going, and that's what we intend to do. Scott Marks: Appreciate that and then the second question for me would be, you talked about some of your newer investments pressuring margins a little bit, just investing to kind of generate consumer trial and ramp volumes. Maybe how should we be thinking about offsets to that within whether it's the supply chain efficiencies or any other offsets that you can call out for us? A. McMullian: Yes. You're spot on there, Scott. I mean we're focused on the long term. And so that means continuing to invest in the consumer. And we will continue to do that. I think you've seen us do that with all the innovation that we brought to market over the last several years. But the truth of the matter is, I mean, all innovation tends to pressure margins in the short term. They're newer items. But as we build scale and as we make targeted CapEx investments to increase our throughput and efficiency, we expect those margins to improve. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Okay. Congrats again to you, Steve, and thanks for your help over the years. So first question, just maybe to follow up on Scott's initial question, just around the consumer and I guess, your sort of your planning stance into '26. You talked about some signs of stabilization in the category over the course of 3Q, but then some weakening as the quarter came to an end. So just -- I guess, just thinking about fourth quarter and sizing up '26 scenarios, are you expecting more or less the status quo to prevail? Or are you building in allowances for things to maybe get a little bit worse before they get better? A. McMullian: More towards the status quo with some opportunity for improvement. I mean you're spot on that in Q3, periods 8 and 9, we saw the category begin to stabilize. But comping what, 5 named storms last year and 0 this year was a pretty tough comp in period 10. So you could see the category did fall off in period 10. But since then, it started to migrate back to where it was trending in periods 8 and 9. Stephen Robert Powers: Yes. Okay. Perfect. Yes. So more just the comparisons versus the storms of last year. Makes sense. A. McMullian: Yes, that's right. Stephen Robert Powers: Okay. And then the other question I wanted to ask is it was just around Simple Mills. It was a point of upside, at least versus our estimates in the quarter. And in the prepared remarks, talked about general strength and performance in line with your own expectations. Maybe just go a little bit deeper and highlight some of the areas where you've seen the most progress since acquisition and where as you integrate and build further, you see the most opportunity? A. McMullian: Yes. The first thing I would call out is just the collaboration effort between our teams. The integration is going exceedingly well. We're finding areas of opportunity in customer engagement, in procurement, among other areas, and across their categories, they still continue to perform very well, and as we noted in the prepared remarks, in line with our expectations. We're very excited about next year for Simple Mills. Of course, we're not giving guidance today, but they do have quite a bit of new innovation coming for next year that we're all pretty fired up about, and so we're -- overall, Steve, we couldn't be more pleased. Operator: Our next question comes from Jim Salera with Stephens. James Salera: Steve, it's been a pleasure working with you. Hopefully, you have a long vacation planned as we get into the beginning of next year, taking advantage of some time off. Ryals, I wanted to maybe ask a little bit more detail around the other segment because branded retail actually came in ahead of what we were modeling and the other piece came a little bit behind. I would assume that's foodservice, just given some of the headwinds that QSR and the industry has been facing. But can you offer any color there, maybe kind of foodservice and your private label business performance? A. McMullian: Yes. Jim, the foodservice business has been under pressure, not surprisingly, given the economic environment and consumer sentiment. So that's really all that is. I would continue to note, though, that despite that weakness, the work that we've done over the last 2 to 3 years to improve the profitability of that business is still delivering very nicely on the bottom line. So that's good to see. But we -- look, we would expect that to recover as the economy recovers. It tends to ebb and flow with that. So nothing terribly unusual there. Volumes were a little bit better in that other category, primarily due to vending. So you may note that as well. Private label is interesting because it has been weak. You can see that in the syndicated data, which may seem kind of strange given where we are economically. But the price gaps between private label and some of the lower-priced branded products have narrowed significantly. And so I would chalk it up to that. James Salera: Okay. Is it a fair way to think about just because we have a little bit less visibility on foodservice. Is that kind of run at the same pace of industry traffic? Or is there a way for us to think about kind of incorporating that into our model? A. McMullian: Yes. You can look at traffic, would be a good indicator. And remember, our foodservice business is really broad, right? So it's broad line through the big distributors, but it's also QSR, which has clearly been under pressure. We compete across all those channels. So it's just general weakness across foodservice given the economic environment. James Salera: Okay. And then if I could sneak in one more. You guys brought down your expectations for headwinds from tariff, but we've also recently seen some step-up in ag commodity prices. Can you just offer any thoughts around how we should kind of be putting together puts and takes as we think about modeling your '26 gross margins, if there's maybe opportunity for upside there or with kind of all the moving pieces, that should probably be a little bit more conservative from our view. R. Kinsey: I mean, Jim, Ryals has made a statement. Obviously, we're not prepared to give guidance for 2026 today. But what I would say, when you look kind of across the whole bucket, we are still expecting inflation. I mean wheat commodities are still very volatile. There are other things that are going to be up next year. Obviously, we only had tariffs for part of the year this year. So when we give guidance on 2026, my guess is you'll see some inflationary pressure with regard to input costs. Operator: Our next question comes from Max Gumport with BNP Paribas. Max Andrew Gumport: Congrats, Steve. First, on the dividend and on cash. So you noted you're reducing your expectations for CapEx this year as you focus on returning to a more normalized leverage ratio. I was hoping you can talk about the balance between pulling this lever, pulling down CapEx versus reconsidering whether the dividend is at an appropriate level. And I'm really asking because it feels like an acknowledgment or an early admission that this combination of your leverage and the dividend are restraining to some degree, your ability to invest in the business. R. Kinsey: Yes. I mean, obviously, every quarter or throughout the year, we consider capital allocation. It's very important to us. I mean we're very focused on delivering shareholder value. I would say from a CapEx perspective, the pullback, while we are focused on our deleveraging, and this is part of the -- would be part of the strategy, a lot of it has to do with project cadence. We shifted some of the projects into next year. And then we did a reassessment of projects to make sure we're only doing the projects that deliver the best return. So I'd say it's exclusive of any consideration around dividends necessarily. And then on a quarterly basis, our Board considers the dividend. I don't want to get ahead of anything or speculate. But the reality is the focus is always on delivering the shareholder value, and then based on the facts and circumstances at the time, the Board makes their decision from a dividend policy perspective. So I'd say really no difference in philosophically how we think about capital allocation. But obviously, we're aware of our leverage ratios, we're well aware of the payout ratio and all of that will go into consideration as we think about capital allocation going forward. Max Andrew Gumport: Okay. And then coming back to margins. So this quarter, your gross margin was down 190 basis points. EBITDA margin was down 160 basis points, and that looks to be despite the tailwind you've actually had some lower ingredient costs as a percent of sales. So it feels like negative price mix and lower volumes are really starting to pressure your margins, given the competitive environment and the consumer environment don't seem to be swinging to positive at least in the early part of '26. It's not clear that either of those pressures will be dissipating in the near term. So I'm just curious how you're thinking about the potential need to navigate through several more quarters of margin pressure. R. Kinsey: Yes. When you look at the gross margin, I mean, obviously, there is the top line pressure. I mean Ryals talked about the consumer, and you've seen that we've had more promotional activity. So that is causing some of the gross margin pressure. But the largest item on gross margin actually has to do with Simple Mills and the fact they're 100% co-maned. So obviously, that's a higher cost product. So that is the key -- one of the key items that impacted gross margin overall for the quarter. We'll lap that February of next year. So if the category were to stabilize or we would see some improvement in overall consumer sentiment, putting aside any inflationary environment, margins should benefit from that. And then on the SG&A side, if you recall, we converted a big part of our labor pool in California from independent distributors to company employees. So that's a big driver of that. We'll lap that next year as well, and then overall labor costs have been up. So again, from SG&A as a percent of revenue, it does go back to kind of the pressure on the top line, but I'd say there's really no one item that I'd call out as overly impacting the overall EBITDA margin from SD&A except for labor. Operator: [Operator Instructions] Our next question comes from Mitchell Pinheiro with Sturdivant & Co. Mitchell Pinheiro: Steve, yes, I wanted to just congratulate you on a heck of a run. And yes, it's certainly great working with you. And I guess you were the third CFO of Flowers I've known. So -- and I guess the longest of those runs. So again, congrats. So I have a question, Ryals. On one hand, we talked generational shift in your prepared remarks, and then we're also talking consumer weakness, especially at the low end, but they're still eating. They're still there, and bread has consistently evolved towards better for you. I mean it's just been a natural evolution. So nothing's really changed there. So I'm curious if you could try to tie sort of generational shift to the sort of economic weakness in your remarks. A. McMullian: Yes. I think it's more than just the economic weakness. Certainly, that plays a role, Mitch. I mean you've been around a long time, and you've seen when we enter periods of economic uncertainty, there's always trade down from traditional loaf to more value-oriented brands like private label or otherwise. So I do think that, that does play a role in this, but the shift that we're really talking about is centered around traditional loaf, meaning the traditional 20-ounce soft variety and white breads, and there has definitely been a shift, frankly, that's been underway for several years now, but it has just accelerated over the last 12 to 18 months, where the category is really bifurcated into premium, differentiated, or value, and traditional loaf has really taken it on the chin because of that. That's very impactful for us, obviously, because we're very concentrated in that category, particularly given we have the #1 brand and #1 SKU in that category, but we are intent on redefining traditional loaf. We think we've got a great opportunity with the strength of our Nature's Own brand to lead the category in the transformation of that particular segment. We clearly acknowledge the challenges that we're facing in the short term, given that consumer shift, but we have growing optimism in the longer term, and that's primarily due to two things: one, our team, which I think is the best in the industry; and two, our portfolio of #1 brands. So we will continue to invest in the consumer, continue to innovate. You've seen us do that over the last several years, we're making significant progress, and while at the same time, working to optimize our cost structure. I mean you look in the quarter, Mitch, and you see Canyon up 6% in units, Dave's Killer Bread, up 10% in units. You've seen us enter into the small loaf category that definitely addresses a consumer need. And in the quarter, we gained 15 points, 15 full points of unit share, and we're already #2 under that Nature's Own banner, and while that category is growing 85%, obviously, off of a small base, but significant growth. So I believe we're doing all the right things for the long pull while we try to mitigate the challenges in the short run. Mitchell Pinheiro: So listen, I mean, Nature's Own has obviously been a tremendous success story, and it is weighted towards traditional loaf, but you also have Merita and Sunbeam and I don't know, Captain John Derst's bread and all these other breads underneath, where do they stand? I mean, is it -- I know they're important for regional shelf space and things like that, but I'm just curious, they seem to be left in the dust a little bit, and I'm curious if they're -- how strategic they are. A. McMullian: Yes. That's been a change that's been underway for many years now, Mitch, and I would tell you that the regionals have been fairly deemphasized over the last 8 years or so, 8 to 10 years, and the primary reason for that is retailer consolidation. You can't run a national ad with Sunbeam, which you can with Wonder, and you can with Nature's Own. Now certainly, they do play important roles in particular markets like take Sunbeam in Atlanta or Bunny in Louisiana, they are still very important brands, but they're much smaller than they used to be. They've been supplanted by the likes of Nature's Own and Wonder over time. Mitchell Pinheiro: So okay. And then just last question on that is, I mean, it certainly would add complexity to -- not that you want to get rid of brands, but it certainly adds sort of unnecessary complexity to have these smaller brands, and so is that not a problem? Is that not an issue? Or do you have sort of a solution for that? A. McMullian: Not so much with the regional brands, but I do agree with you overall regarding complexity, and that's one of the reasons we talk about a little bit of near-term margin pressure from all the innovation we're bringing forth because that does -- the small loafs are growing very, very fast, but it's still relatively small, right? And you're introducing an additional complexity into a bakery that's accustomed to running really fast runs of Nature's Own Butter bread, for example. But it is what the consumer wants, and we're all about being there for today's and tomorrow's consumer, and over time, as I mentioned, as we make targeted investments in the bakeries to increase the efficiency and throughput of those products, those margins will begin to rise. So it to me, I'm not very concerned about it. It's a short-term issue that I'm willing to undertake because I know I'm delivering for the consumer. Mitchell Pinheiro: Okay. And just a couple of things. You're down to 44 bakeries. Is that going to be the right number for a while? Or are there opportunities for additional consolidation? A. McMullian: Mitch, we're always evaluating our cost structure, and we know that we have further supply chain optimization to take place, where and when that will occur is too speculative, but it is certainly top of mind that we need to -- particularly in this environment and going forward, we need to be as efficient as we can possibly be. So removing complexity, increasing focus and making sure that we're optimized from a cost structure standpoint is top of mind. Operator: I'm showing no further questions at this time. I would now like to turn it back to Ryals McMullian, Chairman and CEO, for closing remarks. A. McMullian: I want to thank everybody for taking time today and joining us for questions. We very much appreciate your interest in our company, and as always, we look forward to speaking with you again next year, actually. So take care. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Synaptics First Quarter Fiscal Year 2026 Financial Results 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 first speaker today, Munjal Shah, Head of Investor Relations. Please go ahead. Munjal Shah: Good afternoon, and thank you for joining us today on Synaptics' first quarter fiscal 2026 conference call. My name is Munjal Shah, and I'm the Head of Investor Relations. With me on today's call are Rahul Patel, our President and CEO; and Ken Rizvi, our CFO. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at synaptics.com. In addition to a copy of our earnings press release detailing our quarterly results, a supplemental slide presentation and a copy of these prepared remarks have been posted on our Investor Relations website. Today's discussion of financial results is presented on a GAAP financial basis, along with supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs, and certain other noncash or recurring or nonrecurring items. All non-GAAP financial metrics discussed are reconciled to the most directly comparable GAAP financial measures in our press release and supplemental materials available on our Investor Relations website. As a reminder, the matters we are discussing today in our prepared remarks, in our supplemental materials, and in response to your questions may contain forward-looking statements. These forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Although Synaptics believes that estimates and assumptions underlying these forward-looking statements to be reasonable, they are subject to a number of risks and uncertainties beyond our control. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. Therefore, we refer you to the company's earnings release issued today and our current periodic reports filed with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as of the date hereof. Except as required by law, Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Rahul. Rahul Patel: Thank you, Munjal. Good afternoon, everyone, and thank you for joining our fiscal Q1 2026 earnings call. We had an outstanding start to our fiscal year, delivering strong results that reflect the continued momentum in our business. Revenue in our Core IoT portfolio grew by 74% year-over-year, driving 14% revenue growth for the company. Our strength was broad-based across both processors and wireless connectivity. We delivered strong earnings growth, with non-GAAP earnings per share up 35% year-over-year to $1.09. As a company, we are sharpening our focus and aligning our resources to capture the growing opportunity in Edge AI. In the last quarter, we met with customers across the globe and at our Tech Day here in San Jose. Those discussions have affirmed my confidence in our ability to strengthen our leadership in this market. By bringing together our unique capabilities in analog mixed-signal, multi-core processing, and advanced wireless connectivity, we are enabling customers to bring intelligence to the Edge. This quarter, we reached a major milestone in our Edge AI roadmap with the successful launch of our next-generation Synaptics Astra Edge AI processors. Astra introduces a new class of AI-native silicon, built from the ground up to power the next wave of intelligent devices at the Edge. These products represent a decisive leap forward in our Edge AI strategy and reflect our strong execution and firm commitment to leadership in this market. Importantly, Astra is not just a standalone product, it brings together Synaptics' integrated approach to high-performance solutions by incorporating our processing, wireless connectivity, and mixed-signal capabilities. The response from customers, ecosystem partners, and the media has been very positive for the following reasons: First, we developed the new generation of Astra SL2600 series to enable billions of AI devices at the Edge, from battery-powered devices to high-performance industrial systems. It delivers industry-leading price performance to enable intelligence at the far Edge. Its scalable architecture allows our customers to address a wide range of applications, including those that require multimodal human-machine interface, vision, and voice capabilities across consumer, enterprise and industrial end markets. Customers can future-proof their designs as requirements for multimodal compute, power efficiency, application features, and AI models continue to evolve. Second, we introduced Synaptics Torq AI in the new generation of Astra processors. Torq combines a future ready neural processor architecture with open-source compilers, setting a new standard for IoT AI application development. Further, as part of our close collaboration with Google Research, we have integrated their open-source Coral NPU, a machine learning accelerator optimized for energy-efficient AI at the Edge. This silicon-level collaboration enables customers to develop innovative Edge products with AI inference across a broad range of applications. Third, the Synaptics and Google partnership is fundamentally about creating a robust and open software development environment that elevates AI-native Edge IoT product development from a highly fragmented, proprietary ecosystem into a unified, open-source approach. Developers now have access to multiple flexible and scalable programming frameworks, comprehensive software development kits and tools, and a rich repository of resources that include pre-optimized models, multimodal AI applications, and a curated developer experience supporting a wide range of use cases. Our lead customers have begun sampling the new Astra SL2600 devices, and we are already securing design wins. We expect initial revenue contributions to start in the second half of the calendar year 2026. This marks a significant execution milestone for our engineering and product teams, reflecting their outstanding commitment to innovation. Looking ahead, the AI inference compute opportunity is significant as hybrid compute across the data center and the Edge is taking shape. We are already seeing strong early traction and a healthy pipeline of customer engagements. We had hundreds of customers and partners join us at our Tech Day, where we showcased Edge AI use cases such as industrial vision, fleet management, home automation, smart appliances, IoT hubs, and robotics. Moving to our wireless connectivity portfolio, we had a solid quarter with strong execution across our strategic priorities. Our Wi-Fi 7 and broad-market solutions are starting to gain traction, and our roadmap remains firmly on schedule. Development of our wirelessly connected microcontroller with AI, all in a monolithic silicon, is advancing as planned, and we look forward to sharing more in the quarters ahead. Across our Core IoT portfolio, we achieved multiple wireless connectivity and processor design wins spanning a diverse range of end markets, including action and sports cameras, educational and commercial tablets, point-of-sale systems, unified communication platforms, operator solutions, and wearables. We're also seeing increasing customer commitments in home security systems, Matter-enabled IoT hubs, trackers, AI-enabled wearables, and body cameras. As we continue to invest in our roadmap, execute on our engineering goals, and deepen partnerships with our leading customers, we feel confident in our ability to deliver long-term growth across our processor and wireless connectivity portfolio centered on enabling AI at the Edge. Let me now turn to our mixed-signal technology products. In Enterprise & Automotive, our PC products continue to show steady improvement, and our broader enterprise portfolio continues to recover. We have gained market share over the last year, and we expect the momentum to continue into the current quarter. While we continue to see softness in automotive due to subdued market demand, we are benefiting from the continuation of our existing designs and are actively investing in new innovative automotive solutions that will help increase our silicon content. In Mobile Touch, we are seeing strong customer traction with our next-generation touch controller, which features a differentiated multi-frequency architecture designed for foldable OLED phones and other large-screen applications. This new design enables thinner and larger panels and integrates advanced sensing and filtering capabilities to effectively manage display noise. It also supports continuous time sensing, offering customers greater design flexibility and more cost-effective integration. We have secured marquee design wins with a top Android phone OEM and we are also seeing strong interest from OEMs in China for smartphones and tablets. We expect these wins to start contributing to revenue in the next fiscal year. Notably, our content in foldable phones will be more than twice that of our current smartphone designs. As the adoption of foldable phones increases, we are optimistic about the opportunity it creates for Synaptics. Overall, we are seeing steady improvement in our financial performance, with both revenue and EPS increasing sequentially and year-over-year. This progress reflects the strong execution across our organization, particularly from our engineering teams, who continue to deliver on our product roadmap. Our pipeline of opportunities is expanding, and we believe we are well-positioned to build on this momentum. I am confident that our focus, innovation, and disciplined execution can drive long-term growth for Synaptics. I will now turn the call over to Ken to review our first quarter financial results and outlook for our fiscal 2026 second quarter. Ken Rizvi: Thank you, Rahul, and good afternoon, everyone. I will focus my remarks on our non-GAAP results which are reconciled to GAAP financial measures in the earnings release tables found in the investor relations section of our website. Now let me turn to our financial results for the first quarter of fiscal 2026. Revenue for fiscal Q1 was $292.5 million, above the midpoint of our guidance and up 14% on a year-over-year basis driven by strength from our Core IoT products. The revenue mix in the first quarter was as follows: 35% Core IoT, 51% Enterprise and Automotive, and 14% Mobile Touch products. Core IoT product revenues increased 74% year-over-year, driven primarily by increased demand for our processor and wireless connectivity products. Enterprise & Automotive product revenues were flat year-over-year with strength in our enterprise portfolio offset by softness in Automotive. Mobile Touch product revenues were lower than expected, in part, due to supply chain constraints during the quarter. First quarter non-GAAP gross margin was 53.2%, in line with our guidance range. And first quarter non-GAAP operating expense was $104 million, slightly better than the midpoint of our guidance range. Our non-GAAP operating margin was 17.6%, up approximately 110 basis points sequentially and 90 basis points year-over-year. Non-GAAP net income in Q1 was $43.3 million. And non-GAAP EPS per diluted share came in above the midpoint of our guidance at $1.09 per share, an increase of 35% on a year-over-year basis. Now, let me turn to the balance sheet. We ended the fiscal first quarter with approximately $459.9 million in cash, cash equivalents, and short-term investments, up approximately $7.4 million from the prior quarter. Cash flow from operations was $30.2 million in the first fiscal quarter. We repurchased $7.2 million of our shares during Q1 and a total of $15 million of our shares through today. Capital expenditures for the first quarter were $12.2 million, in part driven by lab build-outs to support our R&D efforts. Depreciation for the quarter was $7.5 million. Receivables at the end of September were $119.5 million and the days of sales outstanding were 37 days, down from 41 days last quarter. Our ending inventory balance was $143.1 million, which increased by $3.6 million from the previous quarter. The calculated days of inventory on our balance sheet were 94 days, essentially flat with the last quarter. Now, turning to our second quarter of 2026 guidance. Our guidance is subject to the fluid macroeconomic global trade and tariff environment which continues to remain uncertain at this time. Please refer to our Safe Harbor Statement in the earnings release and in our supplemental materials. For Q2, we expect revenues to be approximately $300 million at the mid-point, plus or minus $10 million. And our guidance for the second quarter reflects an expected mix from Core IoT, Enterprise & Automotive, and Mobile Touch products of approximately 31%, 53%, and 16%, respectively. We expect non-GAAP gross margin to be 53.5% at the mid-point, plus or minus 1%. And non-GAAP operating expenses in the December quarter are expected to be $106 million at the midpoint of our guidance, plus or minus $2 million. We expect non-GAAP net interest and other expenses to be approximately $1 million and our non-GAAP tax rate to be in the range of 13-15% for the second quarter. Non-GAAP net income per diluted share is anticipated to be $1.15 per share at the mid-point plus or minus $0.15, on an estimated 40.4 million fully diluted shares. This wraps up our prepared remarks. I would like to turn the call over to the operator to start the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Ross Seymore of Deutsche Bank. Ross Seymore: I guess my first one for Rahul is a little bit of a longer-term one. Congrats on launching the Astra platform. I know you talked about significant interest and that the revenue contribution would start kind of in the second half of next year. Could you give us any idea on the metrics that we could maybe track externally as to the success of that product, whether it be the TAM opportunity down the road or the number of design wins? Any sort of color that we could monitor as to the slope of the growth that you see coming forward with that product? Rahul Patel: Thank you, Ross, for the question. I think we are really excited about the 2600 series that we launched. As you can tell, from the opening remarks, we have now secured design wins way ahead of when we thought we would be getting award letters, right? Clearly, there's a very wide range of designs coming into the pipeline as a result of what we are bringing in 2600 series products. And at this point, I'll share with you that the product is designed in such a way, it future-proofs IoT systems for multiple years, not only from having the ability to run a lot more capability because of the CPU complex as well as the multi-core processing capability, but also from an AI point of view. And we have a SKU map of pin compatible devices that on the same PCB can be swapped for newer capable devices. And so that scale of technology that's been deployed here in this family of products is very compelling to a wide range of applications. We are seeing from home applications to industrial applications, from things like fleet management applications to robotics, lots of interest. And we have secured designs. And so when I say secured design, we've got a board letters already as we sample the part. I would not be surprised if we go to production sooner than what we had planned for, given the success that we are experiencing in the bring up with the product. And given that, I would anticipate our pipeline would develop very nicely over time over the next few months. Having said that, specifically to respond to your question, at some point, we will give you an update on the pipeline in the form of the size of the funnel. And when I say size of the funnel, I would be specifically talking about design that have been awarded to Synaptics and not the broader marketplace where people talk about the opportunity. We'll be very specific about the designs that have been awarded to Synaptics and the designs that are going into production with Synaptics through that award process. And so that is where we are going to go in terms of giving the ability to track our success with our processor line of products. I believe we are maybe a couple of quarters away from where we can start opening up and giving you that update. The intent also is to give you this update periodically, right? And so I'll keep you apprised of our progress on a going-forward basis. And so give us a couple of quarters or maybe a little bit less than that, and we'll get back to you with how we're going to track the method and the periodicity with which we'll be providing an update. Ross Seymore: And I guess as my follow-up, a little bit of a nearer-term question, perhaps for Ken or Rahul for you, if you wanted to answer. But lots of intersegment volatility versus your original expectations. The Core IoT up-sided significantly, the Mobile Touch down-sided a bit. Can you just talk about what drove those and perhaps how that applies to the guidance that you're implying for the fiscal second quarter as well? Ken Rizvi: Sure, Ross. I mean it's a good question. So in the prepared remarks, we did see -- I'll touch base on the Mobile Touch products. There were some supply constraints there. So that's why you're seeing some increase here as we move from the September quarter actuals to the December quarter guide. And then when we look at the Core IoT business, if we just step back and look over the last 7 quarters or so, I think we've been averaging something like 50% plus year-over-year growth on a quarterly basis. So we've seen very strong growth in that Core IoT segment, driven by what Rahul commented earlier, both processors and the connectivity business. And so there's always some movement from a customer dynamic standpoint that can move quarter-to-quarter. But if you look holistically, we've done very well in terms of the growth rates on a year-over-year basis and very happy not only with the September results overall, but how we've guided in December. Rahul Patel: Yes. Just to add to what I think, Ross, I think even in the near term, if you look at the September quarter and you extrapolate from the guide, you combine the 2 quarters and you look at the half, first half of the year versus the first half of the year -- fiscal year '25. We are north of 60% growth year-over-year. And so a little variation here or there, but the growth remains consistent. And I would add that we feel very comfortable with our guide of 25% to 30% growth for the fiscal year '26. And so looking at all parameters and the fact that if you look at the actual dollars, we are now at a run rate of $400 million in IoT revenues on an annual basis. It's a substantial amount of business. It is growing at a very good clip rate, and we are further excited about the opportunity that our newer products are going to bring to the table. I would also add that the road map is very solidly building out. I did talk in my prepared remarks that we are building a product that is going to be wireless connectivity processor and AI integrated in a single die. And so this thing is going to go into multiple applications. It's going to broaden the coverage of end markets for us as a result between what we have launched in silicon as of now and what is coming in our pipeline in the next couple of quarters. Operator: Our next question comes from the line of Neil Young of Needham & Company. Neil Young: So I just wanted to follow-up. You talked about some of those end markets that you're achieving design wins in. Specifically, are you seeing any outsized strength in any of those markets that you listed? If so, what do you think is driving that? And then on the longer term, which end markets do you see becoming the largest? And then I have a follow-up. Rahul Patel: Yes. I think our big area of focus right now is to tap into the existing markets. However, on a going-forward basis, as AI and the need for AI comes to the far end of the Edge, which we believe is "in design phases in many places," as you can tell from the AR glasses to many wearable devices to many things that you would have from home automation point of view, we see our marketplace expanding dramatically and in a place where we'll be highly differentiated. And so I'm very excited about markets where at the far end of the Edge, where AI plays a huge role for human machine interface and multimodal processing with voice, vision, and other computes for AI inference, along with industrial applications, such as robotics, humanoids. So the gamut is fairly wide open in terms of applications as we have designed our product and software platform. Neil Young: And then looking into the second quarter, if you were to force rank the sequential growth across the enterprise, PC and Auto, how do you see each of those markets shaking out? And then if you could maybe talk about what's driving the strength or weakness in each of those markets. Rahul Patel: Yes. So I would say, as we look at -- you mentioned Enterprise, PC, Auto. So we don't break out the details in those categories. But if you look at the Enterprise and Auto market, as we highlighted on the prepared remarks, we're seeing strength in the enterprise space overall. There's been a nice recovery as we think about on a year-over-year basis, how that's trended. And as we head into the December quarter, you can look at our guide that we're expecting that enterprise and auto space to be up sequentially September through December, which shows some nice sequential growth and growth overall. So that specific area, I would say, as we look into September, more driven by the Enterprise segment, and we would expect some continued strength as we move into December. Operator: And our next question comes from the line of Christopher Rolland of Susquehanna. Christopher Rolland: Congrats on the results. I guess probably, Rahul, for you, as it comes to mobile, you guys have, I think, one major mobile player using your combo chips. But can you talk about possibilities for more, particularly handset OEMs potentially doing their own APs or elsewhere? And how possible are these opportunities for you guys? Rahul Patel: Yes, Chris, excellent question. And you're absolutely right on the money in terms of the opportunity ahead for us in mobile. Clearly, there are many mobile phone OEMs that are going down the path of building their own apps processor, and that effectively presents an opportunity for players like ourselves who have clearly very solid wireless connectivity product to offer; however, don't have the ability to play in a "bundle" with apps processor offering, becomes an opportunity for us with a provisioning of very differentiated market-leading wireless connectivity for phone OEMs who want to build phones and tablets and use wireless connectivity from Synaptics basically. And so we are very excited about that opportunity. We are also engaging with many OEMs in this area. I would also add, you did not ask, but very similar connectivity product can be extended to multiple other marketplaces because of the high-performance connectivity capability it brings to the table. And so there is also leverage going into high-performance set-top boxes, automotive, and other marketplaces with that level of wireless connectivity. And so there's clearly opportunity for us to leverage our strength in wireless connectivity beyond IoT marketplace with mobile and other places basically for wireless connectivity that's going to be high performance. Christopher Rolland: And you were speaking about your road map for new products in the prior question. You also mentioned Astra that you could potentially pull that in. I think it was a 2027 high-volume timetable for shipments. But I was wondering if you could update us in terms of the status on high-volume shipments for the MCU plus combo chip product you are talking about. And perhaps I think you have a broad markets MCU on your road map as well. Rahul Patel: Yes. I think, Chris, again, an excellent question, and thanks for asking this. The product that -- first and foremost, let me -- I think you asked about 2 products. We have what I call is a microprocessor class product, which is the product that we just launched, and it's in the hands of multiple customers in sample stages, and we are getting design awards for. That is the SL2600 series of products or family of products. Those go into production in second half calendar 2026. That's when we start seeing the first revenue realization basically from those products. We would be seeing clearly a lot more momentum and revenue growth as we go from end of '26 -- calendar '26 into '27 and beyond. The highly integrated MCU class processor plus Wi-Fi 7 and Bluetooth integrated monolithic die implementation will sample in the second half of '26. And more likely, you will see at the earliest revenues in the second half of calendar '27 and, obviously, it will ramp from there. And that's what I had discussed in my prepared remarks. Having said that, the teams are building the next generation of products. We also have a semi-custom solution that is targeted for a major customer in the works, and it is expected to sample in the fall time period to that major customer. And so those are the big products that are in flight, and there are a couple of others that are in early stages of design. So the road map is building out very nicely from where we are with Astra line of products and the MCU class of products. Christopher Rolland: That semi-custom sounds interesting. You're going to have to tell us more next time. Operator: Our next question comes from the line of Kevin Cassidy of Rosenblatt Securities. Kevin Cassidy: Congratulations on the great results. Just to dig in a little more on the Core IoT and that strong growth you're seeing. On the wireless side, are you seeing -- is the growth being driven by more units? Or is it -- is there a strong upgrade cycle giving you a higher ASP? Rahul Patel: So Kevin, excellent question. On the wireless side, we are in a ramp-up phase basically. And so the contribution to the revenue is broad-based. And so it's a lot of new designs that are going into production that are contributing. So I can't tell you exactly today there is one particular market segment that's pushing the envelope more than the other. However, I do believe in 2 or 3 quarters from now, things would get to a steady place in terms of one marketplace emerging as a faster-growing segment than the other. And at that point, we'll be able to highlight where the growth is primarily coming from. But at this point, broad-based ramp-up stage, both in wireless as well as connectivity. Kevin Cassidy: Yes, on the enterprise side, are you seeing any potential for a refresh cycle in docking stations? Or is the growth going to come just from PC components? Rahul Patel: I think, Kevin, as we look at that overall enterprise space, I would expect actually both areas as we think about calendar year 2026. I think what we've talked about on previous calls, we haven't seen this year any step function in terms of PC and enterprise upgrades. It's been more steady in terms of the growth. It's been positive, but more steady. And I think that's the opportunity as we look into calendar year '26 if we see a significant upgrade cycle as a result of either Windows 10 or just the longevity of the PCs, which the last time we've had a significant upgrade was back in that '21, '22 period. So that's an opportunity for us as we think about calendar year '26. Operator: Our next question comes from the line of Peter Peng of JPMorgan. Peter Peng: Congratulations on the results. The first question I have is just on expanding into outside your core consumer markets now into industrials, especially with the SL2600 launch and then also the broad markets. Maybe if you can just an update on the initiative there as you kind of build out that channel on that long tail of customers. Rahul Patel: Yes. I think, Peter, first of all, thank you. And then a great question. And so one thing I would share with you is we just put up some of the demonstrations that we had on our Tech Day on our YouTube channel. And so it just probably went live yesterday. It will be great if you guys can check it out. I think you will see some of the industrial applications with our processors being demoed over there from a robotic arm that effectively is developed by a partner that has our touch controller in the palm and multiple instances of touch co1ntroller. It's got our processor, Astra processor in there and it's got our wireless connectivity as well. And so you can see, as a result, the potential of our products. I have said this in my last quarterly call that the combination of our analog mixed signal capabilities in the company and our connectivity along with the processor presents a total solution capability that goes from human machine interface to processing with AI inference capability, and it was -- it is on display in that demo that we have at our Tech Day. And it's a video of that demo as well on YouTube channel, along with multiple demos. We also have a demo of fleet management with our Astra processors on our YouTube channel. And so the other nature of these markets is such that consumer ramps much faster than industrial. And so we expect industrial to be lagging consumer in our ramp in the IoT business versus consumer ramps up faster and refresh cycles, refresh cycles happen much faster as well versus industrial. And so the capability in our product line, the engagement in building out solutions to support industrial applications is absolutely underway. And engagement with our customers is also underway. It's just that the designs for industrials will come a little later in a sizable manner versus consumer. Peter Peng: And then maybe if you can -- I think there's a lot of optimism about smart glasses and so forth. Maybe you can just talk about your engagement and what kind of content opportunities do you think you can have in this opportunity? Rahul Patel: Yes. I think I really don't want to kind of tip a whole lot on this topic, but you are touching a sweet spot for Synaptics' Astra line of products on a going-forward basis. With the product capabilities that I described earlier in the earlier question, clearly, the scale at which the volume needs to experience economic value is out there to be delivered by a solution supplier like Synaptics. And that in itself is a huge opportunity for us that we have our eyes set on in not just AR glasses, but also many variable opportunities on a going-forward basis. The combination of general purpose CPU with the optimal GPU, with the optimal audio processor, with the optimal vision processor and all working with a newer processor embedded. And also, like I said in my prepared remarks, taking the Coral NPU, open-source Coral NPU made available by Google, collaborating with Google to build out that system in the Astra 2600 series is an indication of exactly where we could be going for the variable sets of applications, AR glasses being one of them. And we are really excited about that opportunity, largely because the economic value equations that get addressed through Astra line of products is today up for grabs basically in the marketplace. Operator: Our next question comes from the line of Robert Mertens of TD Cowen. Robert Mertens: This is Robert Mertens on the line for Krish Sankar. I guess, just the first one, I know we talked a lot about your strategy going into Edge AI applications. But are there any core technologies that you think you need to develop either in-house or small tuck-in acquisitions or working with partners to bring into your Edge AI portfolio to be more attractive to the broader customer base, whether it's ultra-low power processing side or integration of your connectivity suite. Just anything there would be really helpful. Rahul Patel: Yes, Robert, excellent question. I think our strategy has been largely to enable best-in-class solution for our customers. And in many situations, it would mean that we would provide a total solution. In some situations, it would mean that we may provide a processor, and the customer may choose some other components to build out the solution. And so we are fairly open in our engagement with our customers. Having said that, the biggest differentiation in our processor strategy is to not go down this path of building out walled gardens. We are a firm believer in open-source. Our software development platforms support multiple open-source communities. Our ability to enable our customers to work with the vast ecosystem of models that are being developed for various applications in form of AI inference capabilities is to enable them to bring those to our platforms much more easily and with very little effort from Synaptics' team. And so, this is our strategy to operate at scale. And this strategy is developed in combination with Google Research. And so here, you have a company that also believes in open-source and enabling the software ecosystem, supporting the Synaptics approach in the bigger picture. And so that is how we are differentiating ourselves versus some of the peer set in the marketplace that have gone down this path of owning software development platforms. And effectively, in our opinion, it holds us back from scaling faster and enabling our customer base and the developer community as a result. And so that is our largest strategy. Having said that, we are always going to be on the lookout for opportunities to inorganically fuel our growth in IoT. And that option is definitely on the table. Robert Mertens: If I could just have one final question. Sorry about that. Just real quick, looking into your Enterprise and Automotive business, I know you've mentioned that the channel inventories have been improving over the last couple of quarters. Backlog levels seem to be normalizing. So just in that framework, what sort of other signs of improvement on a quarterly basis do you see there? I know you expected to rebound a bit into the December quarter. Is that something you expect to continue through the beginning of next year? Or is that more just pull-ins from various projects? Ken Rizvi: So I would say, overall, if you looked at the Enterprise and Automotive segment, within that, the Enterprise segment has done better over the last years, it has continued to improve. I think automotive has been more sluggish, but the enterprise piece has really performed nicely over the last 12 months or so. And I think as we think about and look forward into calendar year '26, which is not too far away, the one other opportunity that's out there is around some of the upgrade cycles and not only for the PCs, but as you think about RTO activities and the like and as people refresh the workstations, those are great opportunities for Synaptics as well. So we're excited about that business in terms of the share that we have and the franchise positions we have, and there's some great opportunities ahead of us as we think about 2026. Rahul Patel: Just to add to what Ken indicated, I think a couple of other things. In the Enterprise segment, we are gaining market share in the PC business, right? And that, despite the market being largely flat to GDP-like growth, we are seeing strength in our business and largely driven by the share gains. And it is something that goes back to our analog mixed signal capabilities in the company. And we continue to do well in that regard versus our peer set in the marketplace. And it's also showcased extremely well in Mobile Touch as well. As in my prepared remarks, I indicated, right, clearly, our product -- our newer generation product that is targeted for the next generation of phones that would launch in the second half calendar 2026 time period showcases how different and differentiating is our analog mixed signal capability in our products and especially in touch area. And I think we continue to do well. We continue to invest very judiciously and bring out really good products that are effectively helping us increase total silicon content in the phone as well. And so really excited about what that business is capable of bringing to the table in the second half of calendar 2026 and beyond. Operator: I'm showing no further questions at this time. I'll now turn it back to President and CEO, Rahul Patel, for closing remarks. Rahul Patel: Before we conclude, I would like to reiterate that the Synaptics team executed very well this quarter. We strengthened our leadership position in Edge AI with the launch of our new generation of AI-native Astra processors, and we continue to innovate on the next-generation of processors, wireless connectivity and mixed-signal products and solutions planned for delivery in calendar 2026 and beyond. Our financial results reflect our ongoing commitment to disciplined execution. I want to thank all my teammates in engineering and across Synaptics for their dedication and hard work in delivering on our commitments. Equally importantly, I would like to thank all our shareholders for their continued support of Synaptics. I look forward to connecting with many of you at upcoming industry events and conferences. Have a great rest of the day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Rebecca Morley: Good morning, and welcome to the Enbridge Inc. Third Quarter 2025 Financial Results Conference Call. My name is Rebecca Morley, and I'm the Vice President of Investor Relations and Insurance. Joining me this morning are Greg Ebel, President and CEO; Pat Murray, Executive Vice President and Chief Financial Officer; and the heads of each of our business units: Colin Gruending, Liquids Pipelines; Cynthia Hansen, Gas Transmission; Michele Harradence, Gas Distribution and Storage; and Matthew Akman, Renewable Power. [Operator Instructions] Please note, this conference call is being recorded. As per usual, this call is being webcast, and I encourage those listening on the phone to follow along with the supporting slides. We will try to keep the call to roughly 1 hour. And in order to answer as many questions as possible, we will be limiting questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community. So if you are a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our Investor Relations team will be available following the call for any follow-up questions. On to Slide 2, where I will remind you that we'll be referring to forward-looking information in today's presentation and in the Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below. And with that, I'll turn it over to Greg Ebel. Gregory Ebel: Well, thanks very much, Rebecca, and good morning, everyone. Thanks for joining us on the call today. Before we start, I'd like to take a moment to congratulate Cynthia, who announced plans to retire at the end of 2026. Her outstanding leadership and dedication to Enbridge over the past 25 years is inspiring, and I'm grateful that she'll be continuing to provide guidance to our executive team through the end of next year. I'd also like to congratulate Matthew, who will transition to President of our GTM business at the end of this year as well as Allen Capps, who has been appointed to succeed Matthew as the Head of our Corporate Strategy Group and President of our Power business. As we've said before, and it remains true today, our investment in people creates a deep bench of executive talent to ensure a smooth transition and strong leadership as we move forward. Now moving on to our agenda for this morning. I'm excited to share another strong quarter and highlight the significant progress we've made throughout all segments of our business. It has been a busy quarter for us with new projects serving a wide range of customers across our core franchises. We're going to start today with an update on our financial performance, execution of our increasing number of secured growth projects and prospects. And I'll also highlight the strong returns and stability our business continues to demonstrate and provide an update on each of our four franchises. Pat will then walk through our financial results and capital allocation priorities. And lastly, I'll close the presentation with a few comments on our First Choice value proposition before we open the line for questions from the investment community. We had another strong quarter of results, including record third quarter adjusted EBITDA. That growth was driven by incremental contributions from a full quarter of U.S. gas utilities and organic growth within our gas transmission business. This keeps us on track to finish the year in the upper half of our EBITDA guidance, and we expect to land around the midpoint of our DCF per share metric. Our debt-to-EBITDA is 4.8x for the quarter and remains within our leverage range of 4.5 to 5x. Our assets remained highly utilized during the quarter with the mainline transporting approximately 3.1 million barrels per day, a third quarter record, thanks to strong demand. We reached positive settlements at both Enbridge Gas North Carolina and Enbridge Gas, Utah, which we expect to drive growth as rates begin to take effect. We're still on track to sanction Mainline optimization Phase 1 this quarter and Phase 2 next year, and we'll get into more details on those projects during the business update. Over the quarter, we added $3 billion of new growth capital to our secured capital program, showcasing continued execution on the commitments we laid out last Enbridge Day. In liquids, we sanctioned the Southern Illinois Connector, adding incremental egress out of Western Canada and providing a new long-term contracted service to Nederland, Texas. In Gas Transmission, we sanctioned expansions of our Egan and Moss Bluff storage facilities to support the LNG build-out along the U.S. Gulf Coast. And in the deepwater Gulf, we're expanding our previously approved Canyon system to provide transportation services for bp's recently sanctioned Tiber Offshore development. And earlier in the quarter, we sanctioned the Algonquin Gas Transmission enhancement project in the U.S. Northeast as well as the Eiger Express gas pipeline out of the Permian. And finally, we have advanced a joint venture with Oxy to develop the Pelican CO2 hub in Louisiana. These projects demonstrate the competitive edge from our all-of-the-above approach and our ability to meet growing energy demand across all parts of our business. Now let's look at our value proposition and recap our year-to-date execution before diving into the business updates. Enbridge's low-risk model continues to deliver superior risk-adjusted returns in all economic cycles. Our cash flows are diversified from over 200 high-quality asset streams and businesses that are underpinned by regulated or take-or-pay frameworks. Over 95% of our customers have investment-grade credit ratings. We have negligible commodity price exposure and the majority of our EBITDA has inflation protection. All of this results in Enbridge's industry-leading total shareholder return while maintaining lower volatility compared to peers and broad index constituents. Looking ahead, Enbridge's utility-like business model remains well-positioned and policy support for new investment in critical projects is improving, creating a business environment that incents coordination, dialogue, and growth. And I'm very pleased with how the team continues to grow the business and excited by the opportunities ahead for Enbridge. With that said, let's jump into the business unit updates, starting with Liquids segment. Mainline volumes had another strong quarter, delivering a record 3.1 million barrels per day on average for Q3. The system was a portion for the entire quarter, reflecting continued strong demand for Canadian crude and the need for reliable egress out of the Western Canadian Sedimentary Basin. Given the continued strong demand for the Mainline this year, we expect to reach the top of the performance color ahead of when we initially anticipated. This is a great sign for us and our shippers. We're achieving the maximum allowable returns under the mainline tolling settlement, delivering competitive value to our shareholders and our alignment with customers incentivizes us to move the increased volumes and provide them with access to the best markets. This leads in well to mainline optimization projects that I'll discuss shortly here, in addition to the previously announced projects like Mainline capital investment. In the U.S., we sanctioned the Southern Illinois Connector project, which is backed by long-term contracts for full path service from Western Canada to Nederland, Texas. Once complete, the new pathway will add 100,000 barrels per day of contracted full path capacity to the U.S. Gulf Coast via a 30,000 barrel increase per day on Express-Platte system, 56 miles of new pipeline between Wood River and Patoka, and utilization of 70,000 barrels per day of existing capacity on the Spearhead Pipeline. Looking ahead at additional egress projects, we are continuing to advance approximately 400,000 barrels per day of incremental capacity to the best refining markets in North America via mainline optimization Phase 1 and 2. MLO1, which will add 150,000 barrels per day of incremental egress is entering the final stages of customer approvals. and we are still on track to make FID this quarter and place the project into service in 2027. MLO2 has made significant progress as well, and that project could now add another 250,000 barrels per day of additional capacity in 2028. This second phase of mainline optimization will utilize capacity on the Dakota Access Pipeline, and we're happy to announce that we're teaming up with Energy Transfer to make that happen. So stay tuned for more on MLO2, including an open season announcement early in the new year. Relative to potential greenfield projects that would require significant energy policy change, these brownfield opportunities offer the quickest and most cost-effective way to adding close to 500,000 barrels a day of capacity to satisfy the near-term production increases forecasted out of the basin. Finally, for liquids, we added the Pelican sequestration hub to our backlog, a project in Louisiana, which will provide transportation and sequestration for 2.3 million tons per year of CO2 and is underpinned by 25-year take-or-pay offtake agreements. We will partner with Occidental Petroleum to advance the hub with Enbridge managing the pipeline infrastructure, while Oxy develops the sequestration facility. Now let's turn to our gas transmission business. This quarter, we've sanctioned an additional capital-efficient connection to our Canyon pipeline system to support bp's Tiber development in the deepwater Gulf. Originally announced last October, the Canyon system will transport both crude oil and natural gas under long-term contracts with the Tiber system expected to cost USD 300 million, taking the total Canyon pipeline development to about USD 1 billion and entering service in 2029. In the U.S. Northeast, the AGT Enhancement will increase capacity of the Algonquin pipeline, providing additional natural gas to the critically undersupplied U.S. Northeast, serving local utility demand and reducing winter price volatility. That project is expected to cost USD 300 million and enter into service in 2029. Switching over to the Permian. The Eiger Express Pipeline is a 2.5 Bcf a day Permian egress development running adjacent to the operating Matterhorn Express system and is now sanctioned and expected to enter into service in 2028. Since our initial 2024 investment in the Whistler joint venture, which holds these pipelines, we have invested $2 billion in operating assets and sanctioned another $1 billion of capital expected to enter service through 2028. Also in the Gulf region, we've sanctioned two natural gas storage expansions to support the market, which continues to tighten due to increased LNG, Mexican exports, and regional power demand. Egan and Moss Bluff storage systems, both salt caverns with exceptional connectivity and withdrawal rates are being expanded to offer a combined 23 Bcf of incremental capacity. We expect to invest approximately $500 million in these facilities at 5 to 6x EBITDA builds and come into service in phases through 2033. It's worth taking a moment to dive a little deeper into the growing North American storage market and how we are positioned to serve our customers. Between Moss Bluff and Egan as well as the expansion of Aitken Creek announced last quarter, Enbridge is now set to add over 60 Bcf of new natural gas storage directly adjacent to the major LNG centers in North America. These expansions will come in a timely manner as there is over 17 Bcf per day of additional LNG-related natural gas demand expected to enter service by 2030. This demand dramatically shifts supply economics and increases the importance of strategically located storage capacity. We are connected to all operating U.S. Gulf Coast LNG terminals and continue to invest heavily in infrastructure to enable the future growth of North American LNG. To date, we have sanctioned over $10 billion in projects with direct adjacency to operating or planned export facilities. There is a growing storage deficit across the U.S. Gulf and British Columbia coasts and having existing assets with the opportunity to execute brownfield expansions is incredibly valuable to our customers and investors. Through acquisitions and expansions, we have positioned ourselves as an industry leader in the storage space. With more than 600 Bcf of storage across our North American businesses, we can strongly support our customers as they continue to build out North America's LNG capacity and navigate the overall power demand growth we are expecting in the future. Now let's spend a few minutes recapping all the work we've done in Gas Transmission segment since Enbridge Day earlier this year. At our Investor Day in March, we shared Enbridge's $23 billion gas transmission opportunity set, noting the potential to FIT up to $5 billion in projects within 18 months. This opportunity set has grown since then. And today, a little over 6 months later, we've already announced over $3 billion of new projects across our footprint, serving all pillars of natural gas demand growth, including reshoring, LNG, coal-to-gas switching and data centers. With over 23 Bcf a day of new gas demand coming online by 2030, critical investment will be needed to ensure reliable service for customers. And with this list here, you can see we are doing our part, deploying capital to meet the significant increase in natural gas demand across North America regardless of the end-use market. Now let's turn to our gas distribution business. The GDS segment is yet another way for us to capitalize on power demand theme. We've seen data center and power gen opportunities continue to be a tailwind for the segment with over 50 opportunities that could serve up to 5 Bcf a day of demand, including almost 1 Bcf per day of demand for already secured projects. During the quarter, we also reached positive rate settlements with two of our U.S. utility regulators, which are currently being reviewed for final approval. In North Carolina, allowed return on equity increased to 9.65% on an equity thickness of 54%, resulting in a revenue requirement increase of some USD 34 million. The settlement also introduces additional rate riders that allows for quick cycle return of capital for our major projects in North Carolina. These rates came into effect on an interim basis on November 1. In Utah, we filed a settlement for a revenue requirement of USD 62 million, which supports continued investment at attractive returns. We are expecting a rate order before the end of the year with rates to come in effect on January 1, 2026. Both these rate cases showcase the importance of natural gas as a safe, reliable source of affordable energy. Now I'll continue with the power demand theme with our Renewables segment. As you can see from this slide, renewable projects have been a great place to invest in the last few years, driven by strong PPA prices, decreasing supply costs, and the associated tax benefits. The four projects on this slide showcase over 2 gigawatts of power backed by agreements with some of the largest technology and data center players in the world, including Amazon and Meta. Fox Squirrel and Orange Grove are currently operational. Sequoia Solar will fully enter service in 2026 and Clear Fork will follow entering service in 2027. Looking ahead, we still have a number of projects in the queue that we're advancing. But as always, we'll remain opportunistic and continue to stand by our strict investment criteria. With that, I'll now pass it to Pat to go over our financial performance. Patrick Murray: Thanks, Greg, and good morning, everyone. It's been another strong quarter across all four business units, thanks to continued high utilization of our assets as well as recent acquisitions. Compared to the third quarter of 2024, adjusted EBITDA is up $66 million, DCF per share is relatively flat and EPS is down from $0.55 to $0.46 per share. The decrease in EPS is primarily due to the profile change associated with our gas utilities, where Q3 tends to be a softer quarter for EPS as EBITDA is seasonally lower, but items such as interest and depreciation remained flat quarter-over-quarter. In Liquids, despite the strong mainline volumes, contributions from the Mid-Con and U.S. Gulf Coast segment are tracking lower due to tighter differentials and strong PADD II refining demand. In Gas Transmission, we experienced a strong third quarter with favorable contracting and rate case outcomes on our U.S. gas transmission assets and contributions from the Venice extension and the Permian joint ventures we added since last year. The Gas Distribution segment is up relative to last year, thanks to a full quarter contribution from Enbridge Gas North Carolina as well as benefit of the quick turn capital we experienced within our Ohio utility. In Renewables, results were up from last year with higher contributions from our wind assets and from the Orange Grove solar facility recently placed into service. Higher financing and maintenance costs from the acquisition of the Enbridge Gas North Carolina assets kept DCF per share relatively flat year-over-year. I'm pleased to once again reaffirm our 2025 guidance and growth outlook across all metrics. Our resilient business model positions us to deliver strong and predictable results through all cycles. We remain confident we will achieve full year EBITDA in the upper half of our guidance range of $19.4 billion to $20 billion, but don't expect to exceed the top of the band. As we mentioned on previous quarterly calls, due to higher interest rates, particularly in the U.S., we continue to expect DCF per share at the midpoint of our $5.50 to $5.90 per share guidance range. Mainline volumes, FX rates, and the acquisition of an interest in the Matterhorn Express Pipeline earlier in the year continue to be the tailwinds to the full year guide. This is partially offset by higher interest rates, along with tight differentials and strong PADD II refining levels, which are expected to continue into the fourth quarter and thus have been reflected as an additional headwind relative to our assumptions heading into the year. Now let's quickly discuss our capital allocation priorities. We remain firmly committed to a thoughtful capital discipline process, remaining within our $9 billion to $10 billion per year annual growth investment capacity as we pursue the wide suite of opportunities ahead. Our highly contracted cash flows support a growing and ratable dividend within our 60% to 70% DCF payout target range, ensuring long-term shareholder returns. We've grown our dividend for 30 consecutive years, a real testament to the stability of our business and the fundamentals that underpin it. On the leverage front, our consolidated net debt to adjusted EBITDA remains comfortably within our target range of 4.5 to 5x. This quarter, we saw $3 billion of newly sanctioned capital advanced. As I've mentioned in the past, I like the fact that we're generating opportunities in all of our businesses, supplementing the next few years with accretive projects while also adding visibility into the back part of the decade with opportunities like our gas storage expansions and our offshore gas transmission projects, which we've announced this quarter. Our capital allocation focus will remain with brownfield, highly strategic and economic projects supported by underlying energy fundamentals, and I'm excited to see this opportunity set materialize into the future. With that, I'll pass it back to Greg to close the presentation. Gregory Ebel: Thanks very much, Pat. It was indeed a busy quarter on the growth capital side, and I'm extremely pleased with the progress we've made since Enbridge Day in March. The North American energy landscape continues to evolve with energy demand driven by LNG development, power generation, data centers and baseload growth. Enbridge will continue to play a pivotal role in that growth within a disciplined framework that delivers consistent long-term shareholder value. Our low-risk utility-like business with predictable cash flows is underpinned by long-term agreements and regulatory mechanisms that has allowed us to increase our dividend for 30 consecutive years across a wide range of economic cycles and conditions. Going forward, we expect to achieve 5% growth through the end of the decade, supported by our $35 billion in secured capital. Our scale offers optionality that few in our industry possess, and we'll continue to evaluate accretive investments across our footprint. Lastly, I'll just point out one housekeeping item. As has been typical, we intend to issue our '26 guidance for investors in early December. So please watch for that announcement on December 3. With that, I'll open the call to questions. Operator: [Operator Instructions] Your first question today comes from the line of Spiro Dounis from Citi. Spiro Dounis: I wanted to start with gas distribution and storage. The release mentioned seeing an acceleration there in commercial activity and it sounds like demand from data centers and power being those initial expectations. So just a multipart question here, but curious what's suddenly driving that acceleration, if there's a particular region where you're seeing it? And how are you thinking about the time frame for when these could start to materialize? Michele Harradence: Sure. So it's Michele Harradence here, Spiro, and happy to discuss that. And I would say we're seeing it across the board. I mean that's the real value of the diversity of the utilities we have. So -- when we look at about the projects that make up that 7 Bcf or so of data center opportunities that we're talking about, we divide that aspect into what I'd call our baseload demand, our data centers itself and the coal to gas. So it's a lot about power generation. It's the electrification tailwind that we've talked about. So you could bucket that, I would say, the baseload demand is there in Ontario, it's there in Ohio, it's there in Utah, data center growth, lots of early-stage developments in Ohio and Utah in particular. I would say we're seeing up to 8 gigawatts between the two of them. And that's some of the early-stage developments we're seeing. And then the mid-stage stuff, we're estimated to be serving over 6 gigawatts in those two jurisdictions alone. And Ontario has a lot of growth as well. And then finally, coal-to-gas conversion, again, to support power generation would be in North Carolina. But really, when we look across all the capital opportunities we have for GDS, that's maybe 20% of what we're looking at is the data center and power generation opportunity. I mean just the good standard core utility growth, leveraging our modernization program, still lots of opportunity there. We're seeing a lot of what I'd call major projects. We just put our Panhandle regional project into service. That's close to $360 million in Southwest Ontario. We have our Moriah Energy Center, the LNG plant in North Carolina. We have 215 Phase 1 and 2 in North Carolina. That's -- those two combined are USD 1.2 billion alone. We're doing a reinforcement project in Ontario up in Ottawa. That's another $200 million. I mean, there's a lot of growth and opportunity going on in the utilities. And then our residential growth, although it softened in Ontario, continues to be strong in places like North Carolina and Utah, where there's a lot of folks coming. And finally, we're looking at our storage opportunities, and there's a good chunk of our capital that continues to go to storage for us. So a good suite of capital there, but hopefully, that answers your question. Gregory Ebel: Yes. Good upside, Spiro, from what we thought when we bought the assets 2 years ago. We didn't -- a lot of the folks hadn't seen the data center, particularly in places like Ohio, we knew Utah and North Carolina would grow nicely. But Ohio, the opportunity there that's happening on the industrial side and the power side and data center related is really great. I think people are kind of forgetting the fact it's not just about power right across the board, not only the secondary benefits, i.e., industrial growth, caterpillars, GEs, et cetera, having to build things and equipment, there's tertiary growth associated with DC and AI, which is really going to drive all these commodities, including oil, as you see, higher GDP, higher industrial growth. Who's building all this stuff? They're using gasoline, they're using diesel, they're using oil. And that -- so I see it right across the entire system. Spiro Dounis: Great. That's helpful color. Second question, maybe just going to Line 5. You all recently received a favorable decision from the Army Corps there. And it sounds like you expect state permits to be confirmed soon. So just curious how you're thinking about starting construction on that segment? And how do the outstanding item in Michigan play into next steps here? Colin Gruending: Sure, Spiro. It's Colin here. So I'll try to abbreviate this answer, sometimes Line 5 questions get a little longer. But I would say that the permitting on both the Wisconsin reroute and the Michigan tunnel are regaining momentum, obviously, with the White House and energy security and just getting things done. So I would say that we are -- in Wisconsin here, we're awaiting the administrative law judges findings on the hearing that we've recently completed should have that soon. And we'd look to complete the Wisconsin reroute in 2027 and the tunnel is a few years behind that. Operator: Your next question comes from the line of Aaron MacNeil from TD Cowen. Aaron MacNeil: It's great to see the new disclosure around Mainline optimization Phase 2. Am I right to view this as an acceleration in terms of the cadence that you're planning to offer expanded egress to Canadian producers? And if so, what's driving that expedited timing? Is it customer demand? Is it sort of a race to be first to market? How should we think about it? Gregory Ebel: Well, maybe I'll start with a little context because I think you're right. This is maybe not one some people expected, although I'd say people have always underestimated what we can do with that super system. So remember, first of all, you got customers out there that are in particular Canadian customers looking at from an oil sands perspective, you don't have the type of depletion issues that are going on in some of the shale plays. You've got a strong U.S. dollar, which is critical, driving netbacks. So you got quite a different environment going on, obviously, in Canada and some other jurisdictions that analysts may focus from that perspective. But really the attitude of customers and what we can offer. But Colin, do you want to talk about that super system element of it? Colin Gruending: Yes. I think -- I don't know that it's an acceleration here per se. I think it's being game on here for a while here. And I think the Canadian basin, as Greg was saying, is it turns out relatively advantaged compared to other basins. So maybe we have lost focus on it, but our customers haven't. And we've been all over the fundamentals, we see that 500,000, 600,000 a day of supply growth by the end of the decade. And I think our announcements here line up with what we talked about at Enbridge Day generally. I mean, the team is working hard on this, and I'm very proud of them, the engineering and commercialization of it is very creative and trying to seize the moment. Yes, if there's bigger policy unlocks, there could be much more upside to monetize the trillions of dollars of value up in Northern Alberta. But even under the base case, the 600,000 a day is significant. We have, I think, consistently talked about our southbound playbook. And again, if there is an unlock much bigger, then the West solution can come into focus, kind of a companion to that unlock. But in the base case, South is where it's at. Our customers prefer that direction, integrated business models, lots of big efficient, long-lived refineries that are very competitive and of course, less competition now from Venezuela and Mexico, inbound heavy. So Canadian Oil will gain market share in that basin. I think our solution set is unchanged. We're proud to sanction Southern Illinois Connector. Maybe in baseball terms, that's our leadoff hitter, and it's now on base. We've sanctioned this. This is a dual flow path, 30,000 new egress on Platte and the other 700 coming down our spearhead pipeline existing capacity, and we're going to move that on ETCOP with our -- which we partially own with our partner Energy Transfer. MLO1 is at the plate right now, and we expect to make commercializing announcement here in the next couple of months before year-end. Again, that's 150 a day. I think that's well chronicled. It's capital efficient. permit light using existing pipe in a right of way. And recall, we've already successfully run an open season on the Flanagan South path through Seaway with our partner enterprise products. So that's well advanced. So MLO2, continue the analogy here, I'd say is in the batter's box. And as Pat and Greg mentioned, it's got a bigger bat than we thought we had before. We've upsized that from 150 to 250 a day. And again, similar to MLO1, existing pipe and right of way. And so again, using joint venture partners, this is all coming together nicely, not an acceleration, but I think continuing through here and hopefully get the basis loaded. Gregory Ebel: Yes. I hope -- and obviously, not lost on you, Aaron, but as Colin goes through that, you just tick off all those pipeline systems. And it's not just about the mainline. You got Express-Platte, you got ETCOP, you got DAPL, which we own all of our parts of right through the whole system. So there's multiple ways for us to serve our customers and multiple ways for our investors to win. And that's the pretty exciting part that I don't always feel gets fully valued in the market for sure. Aaron MacNeil: That's a ton of great context. As a related follow-up, a significant portion of the $35 billion of secured capital comes into service in 2027. As we think about all these liquids projects that you just outlined, continued success in GTM, steady growth across the utilities. Do you see sort of a, I guess, what I'll call a high plateau in terms of capital entering into service towards the end of the decade? And do you see any timing or capital sequencing issues to maintain the spend between $9 billion and $10 billion? Gregory Ebel: Maybe Pat will want to add to this, but I don't think so. I mean, we're constantly adding to the back end. Look, I think that's not unusual for companies like ourselves. Just go through the stuff that Colin went through, right? You're talking '27, '28 and then '29, '30, you'll see additional pieces as well. The gas trend deep Gulf stuff is all '29. Storage piece comes in some late '29, '30. So I think it will stay up at that amount. That's what gives us the confidence on 5% growth. It's a bit of a flywheel that's going on right now, which is quite positive. But from a balance sheet perspective, we feel very good about that 9 to 10. Pat? Patrick Murray: Yes, I think so at the end of the day, we've got a pretty fulsome '26 now. We've reserved some capacity for these MLO 1s and 2s. I mean, 1, we'll have some spend in '26; 2, probably not as large as it's a little later, but we'll reserve some capacity given how confident we now are in those moving forward. And then as Greg said, we're really happy to continue to build out the back part of the decade. And hopefully, that's adding a lot of clarity into the growth that the enterprise can have. And I think it's pretty common in our infrastructure business where you got -- you have secured some capital for the next couple of years. It's kind of close to or just below your kind of capacity in any out years you're filling up. And I think the team has done a great job in the last 6 months of doing that. So we're very comfortable. Operator: Your next question comes from the line of Jeremy Tonet from JPMorgan. Jeremy Tonet: Just want to kind of maybe follow up a little bit on the last line of questions there with regards to growth over time and having talked about this 5% EBITDA growth potential over the medium term post '26. And I know you're not going to give us the December update today, but just wondering any foreshadowing you might be able to provide us here or thoughts into how we should be thinking about how that update could unfold? Gregory Ebel: Yes. I'm not sure we are going to give you much of that right now because as you say it's December. But look, I think -- look, you've heard what we've been able to do on the gas side today with announcements. The liquid side, Michele gave you a good tour to tab on that side as well. And despite what some people have looked at, we've even done a number of things on the renewable power side in the last year. So I think it's the benefit of the portfolio. And again, those secondary and tertiary benefits of everything from power demand, from policy changes, from GDP growth that actually give us that confidence, and we see growth right across the system. So if your question is, do we see pullbacks in areas? No. In fact, we see acceleration even the renewable stuff that we have, a lot of that stuff is a long ways down the trail and anything we do sanction would have already been in a good spot from a policy perspective. So -- and as Pat just mentioned, we've got the balance sheet capacity, internally generated cash flow to be able to meet those demands. And obviously, every dollar of EBITDA we add adds another $4 or $5 of capacity. So we're very focused on that. So it's probably where I'd leave it today. I don't know, Pat, would you add anything further? Patrick Murray: Yes. I mean I think our message, if you remember back 6 months ago at Enbridge Days was that the whole goal here was to add clarity into that back end of the decade growth rate. And I think it's fair to say that we're doing a substantial amount of projects that should help to clarify that. So we're confident in the growth rates that we've put forward, and we'll continue to add to this backlog. We know there's more to come in really every business, which is what I like the most about it. We've got a very diverse set of opportunities over what really turns out to be a 5- to 7-year time line now. So yes, we're feeling good about the growth rates. Jeremy Tonet: Fair enough. I figure it's worth a try. Just wanted to dive in a little bit more into Western Canada and gas storage there. With LNG Canada ramping up. Just wondering if you could provide maybe a little bit more color on the tone of customer conversations there. It seems like the market is going to need a lot more logistics. You're expanding gas storage capacity there. Just wondering if you could elaborate any more on how you see this unfolding. It seems like these would be fundamental tailwinds to rates and economics overall, but just wondering what you guys are seeing. Cynthia Hansen: Yes. Thanks, Jeremy. It's Cynthia Hansen. I would agree with you that we are having these tailwinds, particularly when it comes to storage. Of course, in the last quarter, we'd announced our expansion, a significant expansion of our Aitken Creek storage. We are the only storage in that BC area. So we currently have about 77 Bcf of storage there, and we announced another 40 Bcf. So that will -- we'll start construction of that in the first part of next year, and that will be in service in a couple of years following that. When we have the conversations, it was -- when we announced that opportunity, we had 50% of that storage signed up right away in a long-term contract. So -- our customers understand that there is that opportunity and they're willing to back that kind of expansion. As we continue to look at other opportunities, the current discussions about LNG Canada Phase 2, all of that creates an opportunity, not just for our storage, but for the opportunities to expand our West Coast system. We've announced earlier this year the Birch Grove, which is an expansion of T-North that ties into that, too. So strong opportunities, but I would say that we'd like to continue to see that growth of those opportunities for LNG export. That will need the support of the BC and Canadian government as we go forward to make sure that we are positioning those projects to attract the capital they need in the long term to support that opportunity. Operator: Your next question comes from the line of Robert Catellier from CIBC Capital Markets. Robert Catellier: I'd like to go back to the Data Center and Power Generation opportunities. Obviously, that's a hot part of the market right now. And I think your own gas distribution business is advancing more than $4 billion of related projects. Can you provide some detail on how you're managing cost risk, in particular, in areas like that, that are hot and where there's a lot of competition, supply chain constraints and customer focus on time to market? Gregory Ebel: Yes. Obviously, several areas there. And as they relate to the gas distribution side, obviously, prudency kicks in. But recall, those are rate base type driven setups, right? So you're getting on a capital structure, call it, 10% return in the U.S. on about 50% equity. So as long as we're being prudent, I'm not feeling too concerned about that. Now that being said, given the size of the company, we are actively and we're out there doing that, making sure that we've got good alliance agreements with various contractors, giving us the best rates, actually going forward and even stockpiling, if you will, compressors and things like that. And remember, on the inflationary side, I'd say about 30% most of these large projects would be CapEx related to equipment and things like that. So those relationships are really critical. And a lot of them, obviously, we're avoiding tariff structures through contract mechanisms as well. So far, so good. The biggest concern I have is on the people side of things and just getting the time and equipment in place. So we're pretty good at that. I think we feel in terms of those long-term relationships with contractors and stuff like that. But Rob, it's something definitely we're watching closely. It's also why I love some of the projects that we announced today that are all relatively small, as Colin said, singles and doubles and quick cycle, relatively speaking, so that you don't have long drawn-out processes. And then the last piece is, as you know, a better attitude with policy around permitting and acceptance of these critical projects. And that takes a risk off the table from a CapEx perspective as well. Robert Catellier: Okay. That's very helpful. And then a bit of a regulatory question here for Colin, and maybe we'll have to take this offline. But I'm curious about the Mainline optimization too and the interplay with the Dakota Access Pipeline, given there's still some lingering permitting issues there. So maybe, Colin, you could walk us through whatever relevant regulatory updates on DAPL that relate to the Mainline optimization too. Colin Gruending: Yes. Sure, Robert. And it's a good question and one we've thought through. So we don't need a new presidential permit across the border. And we're confident that the DAPL EIS will come through in the spirit of energy security and energy dominance. So we're confident in that line of thinking. Operator: Your next question comes from the line of Rob Hope from Scotiabank. Robert Hope: You've mentioned a couple of times that the policy environment is getting better for energy infrastructure. In Canada, how are you interfacing with the Canadian major projects office? Enbridge has over, we'll call it, $8 billion of projects in development in BC. You could do more on the liquid side there as well. Is there a way to get incremental support to further derisk these projects? Gregory Ebel: Yes. At this point in time, we haven't put projects through the office. It's great that it's set up. Hopefully, that will be helpful for those national interest projects. But most of the things or all the things we're talking about are short cycle, relatively permit light. And so we haven't seen the need to go down that route. But that being said, we've had several conversations with them. Obviously, Don is well known in the industry and respected and has been very good to don't hesitate if you need some help around permits, et cetera, and working through the lab of the Canadian government. So we won't hesitate. But to date, and I don't see that actually on any of the projects that we have. As you know, we have several billion dollars of projects being done in BC, things Colin's talked about today. But a lot of them are relatively permit light and even not giant CapEx as individual chunks. So I just don't see us using the major project office at this point in time. Robert Hope: Appreciate that color. And then maybe just going back to the Mainline. I appreciate all the details on further expansions, Colin. But maybe to dive in a little deeper, and I know it's early days, but what would an MLO3 look like? And how much more incremental capacity do you think you can get out of the basin without, we'll call it, a good amount of large diameter pipe? Colin Gruending: Robert, you're reading my mind. So we've got some hitters warming up in the dug out. MLO3 and 4 are stretching. Our engineers are looking at that as well because there is a scenario here, right, where Canada and the U.S. do a bigger trade deal and energy is part of it. And the imperative may accelerate further. So we do have some, again, in-corridor in fence line solutions for that. But it's premature for us to probably talk about those. Operator: Your next question comes from the line of Manav Gupta from UBS. Manav Gupta: We are actually seeing a lot of resurgence in solar stocks in the U.S., and you actually have a very strong solar portfolio. But because you have everything else, which is also so good, sometimes it's underlooked. So can you talk a little bit about your renewables portfolio and solar in particular and more deals like Clear Fork with Meta, if you could talk on those points, please? Matthew Akman: Sure. Manav, it's Matthew here. Yes, you're quite right. I mean I think investment discipline is the order of the day in renewables, given some of the cross currents in the policy landscape, but we have to keep our eye also on the opportunity here because the customer demand for this remains very, very strong. We are still in the window where we've got interconnection-ready projects that are in fantastic locations with strong local support and great resource while the production tax credit window remains open. And so there's definitely a lot of interest from customers on the data center side around that, in particular, on our solar portfolio. We've talked about Project Cowboy out in Wyoming. We are building a lot of stuff, as you know, you mentioned Clear Fork with Meta and ERCOT. But that Wyoming project has a tremendous amount of interest. and is potentially a very big one and is well advanced. And so again, we're going to be navigating carefully, but there should be win-wins here because customers know that there's this window. And there aren't that many projects that can actually get in into their windows and they need the electrons, and they want it, if possible, lower zero emissions. So I think we're really well positioned. But again, we'll be navigating this and with a very close eye on our risk profile and making sure that we are consistent with our low-risk business model across everything we do. Manav Gupta: Perfect. My quick follow-up is your partner, Energy Transfer, talked about the Southern Illinois connector, exactly the kind of crude that U.S. refiners need. Can you also highlight some of the benefits of this project? And can you confirm if this is probably 2028 start-up, if you could talk a little bit about that? Colin Gruending: Yes. Thanks, Manav. Yes, I agree with your thesis. And what else can I tell you here? This is a new market off our mainline system to Nederland, Texas. And yes, you can imagine we've got a map of all the refineries, and we're trying to feed all of them. We've got about 75% of U.S. refineries connected to our Mainline system. So this isn't a new market for us. technically not super complex using existing capacity on spearhead, just longer hauling that capacity. It used to go to the Patoka area, now that 100 -- of the 200 on Spearhead will go down in Nederland, Texas, and we're expanding the Platte system, I think pretty simple scope there, pump refurbishment. So high confidence execution. And so yes, the time line should work. Operator: Your next question comes from the line of Sam Burwell from Jefferies. George Burwell: Some of this has been touched on already, but just a quick one on Southern Illinois and the whole path. So I mean the Mainline optimization seem like they're on the right track and Mainline volumes were 3Q record. But downstream of that, low volumes in 3Q, and it seems like it's going to be a headwind in 4Q as well. So just curious if you have a view on when that could improve? And then is there anything to read into the 100,000 barrels a day capacity on Southern Illinois because I think the open season figure was higher than that, like 200. So just curious on your thoughts on full pass volumes improving over time. Colin Gruending: Sure. I can take that. So I think it's a temporary anomaly here. That path on our liquid system south of Chicago down to the Gulf has been pretty robustly used for a long time. It's been recently weaker, still pretty good, but a little bit weaker as you saw in our disclosures, Pat talked about it. That is due really not the weakness the South per se, but more so that, that demand, that upper PADD II demand has been unusually strong in the last quarter or 2. So higher absorption of that high Mainline throughput, just a bit further North. And so double-click on that, why is that? A couple of reasons. One, our product levels were lower given fuel demand. And so those refiners were running pretty hard, so higher utilizations to replenish those inventories. And secondly, they had I would say, higher than average just uptime. And so the combination of those two factors kept a lot of that mainline oil at home, so to speak, in the upper PADD II market. I think Q4 should be maybe a little better than Pat suggested. We've seen some early quarter improvements here. And then moreover, I think just longer term, we've got a lot of confidence in that path. In fact, we just have successfully run two open seasons for that path, both have been oversubscribed to expand it. So I'd say it's a temporary effect. You also asked about 200 versus 100, yes, pardon me. So yes, we we're pretty happy with the 100 with our partner there. We actually had oversubscription for the 100, but we end up settling it at 100. It's just the most efficient kind of sweet spot on that project for economics overall. Operator: Your next question comes from the line of Ben Pham from BMO Capital Markets. Benjamin Pham: I wanted to touch base first on the Woodside LNG project. Could you remind us going forward how the mechanism works on the contract as you close on the in-service dates? Gregory Ebel: Yes, I think you mean Woodfibre. Cynthia can take that, right? You mean... Benjamin Pham: Woodfibre, sorry. Cynthia Hansen: Yes. Yes. Thank you. Yes. So the way our contract works is that we will be setting that final toll closer to the in-service date. So with our contract terms, we will get our return based on that toll structure that's finalized at that date. So we continue to benefit from the delay in that term as the cost increase and that will allow us to actually have limited exposure to some of these cost overruns that we're starting to see on that project. Now -- we are really excited, though, that we're 50% complete overall on the construction, and we believe that there's a really strong path to getting us to the 2027 in-service date. Gregory Ebel: Now the other thing, we'll have to see how it plays out, but the Canadian budget did have some accelerated bonus depreciation for LNG projects that have low emissions. And I think as we've talked about before, this will be amongst, if not the lowest emission LNG project globally given how it's getting its power. So we'll watch for that, which should be helpful from a return perspective as well. Benjamin Pham: Got it. And I have to chuck when I said Woodside because I do have a follow-up question on that partnership more specifically. Just think about your investments in on the BC Coast. And I'm curious just with LNG additions ahead and some of the strategic partnership you've seen with Williams in particular, is there appetite for Enbridge, may not something specifically like that, but maybe just appetite for LNG beyond what we have right now. Gregory Ebel: Yes. Ben, we're not opportunity light. We are opportunity rich. So us taking on -- I can't see us taking on an LNG facility with commodity exposure, which is what some other folks that you mentioned have done. We'll get done the Woodside opportunity here, and then we'll see. Obviously, there's a lot of water still to go under the bridge about getting things built in off the BC Coast. So let's continue with our Woodfibre project. Sorry, I said Woodside. Now you got me saying it. The Woodfibre project before we look at other ones. And Look, you saw us announce today those storage projects are serving LNG on the Gulf Coast. Aitken is going to serve LNG in BC. A lot of the projects that Cynthia mentioned, the pipeline project, that's the stuff we know and know very well and earn solid regulated rates of return on. I think in this environment, that's probably a better setup for us. So we'll always look. We get an opportunity to take a look at everything, but I don't think our investor proposition is open to taking on a bunch of commodity exposure. We don't want to. Operator: Your next question comes from the line of Maurice Choy from RBC Capital Markets. Maurice Choy: First question is about your crude oil production growth projections. I remember back in Enbridge Day, you've made a forecast that you may see more than 1 million barrels a day of growth through to 2035. Assuming that projection was made based on the landscape at that point in time, how would you view this growth now given what appears to be a supportive regulatory and political landscape in Canada? Colin Gruending: This is Colin. Yes, great question. And I think our -- I think both of those projections are, I think, internally consistent, and I think our view of that is stable. There is an upside scenario here that if Canadian federal policy comes through on this vision of a global energy superpower, which we believe in strongly. We have a unique perch on that. I think there is upside -- there's for sure upside in that scenario. But it's an if at this point. So we've calibrated our business plan to the base case and are -- to a question a few minutes ago, are generating further solutions if the upside comes to be. Gregory Ebel: You're going to get a good insight on that, I think, as well, Maurice, right? Because if the policy conditions form in Canada that ensure that as a producing nation, it's actually competitive. The first sign of that is going to be our producers and then being more optimistic about production, and then we'll be able to react as capital forms. So -- but at this point in time, we wouldn't change the million by 2035. And the MLOs and the Southern Illinois Connector and our Mainline investment capital is all consistent with how we see that rolling out between now and the end of the decade, all other things being equal. Maurice Choy: That makes sense. If I could finish off with a question on the Pelican CO2 hub. Oftentimes, these types of projects are perceived to have a lower return than the 4 to 6x build multiple that you can deliver within liquids pipeline outside the Mainline. Recognizing that you do have an internal competition for capital among your various businesses, I wonder if you could comment on the returns here or just more broadly about lower carbon opportunities, how do they compete for capital internally? Gregory Ebel: Yes. Look, I think both ourselves and Oxy are pretty darn careful on this front. If this project didn't earn at least the returns that we get from other Liquids projects, as you say, outside the Mainline, it wouldn't have got sanctioned. So obviously, I would even argue there's always some policy risk, so you want to make sure you get this right. So this is very much in that wheelhouse, if not a bit better. And obviously, the tax incentive structures, we've got a lot more clarity on that out of the OBBB bill that came out so that we know exactly what our tax incentives are on that. And it's got a long-term 20-, 25-year contract with offtake player. So I would say returns are at least, if not a little bit better than what we're seeing in this world. Policy support is there where it may not be for some of the other unconventional investments. And we love our partner on this front who has very similar return type parameters. Maurice Choy: I might just add on that. Colin Gruending: I was just going to layer on that it's a very selective investment. We're going to take a crawl, walk, run approach to developing low-carbon infrastructure. I think the pace of it generally is a lot slower than most observed a few years ago. So we're going to take a very careful and disciplined approach here, as Greg mentioned. Maurice Choy: It's great to hear. My -- I guess, all the best to Cynthia on your retirement, and congrats to Matthew in your new role. Cynthia Hansen: Thank you. Matthew Akman: Thank you. Operator: Your next question comes from the line of Theresa Chen from Barclays. Theresa Chen: I would also like to congratulate Cynthia on her retirement. Thank you for all your insights over the years, and I'd like to congratulate Matthew as well on his new role. Going back to the discussion around the Mainline expansion. So when it comes to resourceful solutions for moving incremental WCS barrels to the U.S. Gulf Coast, leveraging your JV system with Energy Transfer is certainly a capital-efficient approach. And as the downstream southbound capacity fills up over time, have you or would you also consider partnering with other pipelines such as topline, which also runs from the upper Mid-Continent to the Gulf Coast and currently has available capacity? Colin Gruending: Yes, Theresa. And I think joint ventures are a big part of Enbridge's playbook. Cynthia has got a bunch, Matthew's got a bunch. We've got a bunch in our portfolio, and we're proud to partner with basically everyone in the industry. And I think that's going to be a part of everybody's playbook going forward. We also partner with enterprise products on Seaway. We've gone from 0 barrels a day through that system to what's going to be not far from now, 1 million barrels a day. So I think we've utilized joint ventures extensively. We've got a whole bunch of others across the system as well. So we're open to that. I think teamwork makes the dream work here in an exciting environment. Theresa Chen: Got it. And looking at your medium-term outlook, not asking you to front run the guidance update to come, but just looking at what's already out there, how do you plan to align DCF per share growth with EBITDA growth over time, that 5% -- given that DCF per share has recently trailed EBITDA growth, what are the key drivers in bridging the two over time? Patrick Murray: Yes, it's Pat. Thanks for the question. Yes, I think we have been pretty clear that the reason they kind of disconnected over the last couple of years was primarily related to cash taxes, and we see that plateauing. We've seen some pretty positive tax decisions made in the U.S. There's lots of conversations about things that could happen in Canada. But generally, we just see that the cash taxes are returning to be more in line with -- not having the growth that it had over the last number of years. So that's why those two primarily converge as you move later into the decade. Operator: Your next question comes from the line of Praneeth Satish from Wells Fargo. Praneeth Satish: On the Egan and Moss Bluff gas storage expansions, can you break down how much of the 23 Bcf of capacity is already committed under long-term contracts versus any shorter-term contracts or merchant capacity? And then given that you're moving forward with the expansion, I assume pricing is favorable, much higher than historical levels. But can you provide some color on the contract durations? Is it kind of in the typical 3- to 5-year range? Or are you able to get something longer in this environment? And then I guess as a follow-up to that, like how do you think about the trade-off between locking in longer storage term contracts versus keeping them shorter so you could potentially benefit from higher recontracting rates in the future? Cynthia Hansen: Thanks, Praneeth. It's Cynthia. I would say that where we are right now, we have Egan, the first cavern that we're developing there is about 50% contracted and we'll, over a period of time, lag into that. We're managing these assets. It's an existing portfolio. So we're going to manage those contract terms consistently with how we've operated those assets. When we look at the overall contract terms, it is a speed from that 2- to 5-year kind of average overall. We always look for those longer terms as to be part of that portfolio. But as you noted, just with the opportunities right now as we continue to see the demand for storage increase, and we've seen some strong pricing associated with that, that's really supporting this ongoing development that we're doing. We want to try and manage the portfolio to really optimize that structure as we go forward. Gregory Ebel: Yes. And that 3 to 5 years, 2 to 5 years is pretty typical the way that we've done it historically. And look, I think we've got a super high level of confidence in the LNG coming in on the Gulf Coast. So that probably lets us leg into the contracts and we want to. But it depends on the location, right? Like, for example, the Aitken Creek contract, I think we took about half of that and have it under a 10-year contract. So it just depends on the situation, and it's worked extraordinarily well. I'm glad you raised the storage question because we got 600 Bs or so across North America, all with great optionality outside the regulated piece. But we're adding just the announcements in the last 12 months, 10% to that number. So it's a big uptick for us at the right time in the market, and I feel very good, as Cynthia says, the way we'll leg into this. Praneeth Satish: And then I'm sure you saw that Plains recently announced the acquisition of the remaining interest in the EPIC Crude pipeline. They've talked about potentially expanding the pipeline, may or may not do it. But if they do, it seems like it could be a positive for your Ingleside assets. So just curious if you have any thoughts on that deal or just the overall landscape now at Corpus and the puts and takes for your Ingleside and Gray Oak assets. Colin Gruending: Yes, it's Colin here. Yes, and we've observed that, obviously. And we're partners with Plains on Cactus II already. I'm sure there's more work we can do together to the spirit of the question a couple of minutes ago on teaming up. Our franchise is remains a work in progress, but it's still really a good one. Ingleside is the #1 export terminal on the continent. It's poised to grow all the advantages it has, Gray Oak. It's great. So we're pretty confident with our system there and hopefully can do even more with Plains going forward. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Rebecca Morley for closing remarks. Rebecca Morley: Great. Thank you, and we appreciate your ongoing interest in Enbridge. As always, our Investor Relations team is available following the call for any additional questions that you may have. Once again, thanks so much, and have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Main Street Capital Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's Third Quarter 2025 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's third quarter financial and operating results. This document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 14. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, November 7, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income or DNII. DNII is net investment income or NII, as determined in accordance with U.S. generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses. Management believes that presenting DNII and the related per share amount are useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since noncash compensation expenses do not result in a net cash impact to Main Street upon settlement. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value or NAV and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by average quarterly NAV. Please note that certain information discussed on this call including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call, and we hope that everyone is doing well. On today's call, David, Ryan and I will provide you with our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the third quarter, which resulted in another quarter of strong operating results, highlighted by an annualized return on equity of 17%, favorable levels of DNII per share and new record for NAV per share for the 13th consecutive quarter. We believe that these continued strong results demonstrate the sustained strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business and the continued depth and quality of our portfolio companies, particularly our existing lower middle market portfolio companies. We are also pleased that we further strengthened our capital structure during the quarter, which Ryan will discuss in more detail. We continue to maintain a very strong liquidity position and conservative leverage profile, and we are well positioned for the continued growth of our investment portfolio. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure will allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the third quarter, combined with our positive outlook for the fourth quarter, resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the impact of net fair value increases in both our lower middle market and private loan investment portfolios, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments and feedback from our portfolio company management teams, we expect these contributions to continue to be strong for the next few quarters. We also continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We're also excited about the new and follow-on investments we made in our lower middle market portfolio companies during the quarter, which resulted in the addition of 3 new portfolio companies and a net increase in lower middle market investments of $61 million. Consistent with our guidance last quarter, our private loan investment activity in the quarter continued to be slower than our expected normal quarterly activity resulting in a net decrease in private loan investments of $69 million. In addition to the potential for favorable investment realizations in our lower middle market portfolio, we also recently exited one of our private loan portfolio company equity investments and have a second exit in process, subject to customary closing conditions and regulatory approvals with these activities representing total realized gains of at least $35 million, both at meaningful premiums to our quarter end fair values. David will discuss our investment activity in more detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing. We also continue to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the third quarter resulting in significant incentive fee income for our asset management business for the 12th consecutive quarter and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage as we execute our investment strategies, and we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund. We also remain excited about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager and our largest asset management business client, which maintains meaningful current liquidity and will benefit from a significant increase to its regulatory debt capacity at the end of January 2026. In addition to deploying the fund's current liquidity into new private loan investments, we also continue to focus on maximizing the benefits of the fund's legacy lower middle market investment portfolio and are excited about the near-term expectations for additional realized value creation over the next few quarters. Based on our results for the third quarter, combined with our favorable outlook in each of our primary investment strategies and for our asset management business, earlier this week, our Board declared a supplemental dividend of $0.30 per share payable in December, representing our 17th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the first quarter of 2026 to $0.26 per share. These first quarter regular monthly dividends represent a 4% increase from the regular monthly dividends paid in the first quarter of 2025. The supplemental dividend for December is a result of our strong performance in the third quarter and our near-term expectations for additional net realized gains and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 40% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the fourth quarter, we currently anticipate proposing an additional significant supplemental dividend payable in March 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as above average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide unique and flexible financing solutions to lower middle market companies and their owners and management teams and our differentiated long-term to permanent holding periods represent an even more attractive solution to the needs of many lower middle market companies given the current economic environment, and we are confident in our expectations for strong lower middle market investment activity in the fourth quarter. In addition, we continue to have an increased number of existing portfolio companies that are actively executing acquisition growth strategies that we anticipate will provide attractive follow-on investment opportunities for us in the near term and significant value creation opportunities for these portfolio companies in the longer term, consistent with the successes we've demonstrated and experienced with other portfolio companies. We also continue to be pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business over the last few years. Our investment pipeline has increased significantly since our last conference call. And as of today, I'll characterize our private loan investment pipeline as above average. With that, I will turn the call over to David. David Magdol: Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe our strong third quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach and our unique operating model. We are very pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive third quarter financial results. Despite the continued heightened level of concern and uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current climate. Each quarter, we try to highlight a key aspect of our investment strategy and differentiated approach. For today's call, we thought it would be useful to spend some time discussing the support we provide to our lower middle market portfolio companies. In addition to our ongoing investment management activities and the managerial assistance we offer our lower middle market portfolio companies, we are also happy to host an annual event for the leaders of our lower middle market portfolio companies called the Main Street President's Meeting, which we recently hosted for the ninth time. For those of you who are not familiar, our President's Meeting is an annual event that we host for our lower middle market portfolio company leaders to network, build relationships share best practices, learn from each other and from third-party speakers and benefit from being a part of Main Street's family of portfolio companies. Based on post-event feedback from our lower middle market portfolio company executives, the event is highly valued by the participants and the event improves each year as we refine our agenda based on the feedback we receive. Topics covered at our most recent event included artificial intelligence, use cases and best practices disaster recovery planning and enterprise risk management, adding value through executing add-on acquisitions, linking incentive compensation to performance and succession planning. As a result of this annual event, our portfolio companies have increasingly worked together, referred business to each other, utilized each other's operational resources and formed long-term relationships that we believe are invaluable. As an example, one valuable topic we covered this year was best practices for utilizing artificial intelligence in lower middle market businesses. Based on our surveying as part of the event, the vast majority of our portfolio companies are engaged in utilizing AI and are actively seeking additional ways to use AI tools in their businesses. This topic was enhanced by breakout sessions led by several of our portfolio company CEOs who shared specific examples of AI tools they use and the benefits they are achieving from utilizing AI in their businesses. Q&A from the audience was robust, and we are highly encouraged about the benefits that our lower middle market portfolio companies can achieve in the future from their continued adoption of AI. Another panel we received very positive feedback on this year was focused on executing proprietary strategic add-on acquisitions. The panel was comprised of another peer group of our portfolio company CEOs with extensive experience in this area, who led a discussion on the benefits of pursuing add-on acquisitions, developing and executing a successful acquisition plan, strategies for creating shareholder value through these transactions and lessons learned while sourcing and executing an acquisition growth strategy. We are highly confident that the lessons learned shared by the panelists will be very helpful for other portfolio company executives to consider as they execute their own acquisition strategies in the future. The engagement from the audience during both sessions was robust and led to several post-event discussions, including the sharing of key third-party resources and best practices that we believe will ultimately improve the future financial results and operating performance for our portfolio companies. Given our primary focus on our lower middle market investment strategy and the unique benefits it can provide both to us and our management team partners at our portfolio companies, we are excited to bring together the key leadership from our lower middle market portfolio companies at our Annual Presidents' Day. We always leave this event very excited about the quality of the individuals leading our lower middle market portfolio companies and the future value creation that we expect they and their teams can generate for a mutual benefit in the future. We left this year's event more excited than ever. Now turning to the overall composition of results from our investment portfolio as of September 30, we continue to maintain a highly diversified portfolio with investments in 185 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 4.8% of our total investment income for the trailing 12-month period and 3.6% of our total investment portfolio fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our investment activity in the third quarter included total investments in our lower middle market portfolio of $106 million, including total investments of $69 million in 3 new lower middle market portfolio companies, which after aggregate repayments, return of invested equity capital and a decrease in cost basis due to realized losses resulted in a net increase in our lower middle market portfolio of $61 million. Since quarter end, we have closed an additional lower middle market platform investment, representing an additional $81 million of invested capital, and we have several other expected near-term investments. Driven by the capabilities and relationships of our private credit team, we also completed $113 million in total private loan investments during the third quarter which after aggregate repayments and a decrease in cost basis due to realized losses resulted in a net decrease in our private loan portfolio of $69 million. At the end of the third quarter, our lower middle market portfolio included investments in 88 companies representing $2.8 billion of fair value, which is over 28% above our cost basis. We had 86 companies in our private loan portfolio, representing $1.9 billion of fair value. The total investment portfolio at fair value at quarter end was 18% above the related cost basis. In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term results and goals. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I'll turn the call over to Ryan to cover our financial results, capital structure and liquidity position. Ryan Nelson: Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the third quarter which included favorable levels of NII per share and DNII per share and another increase in NAV per share. Our total investment income for the third quarter was $139.8 million, increasing by $3 million or 2.2% over the third quarter of 2024 and decreasing by $4.1 million or 2.9% from the second quarter of 2025. Interest income decreased by $7.3 million from a year ago and increased by $2.4 million from the second quarter of 2025. The decrease from prior year was principally attributable to a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and decreases in interest rate spreads on existing debt investments and an increase in investments on nonaccrual status, partially offset by the impact of increased net investment activity. The increase from prior quarter was driven primarily by the impact of increased net investment activity and a decrease in investments on nonaccrual status. Dividend income increased by $8 million when compared to a year ago, including a $600,000 increase in unusual or nonrecurring dividends and decreased by $6.6 million from the second quarter including a $4.2 million decrease in unusual or nonrecurring dividends. The increase in dividend income from prior year is primarily a result of the continued underlying positive performance of our lower middle market portfolio companies. The decrease in dividend income from the second quarter is primarily due to nonrecurring dividends received from one of our lower middle market portfolio companies in the second quarter. Fee income increased by $2.2 million from a year ago and was consistent with fee income from the second quarter. The increase from prior year was primarily due to higher closing fees on new and follow-on investments and an increase in exit and prepayment fees from investment activity. Fee income considered nonrecurring increased by $900,000 from a year ago and by $500,000 from the second quarter of 2025. The third quarter included higher levels of income considered less consistent or nonrecurring in nature in comparison to the prior year, including interest income from accelerated prepayment repricing and other activity, accelerated fee income and dividends from our equity investments. In the aggregate, these items totaled $4.3 million and were $2.1 million or $0.02 per share higher than the third quarter of 2024. Income considered less consistent or nonrecurring in nature decreased from the second quarter by $3.8 million or $0.04 per share, primarily due to a decrease in dividends from one of our lower middle market portfolio companies. The current quarter's less consistent or nonrecurring income was in line with the prior 4-year average. Our operating expenses increased by $1.1 million over the third quarter of 2024 and decreased by $300,000 from the second quarter. The increase in operating expenses from the prior year was largely driven by increases in cash compensation related expenses and share-based compensation expense, partially offset by a decrease in interest expense. The decrease in interest expense from a year ago was primarily driven by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in the benchmark index interest rates and a decrease in the applicable margin rates resulting from the amendments of our credit facilities in April 2025, partially offset by an increase in average borrowings to fund the growth of our investment portfolio. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets, was 1.4% for the quarter on an annualized basis and 1.3% for the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.8 million to our net investment income during the third quarter representing an increase of $900,000 from the same quarter a year ago and was consistent with the contribution to our net investment income in the second quarter. Our investment manager ended the quarter with total assets under management of $1.6 billion. During the quarter, we recorded net fair value appreciation, including net realized losses and net unrealized depreciation on the investment portfolio of $43.9 million. This increase was primarily driven by net fair value appreciation in our lower middle market and private loan investment portfolios, partially offset by net fair value depreciation in our external investment manager. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance certain of our portfolio companies. The net fair value appreciation in our private loan portfolio was primarily driven by several specific portfolio companies and decreases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes, partially offset by increased incentive fee income. We recognized net losses of $19.1 million in the quarter. The realized losses recognized were primarily the result of the restructures of 2 private loan investments and the full exits of 2 lower middle market investments. which were partially offset by a realized gain on the full exit of a lower middle market investment and the partial exit of another portfolio investment. We ended the third quarter with investments on nonaccrual status comprising approximately 1.2% of the total investment portfolio at fair value and approximately 3.6% at cost. Net asset value, or NAV, increased by $0.48 per share over the second quarter and by $2.21 per share or 7.2% when compared to a year ago to a record NAV per share of $32.78 at quarter end. Our regulatory debt-to-equity leverage calculated as total debt, excluding SBIC debentures divided by NAV was 0.62x and our regulatory asset coverage ratio was 2.61x, and these ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9x and 2.25 to 2.1x, respectively. We continue to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity and efficiency. In August 2025, we issued $350 million of unsecured investment-grade notes maturing in August 2028 with an interest rate of 5.4%. In September 2025, we repaid the $150 million due on our December 2025 notes prior to their maturity and without any fees or penalties. Given our current liquidity position and recent investment activity, we continue to be less active during the third quarter in our ATM program, raising net proceeds of $6.7 million from equity issuances. After giving effect to the capital activities in the third quarter of 2025, we entered the fourth quarter of 2025 with strong liquidity, including cash and unused capacity under our credit facilities totaling over $1.5 billion with a near-term debt maturity of $500 million in July 2026. We continue to believe that our conservative leverage, strong liquidity and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future. allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Because of the market uncertainty, we expect to continue to operate over the next few quarters at leverage levels more conservative than our long-term targets. Coming back to our operating results. DNII before taxes per share for the quarter of $1.07 was $0.01 higher than DNII before taxes per share for the third quarter of last year. and $0.04 lower than DNII before taxes per share for the second quarter. Looking forward, we expect fourth quarter of 2025 DNII before taxes of at least $1.05 per share with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions. Operator: [Operator Instructions] Our first question comes from Arren Cyganovich with Truist Securities. Arren Cyganovich: In your prepared remarks, you indicated that the pipeline for investment activity is actually above average for both and that's a notable change for the private loan portfolio. pipeline from last quarter. Maybe just talk a little bit about the sustainability of that and what necessarily kind of changed in the private loan part of the focus of the middle market? Dwayne Hyzak: Sure, Arren, I'll give a few comments, and I'll let Nick add on if he has anything he wants to add. But I'd say this quarter, we've just seen the pipeline grow significantly. I think overall, from a market standpoint, from our perspective, you've seen an increase in overall activity, and we've seen that come in both at the front end of the funnel and in transactions that we're working on that we expect to close either in the fourth quarter or the first quarter. So overall, I think it's been driven by more market activity. I think the quality of the transactions, consistency of the transactions with what we've done historically continues to be the same. So I think it's really driven more by market activity. But I'll let Nick add on any additional color. Nicholas Meserve: Yes. I think what I would add there is it probably started the week after the last earnings call. So it's been picked up for a decent amount of time now and I think we expect it to continue into '26. And I'd say it's both in volume and the number of deals and the overall deal sizes. And each transaction, just overall the pipeline feels like it's more live and actually going to close and get to a finish line versus, I'd say, over the last year, a lot of deals felt like they weren't to get anywhere, and we were kind of just performing back and forth on [LOIs]. We don't really feel like you get to a closed transaction. Arren Cyganovich: Got it. You you an improvement in credit quality in the quarter, at least from a statistical standpoint, maybe you could talk a little bit to give us a little bit more color about what was driving that? Dwayne Hyzak: Yes, Arren, I wouldn't say there's anything specific. I think overall, in both the lower middle market and private loan portfolios, the companies are doing well. There's always some outliers both in terms of companies doing exceptionally well and some underperforming when you've got a large diversified portfolio like we have. But I wouldn't say there's anything specific quarter-over-quarter that changed. It's just overall the portfolio continues to perform at a high level. Operator: Our next question comes from [indiscernible] with Raymond James. Unknown Analyst: Going back to the private loan portfolio. Can you talk a little bit more about what was driving the $69 million net decrease? Was it primarily driven by elevated repayments, the slowing deal flow or just less attractive opportunities in the current market environment? Any like additional color you can provide there? Dwayne Hyzak: Sure. I'd say it was a combination probably of all 3. I think in general, as we had communicated on the last call, for the third quarter, our investment activity was a little bit below our expectations. We also had more than expected or more than normal repayment or prepayment activity. So I'd say it was a combination of those 2 factors that drove the decrease. I think as Nick said, we feel good about the pipeline today in addition to the new origination activity being higher from an expectation standpoint. I think some of the prepayment activity is a little bit lighter. So I think it's just kind of a point in time in the third quarter, you had both the lower originations and higher repayments that both occurred in the same quarter. Nicholas Meserve: The only thing I'd add out there is there's probably a handful of deals that we expected to close late in the quarter that really got pushed into the fourth quarter, and they're still going to close. It just got pushed into this quarter versus the third quarter. Overall, there was a lighter origination, but some of it is just timing. Unknown Analyst: Okay. And do you see any of these like trends shifting going into 4Q? Or is it more of the same? Dwayne Hyzak: I think overall, as Nick said, I think we feel good about the new investment expectations for Q4. I think we also feel pretty good about expectations for Q1 just given the strength of the pipeline, both in the early stages and in the more developed stages. Looking out longer than that, it really is going to come down to how active the private equity industry as a whole is. But I think for the near term, I think we feel pretty good about it. Operator: [Operator Instructions] Our next question comes from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug. The compensation expense was a little bit higher this quarter. And in the press release part of what you attributed to that was an increase in headcount to support the portfolio and asset management activities. Can you talk a little bit about what type of roles those are? And I guess what -- should we expect the headcount to continue to grow into this year and the end of this year and also into next? Dwayne Hyzak: Sure, Cory. Thanks for the question. Thanks for joining us this morning. I'd say that across the platform on the investment side, both lower middle market and private loans, we have been and continue to look for ways to grow our teams and our investment professionals. I think we view both market opportunities to be very attractive. The lower middle market is very people heavy or people intensive, just the nature of the activities, more of a private equity type investment strategy. So we are always looking to add resources there, and we continue to be in that position today. So some of that headcount and comp increase would be concentrated there. But we've also grown our private loan team significantly, not just for Main Street's portfolio and balance sheet. But as you know, we've got an asset management business that we have been and we expect to continue to grow going forward. That growth is going to be almost exclusively focused on the private loan, private credit side. So we've also been working -- Nick and his team have been working to grow our team there. So I'd say it's on both sides. Nicholas Meserve: All right. And then I guess do you happen to have any targets for your RIA in terms of like AUM for 2026 that you could possibly share? Is there a range or anything at all that you're looking to hit? Dwayne Hyzak: Yes. We haven't shared any specific guidance, Cory. I think our goal and our expectation is that we will grow AUM. We'll grow it 2 ways. Right now, as you likely recall, we have our largest asset management business client, MSC Income Fund, which is a publicly traded BDC. It has the opportunity at the end of January 2026 to have a significant increase in its regulatory leverage capacity. We would expect to expand the leverage capacity there. Those -- that capital or those proceeds would be invested in the private loan private credit space. So we think that will be the biggest catalyst going forward into 2026. We also have our second private fund MS Private Loan Fund II that's still kind of in the earlier stages of its investment deployment activities that should ramp up significantly in 2026 as well. But outside of giving guidance, that those are the 2 catalysts, we have not given specific guidance for how much we expect the AUM to grow in 2026. Cory Johnson: And if I could just ask one more. You spoke about how your LMM companies are sort of talking about AI and sort of how to integrate that. Have you seen, I guess, in those conversations, have companies been mentioning that AI is making significant efficiency gains? And are they showing up at all in like the valuations that perhaps that you might be able to realize either now? Or do you expect that to possibly make a difference in upcoming quarters, something soon? Dwayne Hyzak: Sure, Cory. I'd say it's more forward-looking. I don't think we've seen significant benefit from AI from a historical standpoint or any of the valuations that we have today. I do think we're excited as our portfolio companies and their management teams are that there's a lot of opportunities through the implementation of AI. So I think we're excited about that, but it would be more forward-looking as opposed to historical. Operator: This now concludes our question-and-answer session. And I would now like to turn the floor back over to management for closing comments. Dwayne Hyzak: I just want to say thank you again to everyone for joining us this morning. I think it will be a few months before we talk to you again. So hopefully, everyone has a happy holidays, and we look forward to talking to you again with our next update call in February after the results for the fourth quarter and the year-end for Main Street. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon. My name is Julian, and I will be your conference call operator today. [Operator Instructions] as a reminder, this call is being recorded. I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. Thank you. You may begin. Mariann Ohanesian: Thank you, Julian. Good afternoon, and welcome to Puma's conference call to discuss our earnings results for the third quarter of 2025. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Maximo Nougues, Chief Financial Officer; Heather Blaber, Senior Vice President of Marketing; and Roger Storms, Senior Vice President of Sales. After the close today, Puma issued a news release detailing earnings results for third quarter 2025. That news release, the slides that Roger will refer to and a webcast of this call are accessible via the homepage and Investors section of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days. Today's conference call will include statements about Puma's future expectations, plans and prospects that constitute forward-looking statements for purposes of federal securities laws. Such statements are subject to risks and uncertainties, and actual events and results may differ from those expressed in these forward-looking statements. For a full discussion of these risks and uncertainties, please review our periodic and current reports filed with the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2024. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this live conference call, November 6, 2025. Puma undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, we may refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to, but not a substitute for, our GAAP financial measures. Please refer to our third quarter 2025 earnings release for a reconciliation of our GAAP to non-GAAP results. I will now turn the call over to Alan. Alan Auerbach: Thank you, Mariann , and thank you all for joining our call today. Today, Puma reported total revenue for the third quarter of 2025 of $54.5 million. Total revenue includes product revenue net, which consists entirely of NERLYNX sales as well as royalties from our sub-licensees. Product revenue net was $51.9 million in the third quarter of 2025, an increase from $49.2 million reported in Q2 2025 and a decrease from $56.1 million reported in Q3 2024. As a reminder to investors, Puma reported NERLYNX sales includes both U.S. net sales of NERLYNX and product supply revenues of NERLYNX to Puma's ex-U.S. partners. Please note that in Q3 2024, we reported product supply revenue to our international partners of about $7.4 million versus $0.1 million in Q3 2025. Therefore, U.S. net sales of NERLYNX in Q3 2025 were $51.8 million versus $48.8 million in Q3 2024. Product revenue for the third quarter of 2025 was impacted by approximately $3.1 million of inventory build in our specialty pharmacies and specialty distributors. Royalty revenue was $2.6 million in the third quarter of 2025 compared to $3.2 million in Q2 2025 and $24.4 million in Q3 2024. Q3 2024 royalty revenue included sales to China by our offshore partner, Pierre Fab. We reported 2,949 bottles of NERLYNX sold in the third quarter of 2025, an increase of 341 from the 2,608 bottles sold in Q2 2025. In Q3 2025, we estimate that inventory increased by 172 bottles. In Q3 2025, new prescriptions were down approximately 3% compared to Q2 2025 and total prescriptions were down approximately 1% compared to Q2 2025. Roger will provide further details in his comments and slides. I will now provide a clinical review of the quarter, then Heather Blaber and Roger Storms will add additional color on NERLYNX commercial activities. Maximo Nougues will follow with highlights of the key components of our financial statements for the third quarter of 2025. As investors are aware, Puma currently has 2 ongoing Phase II trials of our investigational drug, alisertib, ALISCA-Breast1, which is a Phase II trial of alisertib in combination with endocrine treatment in patients with HER2-negative hormone receptor-positive breast cancer; and ALISCA-Lung1, a Phase II trial looking at the efficacy of alisertib monotherapy in patients with small cell lung cancer. As a reminder, the ALISCA-Breast1 trial investigates alisertib in combination with endocrine treatment, which consists of either an anastrozole, exemestane, letrozole, fulvestrant or tamoxifen in patients with HER2-negative hormone receptor-positive metastatic breast cancer. Patients must be chemotherapy naive, have been previously treated with a CDK4/6 inhibitor and received at least 2 prior lines of endocrine therapy in the recurrent or metastatic setting to be eligible for the trial. Patients are being dosed with alisertib given at either 30 milligrams, 40 milligrams or 50 milligrams twice daily BID on days 1 to 3, 8 to 10 and 15 to 17 on a 28-day cycle in combination with the endocrine therapy and investigator choice. Patients must not have been previously treated with the endocrine treatment in the metastatic setting that will be given in combination with alisertib in the trial. The primary efficacy endpoints include objective response rate, duration of response, disease control rate and progression-free survival. As a secondary objective, the company will be evaluating each of these efficacy biomarkers within biomarker subgroups in order to determine whether any biomarker subgroup correlates with better efficacy and has been -- as has been seen in preclinical and clinical studies in other cancers, including breast cancer and small cell lung cancer. The company will then look to focus the future clinical development of alisertib in combination with endocrine therapy for patients with HER2-negative hormone receptor positive breast cancer with these biomarkers. The trial was initiated in late November 2024. There are currently 34 sites in the U.S. and 18 sites in Europe that have been activated for the trial, and the trial is enrolling ahead of expectations. There are currently 98 patients enrolled in the trial and 14 additional patients in screening. Due to the faster-than-expected enrollment in the trial, the former interim analysis was triggered sooner than expected. We anticipate that the formal interim analysis will be completed in the first half of 2026 and look forward to sharing this with investors at that time. With respect to the ALISCA-Lung study -- the ALISCA-Lung is a Phase II study of our investigational drug alisertib to investigate the efficacy of alisertib monotherapy in patients with small cell lung cancer and to specifically look at the efficacy of the drug in patients with biomarkers where the aurora kinase pathway plays the role. The goal is to correlate the efficacy in these biomarker subgroups in the ALISCA-Lung1 study to the efficacy that was previously seen in the biomarker subgroups from the randomized trial of paclitaxel plus alisertib versus paclitaxel plus placebo that was published in the Journal of Thoracic Oncology in 2020. In that randomized trial, a progression-free survival benefit and overall survival benefits were seen in patients with biomarkers, which correlate with the aurora kinase pathway. If the efficacy and biomarker data are comparable from the 2 studies, the company would look to engage the FDA to discuss the regulatory path further. As discussed on the recent earnings call, the company believes the data obtained to date from the ALISCA-Lung1 is providing a preliminary indication of potentially better activity in patients with biomarkers where the aurora kinase plays a role. The most recent analysis of the PK data from the ALISCA-Lung suggests that we are seeing lower PK of alisertib in the ALISCA-1 study compared to the previous Phase II of alisertib monotherapy in small cell lung cancer patients that was published in Lancet Oncology. The company has amended the protocol for the trial to increase the dose of alisertib from 50 milligrams BID to 60 milligrams BID, which the company believes will increase the PK of the drug to levels closer to what was seen in the prior Phase II. The company is currently enrolling patients at the 60-milligram dose -- 60-milligram BID dose. There are currently 61 patients in the trial with 9 of these patients enrolled at the 60-milligram BID dose and additional 2 patients in screening. Assuming the safety at the 60-milligram dose is acceptable, the company plans to meet with the FDA in order to amend the protocol to continue to dose escalate to 70 milligrams BID. The company looks to have additional interim data from this trial in the first half of 2026. As mentioned on prior earnings calls and in response to investor questions, Puma continues to evaluate several drugs to potentially in-licensed or acquire that would allow the company to diversify itself and leverage Puma's existing R&D, regulatory and commercial infrastructure. The company will keep investors updated on this as it progresses. I will now turn the call over to Heather Blaber for an update on our marketing initiatives. Roger Storms will follow with a review of our commercial performance during the quarter. Heather Blaber: Thank you, Alan. I appreciate the opportunity to share some additional insights into our marketing strategy. The marketing team is focused on creating awareness of both clinical messaging for NERLYNX as well as recently published data that demonstrate the continued need to reduce the risk of recurrence in HER2-positive early breast cancer after treatment with adjuvant therapy. We continue to invest in market research to help us better understand risk factors that put a patient at high risk of recurrence in HER2-positive early-stage breast cancer as well as Garner Insights on the NERLYNX clinical data in this patient population. Together with our marketing initiatives, our strategy is focused on increasing awareness of our broad indication of patients that are appropriate for treatment with NERLYNX. We have adjusted our strategy based on our learnings and revised both personal and nonpersonal messaging with the goal of engaging physicians on a broader set of patients where the risk of recurrence still remains high and where we believe NERLYNX can play an important role in helping to reduce the risk of recurrence in patients with early-stage HER2-positive breast cancer. In addition to revising our messaging, we have a new resource to support patients throughout their recommended course of NERLYNX therapy. This educational resource is provided to patients on a monthly basis with the goal of improving patient adherence as they receive their refills. Lastly, year-to-date, we have reached 99.7% of oncologists through nonpersonal promotion and continue to expand our share of voice, working closely with the sales team to increase engagement with health care providers. In summary, we are excited about our new marketing strategy and messaging, which we believe will continue to help educate and engage oncologists on the unmet need for those diagnosed with HER2-positive early breast cancer. I will now turn the call over to Roger Storms to provide an overview on the commercial performance for the third quarter. Roger Storms: Thank you, Heather, and thanks to everyone for joining our third quarter earnings call. Before I move into the commercial review, just a reminder that I'll be making forward-looking statements. The sales team remains focused on expanding overall HCP reach and frequency with a strong emphasis on driving engagement at key treatment decision points. In Q3 2025, call activity increased 22% year-over-year and increased 17% quarter-over-quarter. This is a direct result of continued emphasis put on executional excellence and increased accountability with the existing sales team. I expect call activity to continue to improve as we fill vacancies. The commercial team continues to prioritize increasing use of NERLYNX with the main focus on patients at higher risk of recurrence. They are also dedicated to enhancing clinical education and engagement through nonpersonal promotional efforts as well as utilizing patient resources to support persistence and compliance during NERLYNX therapy. Let me now transition to some of the commercial slides where I'll provide some additional specifics around performance. Slide 3 is an illustration of our distribution model, which is broken out into the specialty pharmacy channel and the specialty distributor or in-office dispensing channel. In regards to overall distribution of our business, in Q3 2025, about 65% of our business was purchased through the SP channel and the remaining 35% was purchased through the SD channel. We are seeing some stronger growth in the SD channel driven by 2 main factors: one, increased sales in the group purchasing organization segment; and two, increased 340B purchasing. Turning to Slide 4. NERLYNX net product revenue in Q3 2025 was $51.9 million, which represents an increase of $2.7 million from the $49.2 million we reported in Q2 2025 and a decrease of $4.2 million from the $56.1 million we reported in Q3 of 2024. As a reminder to investors, Puma's reported NERLYNX sales includes both U.S. sales of NERLYNX and product supply revenues of NERLYNX to Puma's ex-U.S. partners. Please note that in Q3 2024, we reported product supply revenue to our international partners of about $7.4 million versus the $0.1 million in Q3 of 2025. Therefore, U.S. net sales of NERLYNX in Q3 2025 were $51.8 million versus the $48.8 million in Q3 of 2024. I will provide some more details around inventory changes, and Maximo will provide some additional specifics around gross to net expenses during his update. In Q3 of 2025, we estimate that inventory increased by about $3.1 million. As a comparator, we estimate that inventory decreased by about $1.3 million in Q2 of 2025 and increased by about $0.7 million in Q3 of 2024. Slide 5 shows Q3 2025 ex-factory bottle sales and also provides both a year-over-year and a quarter-over-quarter comparison. In Q3 2025, NERLYNX ex-factory bottle sales were 2,949, which represents an approximate 13% increase quarter-over-quarter and an 8% increase year-over-year. Inventory declined for the first 2 quarters, but increased in Q3 of 2025. Similar to the prior slides, let me specifically call out the inventory changes from a bottle perspective. In Q3 2025, we estimate that inventory increased by 172 bottles. As a comparator, we estimate that inventory decreased by 85 bottles in Q2 of '25 and increased by 39 bottles in Q3 of 2024. Let me take a moment to provide some additional metrics regarding our second quarter performance. In Q3, we saw enrollments increase by about 6% quarter-over-quarter and decline about 6% year-over-year. New patient starts or NRx follow a similar pattern, increasing 3% quarter-over-quarter and declining about 1% year-over-year. Turning to total prescriptions or TRx, -- we saw TRx decline about 1% quarter-over-quarter and decline about 4% year-over-year. Finally, let me share some specifics around demand. In Q3 2025, we saw demand increased by about 3% quarter-over-quarter and about 3% year-over-year. As mentioned earlier, we have seen stronger demand growth in the SD channel where we saw SD demand grow by about 11% quarter-over-quarter and about 25% year-over-year. Slide 6 highlights the quarterly adoption of dose escalation since NERLYNX launch. In Q3 2025, approximately 77% of patients started NERLYNX at a reduced dose. This is higher compared to the 71% we reported in Q2 2025. Continued messaging and adoption of dose escalation remains an important commercial priority. Patients who are started on NERLYNX utilizing dose escalation have better persistence and compliance. We believe dose escalation, coupled with the new patient education resources will give patients better support throughout their NERLYNX therapy and ultimately help them reduce the risk of recurrence. Slide 7 highlights the strategic collaborations we formed across the globe. We really appreciate the excellent work being done by our partners around the world and look forward to supporting their continued success moving forward. Let me close by expressing my heartfelt gratitude to the entire Puma team for their unwavering passion and dedication to supporting patients and families affected by breast cancer. This disease can be devastating, and we recognize there is still more work to do and more that can be done. I will now turn the call over to Maximo for a review of our financial results. Maximo F. Nougues: Thanks, Roger. I will begin with a brief summary of our financial results for the third quarter of 2025. Please note that I will make comparisons to Q2 2025, which we believe is a better indication of our progress as a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our third quarter 2025 10-Q, which will be filed today and includes our consolidated financial statements. For the third quarter of 2025, we reported net income based on GAAP of $8.8 million or $0.18 per basic share and $0.17 per diluted share. This compares to net income in Q2 2025 of $5.9 million or $0.12 per share. On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense, we reported net income of $10.5 million or $0.21 per basic and diluted share for the third quarter of 2025. Gross revenue from NERLYNX sales was $70 million in Q3 2025 and $62.1 million in Q2 2025. As Alan mentioned it, net product revenue from NERLYNX sales was $51.9 million, an increase from the $49.2 million reported in Q2 2025 and a decrease versus the $56.1 million reported in Q3 2024. As a reminder to investors, Puma reported NERLYNX sales include both U.S. net sales of NERLYNX and product supply revenue of NERLYNX to Puma's ex-U.S. partners. Please note that in Q3 2024, we reported product supply revenue to our international partners of about $7.4 million versus $0.1 million in Q3 2025. Therefore, U.S. net sales of NERLYNX in Q3 2025 were $51.8 million versus $48.8 million in Q3 2024. The increase in Q3 2025 net revenue versus Q2 2025 was driven primarily by an increase in NERLYNX bottles sold in the U.S., inventory build of $3.1 million, offset by a higher gross to net expense. Inventory build by our distributors was approximately $3.1 million in Q3 versus drawdown of approximately $1.3 million in Q2 2025. Royalty revenue totaled $2.6 million in the third quarter of 2025 compared to $3.2 million in Q2 2025. Our gross to net adjustment in Q3 2025 was about 25.9% and 20.8% in Q2 2025. The increase on gross to net was driven mostly by a higher-than-expected Medicare rebate driven by the Inflation Reduction Act implemented in Q4 of 2022 and higher Medicaid share. Cost of sales for Q3 2025 was $12.2 million and includes $2.4 million for the amortization of intangible assets related to our neratinib license. Cost of sales for Q2 2025 was $12.3 million. Going forward, we will continue to recognize amortization of the milestones to the licensor about $2.4 million per quarter as cost of sales. For fiscal year 2025, Puma anticipates that net NERLYNX product revenue will be in the range of $198 million to $200 million, higher than our prior guidance. We also anticipate that our gross to net adjustment for the full year 2025 will be between 23% and 23.5%. In addition, for fiscal year 2025, we anticipate receiving royalties from our partners around the world in the range of $22 million to $23 million, lower than 2024 due to the fewer shipments expected to China as our partner works through regulatory transitions during the first several quarters of 2025. We don't expect any license revenue in 2025. We also expect that net income for the full year will be in the range of $27 million to $29 million. The current guidance does not include any potential release of any additional tax asset valuation allowance in our net income estimate. The company is reviewing its deferred tax assets as part of its ongoing tax valuation analysis and has not yet determined whether any adjustment will be required or if so, the potential timing or size of such an adjustment. We will continue to keep investors updated on this as it progresses. At this time, we do not believe the tariffs imposed or proposed to be imposed by the United States, particularly with other countries, will have a material impact on our product cost or results of operations. However, shifts in trade policies in the United States and other countries have been rapidly evolving and are difficult to predict. As a point of reference, our manufacturing product cost accounts for a mid- to high single-digit percentage of our cost of goods sold. We anticipate that for Q4 2025, NERLYNX product revenue net will be in the range of $54 million to $56 million. Please note that Q4 net product revenue guidance includes almost $4.5 million of product sales to one of our global partners as well as U.S. net revenue, which we will -- we expect to be in the range of $50 million to $52 million. The sales to our global partners will also contribute to the large royalty revenue we expect in Q4. We expect Q4 royalty revenue will be in the range of $13 million to $14 million and no license revenue. We further estimate that the gross to net adjustment in Q4 2025 will be approximately 24% to 25%. Puma anticipates Q4 net income between $9 million and $11 million. SG&A expenses were $16.8 million in the third quarter of 2025 compared to $18 million in the second quarter. SG&A expenses included noncash charges for stock-based compensation of $1.1 million for Q3 and $1 million for Q2 2025. Research and development expenses were $15.9 million in the third quarter of 2025 and $15.5 million in the second quarter. R&D expenses included noncash charges for stock-based compensation of $0.6 million in the third quarter of 2025, unchanged from the second quarter. On the expense side, Puma anticipates flat to slightly higher total operating expenses in 2025 compared to 2024. More specifically, we anticipate SG&A expenses to decrease by 7% to 10% and R&D expenses to increase by 20% to 25% year-over-year. The higher increase in R&D is driven by faster enrollment in our clinical trials than previously expected. In the third quarter of 2025, Puma reported cash burn of approximately $1.6 million. This compares to cash burn of approximately $2.9 million in Q2. Please note that during Q3, we made our sixth quarterly principal loan payment of $11.1 million related to our obligation with Athyrium. As a result of this, our total outstanding principal debt balance decreased to approximately $33 million. At September 30, 2025, we had approximately $94 million in cash, cash equivalents and marketable securities versus about $101 million at year-end 2024. Our accounts receivables balance was $33.6 million. Our accounts receivable terms range between 10 and 68 days, while our days sales outstanding are about 50 days. We estimate that as of September 30, 2025, our distribution network maintained approximately 3.5 weeks of inventory. Overall, we continue to deploy our financial resources to focus on the commercialization of NERLYNX, the development of alisertib and controlling our expenses. Alan Auerbach: Thanks, Maximo. On past earnings calls, we have stressed that Puma's senior management in cooperation with the Board of Directors continues to remain focused on NERLYNX sales trends in 2025 and beyond and recognizes its fiscal responsibility to the shareholders to continue to maintain positive net income. We believe that this focus has contributed to our commercial execution in a positive way. And according to our current projections, 2025 will mark the first year-over-year demand increase for NERLYNX in the United States since 2018. We are pleased to report this demand-driven growth in NERLYNX sales for the first 9 months of 2025. In addition, we believe that the positive net income that the company achieved in Q3 '25 and that the company is guiding to for the full year 2025 has resulted from the continued financial discipline across the company over the last few years. The company remains committed to continuing to achieve this positive net income, and we'll continue to reduce expenses if needed to achieve this. We look forward to updating investors on this in the future. There continues to remain a significant unmet need for patients battling breast cancer, lung cancer and other solid tumors. We at Puma are committed and passionate about finding more effective ways of helping these patients during their journey, and we will continue to strive to achieve that goal. This concludes today's presentation. We will now turn the floor back to the operator for Q&A. Operator? Operator: [Operator Instructions] And our first question comes from the line of Mark Frahm with TD Cowen. Marc Frahm: Maybe just looking forward to the breast cancer interim. Just remind us what the kind of bar you're going to be kind of evaluating that with in terms of willingness to continue to spend on that indication, particularly in light to your comments in the prepared remarks of remaining committed to staying profitable. Alan Auerbach: Yes. Thanks, Marc. So there's been 2. This is going to be alisertib in combination with endocrine. You remember, there was a previous trial TBCRC41 of alisertib in combination with endocrine. And I think that's probably going to be the gauge we're looking for to see -- to compare it to those numbers. Right now, as you know, the standard of care for ER-positive HER2-negative breast cancer is first line, they get a CDK4/6 inhibitor. Second line, depending on which mutation they have, they may get a targeted therapy or may get a different type of a combination therapy. Third line is still kind of a white space, if you will. And that's where we're focusing is in that third-line white space. So all these patients are kind of third-line endocrine, if you will. So obviously, what we would look for in terms of continued spend would really be, number one, how the efficacy compares to what we would typically expect to be standard of care in third line. But then also assuming we're able to find a biomarker where it portends for or it predicts a better outcome to alisertib, that would obviously be quite compelling as well. So we've gotten asked that question in the past, which is, okay, you have both the breast and the lung. You want to remain profitable. As we've said in the past, and I will say again, we're happy to stagger the indications to control the burn so we can remain a profitable company. Marc Frahm: Okay. That's helpful. But I guess the next steps could ultimately involve a larger pivotal program. Would that -- which I think would strain -- for any one of the indications might strain the ability to stay profitable. Would you be willing to go negative the data and go back to a loss if the data supports -- or does that require a partner? Alan Auerbach: Yes. So a couple of things to remember from that perspective, Marc. If you look at our guidance for our full year in terms of net income, remember, that includes us paying down our debt. The debt goes away mid next year, and we become a debt-free company. So you start to see cash flow generation occurring because of that. Now in terms of the pivotal Phase III that you would need, based on the other Phase IIIs I've seen in this space, I'm not anticipating this to be like a 1,000-patient trial or something. So I think it would still be within a manageable number, especially given that you're not going to hit all those expenses at once, you're going to see it spaced out over time. I think it's still possible to be able to do a pivotal Phase III just based on the cash flow from NERLYNX and remaining committed to being net income positive. Operator: With that, this does conclude today's question-and-answer session. I'd like to turn the conference back to Mariann for closing remarks. Mariann Ohanesian: Thank you for joining us today. As a reminder, this call may be accessed via replay at pumabiotechnology.com beginning later today. Have a good evening. Operator: Thank you, ladies and gentlemen, thank you for participating in today's conference call. This concludes our program. Everyone, have a great day. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd. Third Quarter Earnings Call. [Operator Instructions] And I would now like to turn the conference over to Phil Stefano with Investor Relations. You may begin. Philip Stefano: Thank you, Abby. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the third quarter of 2025 was issued earlier today and is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release. The risk factors included in our Form 10-K filed with the SEC on February 19, 2025, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark. Mark Casale: Thanks, Phil, and good morning, everyone. Earlier today, we released our third quarter 2025 financial results. Our performance this quarter again underscores the resilience of our business as we continue to benefit from favorable credit trends and the interest rate environment, which remains a tailwind for both persistency and investment income. These results reflect the strength of our buy, manage and distribute operating model, which we believe is well suited to navigate a range of macroeconomic scenarios and generate high-quality earnings. For the third quarter of 2025, we reported net income of $164 million compared to $176 million a year ago. On a diluted per share basis, we earned $1.67 for the third quarter compared to $1.65 a year ago. On an annualized basis, our year-to-date return on equity was 13% through the third quarter. As of September 30, our U.S. Mortgage Insurance in force was $249 billion, a 2% increase versus a year ago. Our 12-month persistency on September 30 was 86% flat from last quarter, while nearly half of our in force portfolio has a note rate of 5% or lower. We continue to expect that the current level of mortgage rates will support elevated persistency in the near term. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Our portfolio default rate increased modestly from the second quarter of 2025, reflecting the normal seasonality of the Mortgage Insurance business. Meanwhile, we continue to believe that the substantial home equity embedded in our in-force book should mitigate ultimate claims. Our consolidated cash and investments as of September 30 totaled $6.6 billion with an annualized investment yield in the third quarter of 3.9%. Our new money yield in the third quarter was nearly 5%, holding largely stable over the past several quarters. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance and $1 billion in cash and investments at the holding companies. With a 12-month operating cash flow of $854 million through the third quarter, our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. We remain committed to a prudent and conservative capital strategy that allows us to maintain a strong balance sheet to navigate market volatility while preserving the flexibility to invest in strategic growth. Thanks to our robust capital position and strength in earnings, we are well positioned to actively return capital to shareholders in a value-accretive fashion. With that in mind, year-to-date through October 31, we have repurchased nearly 9 million shares for over $500 million. At the same time, I am pleased to announce that our Board has approved a common dividend of $0.31 for the fourth quarter of 2025 and a new $500 million share repurchase authorization that runs through year-end 2027. Now let me turn the call over to Dave. David Weinstock: Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the third quarter, we earned $1.67 per diluted share compared to $1.93 last quarter and $1.65 in the third quarter a year ago. My comments today are going to focus primarily on the results of our Mortgage Insurance segment, which aggregates our U.S. Mortgage Insurance business and the GSE and other Mortgage Reinsurance business at our subsidiary, Essent Re. There is additional information on corporate and other results in Exhibit O of the financial supplement. Our U.S. Mortgage Insurance portfolio ended the third quarter with insurance in force of $248.8 billion, an increase of $2 billion from June 30, and an increase of $5.8 billion or 2.4% compared to $243 billion at September 30, 2024. Persistency at September 30, 2025, was 86% compared to 85.8% at June 30, 2025. Mortgage Insurance net premium earned for the third quarter of 2025 was $232 million and included $15.9 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the U.S. Mortgage Insurance portfolio for the third quarter was 41 basis points, consistent with last quarter, and the average net premium rate was 35 basis points, down 1 basis point from last quarter. Our U.S. Mortgage Insurance provision for losses and loss adjustment expenses was $44.2 million in the third quarter of 2025 compared to $15.4 million in the second quarter of 2025 and $29.8 million in the third quarter a year ago. At September 30, the default rate on the U.S. Mortgage Insurance portfolio was 2.29%, up 17 basis points from 2.12% at June 30, 2025. Mortgage Insurance operating expenses in the third quarter were $34.2 million, and the expense ratio was 14.8% compared to $36.3 million and 15.5% last quarter. At September 30, Essent Guaranty's PMIERs sufficiency ratio was strong at 177% with $1.6 billion in excess of apple assets. Consolidated net investment income and our average cash investment portfolio balance in the third quarter were largely unchanged from last quarter due to our share repurchase activity. In the third quarter of 2025, we increased our 2025 estimated annual effective tax rate, excluding the impact of discrete items from 15.4% to 16.2%. This change was primarily due to withholding taxes incurred on a third quarter dividend from Essent U.S. Holdings to its offshore parent company. As Mark noted, our holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At September 30, we had $500 million of senior notes -- senior unsecured notes outstanding, and our debt-to-capital ratio was 8%. During the third quarter, Essent Guaranty paid a dividend of $85 million to its U.S. holding company. As of October 1, Essent Guaranty can pay additional ordinary dividends of $281 million in 2025. At quarter end, Essent Guaranty's statutory capital was $3.7 billion with a risk-to-capital ratio of 8.9:1. Note that statutory capital includes $2.6 billion of contingency reserves at September 30. During the third quarter, Essent Re paid a dividend of $120 million to Essent Group. Also in the third quarter, Essent Group paid cash dividends totaling $30.1 million to shareholders, and we repurchased 2.1 million shares for $122 million. In October 2025, we repurchased 837,000 shares for $50 million. Now let me turn the call back over to Mark. Mark Casale: Thanks, Dave. In closing, we are pleased with our third quarter financial results as Essent continues to generate high-quality earnings, while our balance sheet and liquidity remains strong. Our performance this quarter reflects the strength and resilience of our franchise, while Essent remains well positioned to navigate a range of scenarios given the strength of our buy, manage and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital. We believe this approach is in the best long-term interest of our stakeholders and that Essent is well positioned to deliver attractive returns for our shareholders. Now let's get to your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. New notices were a bit lower than what we had, but the provision on those notices were higher. So any color on kind of just the makeup from a vintage or even geography perspective this quarter? Mark Casale: Yes. Terry, it's Mark. I wouldn't say there's nothing really to read out in terms of geography or trends. The one thing for you guys as analysts, we pointed this out a few quarters ago is just our average loan size continues to increase. I mean ever since for years, it was like $230,000. And when the GSEs started raising their limits and it really kind of picked up post-COVID. So our average loan size, if you just look through the stat supplement for the insurance force is close to $300,000. So again, larger loans when they come through kind of into default, it's going to be a larger provision. So I wouldn't read any more into it than that. I think the -- again, the default rate is relatively flattish. And I think from a credit position, there's nothing we're really seeing that concerns us at the current time. Terry Ma: Got it. That's helpful. And then maybe just a follow-up on the claims amount. The number was higher and also the severity. So like anything to call out there, like anything idiosyncratic? Or is there more of a trend? David Weinstock: Terry, it's Dave Weinstock. Yes, there's really nothing to point out there. A lot of that is going to depend on when we get documents in and when the claims are fully adjudicated and ready for payment. And so you're going to see fluctuations based on what the underlying claims are. But at the end of the day, there are not a lot of claims there. And the biggest takeaway really is that the severity continues to be well below what we're reserving at. So we're getting favorable results there. Operator: And our next question comes from the line of Bose George with KBW. Bose George: First, just on the ceded premiums, it was kind of the high end of the range. Is that a good level going forward? Or does that just bounce around depending on the timing of when you're doing the reinsurance transactions? David Weinstock: Bose, it's Dave Weinstock. Yes, it's going to bounce around a little bit based on default and provision activity. So it's seasonal. I think you saw the ceded premium being a little bit lower in the first half of the year, similar to where you see our defaults being more favorable and lower. And this is the seasonal second half of the year, as we've talked about, we definitely -- you generally see an uptick. And so you're going to see a little bit of an uptick in the ceded premium. Mark Casale: Yes. And also keep in mind, Bose, we raised the quota share this year to 25%. So that is going to create a little bit more volatility. At the end of the day, it comes through the wash, right? So in terms of the mix between the provision and expenses and ceding commission, but yes, it will bounce around a little bit more. So I'd be conscious of that in your models. Bose George: Okay. Great. And then just in terms of the tax rate, what drove the higher tax rate? And then just can you remind us just based on how much you're ceding, et cetera, where you think the tax rate is going to be over the next, say, 12 months? Mark Casale: Yes. I mean I think Dave alluded to it in the script, a lot of it is just a little bit of the tax friction moving from kind of guarantee to U.S. up to Bermuda and out to shareholders. So I think 16 and maybe a touch higher going forward. I would think through that with your models, I'd be relatively conservative those. And it really gets back to the fact that we're just distributing a lot more capital back to shareholders. And that's kind of a little bit of a signal that we don't really see it changing much, given where sitting with still $1 billion of cash at the holdco and kind of where the stock is right around bookish value. And I think we pointed this out last time in our investor deck, which will come out kind of post earnings, like the embedded value of the business, we believe, is much higher than kind of where we are today, right? And just again, it's simple math, it's nothing revolutionary. We have $6 billion of cash, $6 billion of equity. We trade right around $6-ish billion. It doesn't really give credit for the $250 billion of insurance in force that we have. And there's a significant embedded value. I think we've proven that over the past 10 years in terms of the cash flow. And just look, again, just we generated $854 million of cash flow over the last 12 months. So based on that and where we're -- just given the capital position, and we're still generating unit economics kind of in that 12-ish to 14-ish range. We think it's the best value. So I think we'll continue to do that. But there, again, it just getting the cash out is -- creates a little friction. But I think from a shareholder perspective, we'll pay a couple of extra bucks on the tax rate. But I think from lowering the share count and kind of delivering value to shareholders, it's a little bit of a no-brainer. Operator: And our next question comes from the line of Rick Shane with JPMorgan. Richard Shane: I'm looking at Exhibit K and one trend that is pretty consistent is the increase in severity rates, and that makes sense given slowing home price appreciation and vintage mix. It was 78% this quarter. I'm curious, long-term where you think that could go? Are we sort of asymptotically approaching the limit there? Or are we -- should we expect that to continue to rise? Mark Casale: Yes. I mean I wouldn't -- I don't know if you would expect it to rise. Again, we -- the provision is at 100, Rick, just so you know. The embedded HPA in the book is still kind of 75-ish. So I mean, in terms of mark-to-market LTV. So some of it is just timing, right? If somebody from the later vintages kind of call it, '23 or '24 goes into default, there's going to be a higher provision or if they go into claim, we're going to pay a higher claim there because they have less embedded value. But taking a step back just at the portfolio level, we're not going to get too fussed about it, Rick. I mean, again, you're talking about a relatively low losses. And remember, just -- and we point this out every quarter or 2, just what the real risk is in our business, right? Take from my seat, Rick, we own that first loss position, right? So call it 2 to 3 claims out of 100. We hedge out from above that kind of into that 6, 7 range, and we reattach above that. That's the risk in the business, right? We are a specialty insurance type business, almost like a cat where our catastrophe is a severe macroeconomic recession. And that's when we hold capital when we think about PMIERs, we think about the different stress tests that we run, whether it's Moody's Constant severity S4, the GFC, that's when we come in and think about it week-to-week or month-to-month. That's -- we're focused really on making sure we're fine there, and we clearly are given the amount of capital that we're using to repurchase share. So getting back to this, again, we clearly look at it. I think we're conservative in how we provision just from a severity standpoint because I think that's -- the severity is an actuarial -- I mean, the provisions is an actuarial-based model. So we don't really mess with it quarter-to-quarter, even year-to-year that much. So again, I'm just trying to -- from a big picture standpoint, sure, you're going to try to point out trends. And Terry pointed out the trends around the new notices, those are all good. That's like you guys have to do that for your models. But I think taken like a step back, the biggest metric for the quarter, Rick, is we produced $854 million of cash over the last 12 months. So again, not trying to get too high level, but I mean, I think it's important to kind of put context around some of these numbers. Richard Shane: No. Look, it's a fair point, Mark. Given how low losses have been for so long, a modest dollar movement looks like a larger -- looks like a significant percentage movement. And I think we're all sensitive to that and trying to sort of, I think, understand what the normalized returns on the business are? And do you think we are approaching those levels? Or -- and look, you've enjoyed an extraordinary period for a long time, for a whole host of reasons that we've all talked about. But as the business normalizes and sort of reverts to the return levels that the two of us spoke about a decade ago? Or do you think we're getting there now? Mark Casale: No, it's a good question. And Rick, we've been studying this. So let's go back in time, right? Let's start with 1990, which is really the beginning of the modern day Fannie and Freddie. And let's just go with the last 35 years. If you take away the GFC, which it's hard to do, but just to stick with me here for a second, the average loss rate on Fannie and Freddie back loans is less than 1%. That, I believe, is actually -- so it's not this, "Oh my goodness, we have such a good run, when is it going to end?" This is it. This is the business. It's a great business. You're talking about, and again, and some of the things that caused the great financial crisis because you don't want to ignore that. And the reason we like the business, coming out of the crisis, you had the Dodd-Frank qualified mortgage rules. So 35% of the loans that were done during the crisis, they no longer qualify. They literally got the RIF-wrapped out of the industry. So that is now either going, it's going to either FHA or it's going to kind of non-QM or they're not being originated, which is the most case. A lot of those borrowers are ending up in single-family rental. It's a great outcome for them, right? So then all of a sudden then you add in the increased, I would say, sophistication of DU and LP at the GSEs, their quality control has gotten significantly better. I mean, over the last 15 years. So all of a sudden, the credit guardrails around our business are exceptional, and we don't see it changing. Unless there's something happens with GSE reform, and clearly, we look at that. But as long as the market is where it is today, this is a very narrow fairway. And so we don't see really credit changing that much. It's hard. I mean, actually, our credit for this -- the last 2 quarters, Rick, was the best FICO's we've had since we started the company. So -- and part of that's affordability, part of it is affordability, like just folks are having a harder time qualifying. But the credit quality in this business is exceptional. And just from a public policy standpoint, 65% of our borrowers are first-time homeowners. I mean, I was with a young guy last week who just got mortgage insurance through one of our clients. He's paying like $65 a month. You put 10% down. I mean you can't beat it. It's a great value to the customer, which you always want to have, right? The borrowers is our ultimate customer, and then I think the math for us. So I would say from -- and some of our longer-term investors kind of know this clearly, I would stop and one of our other analysts has always asked me, Mark, is this as good as it gets? Guys, It's been good for a long time. I mean -- and I don't really -- again, there's going to be some volatility Rick, quarter-to-quarter or year-to-year. Look, If unemployment goes up, we're probably going to pay some losses. But remember, we're kind of capped until we hit until we go through that mezz piece. So it's relatively well boxed. Hence, our confidence in paying the quarterly dividend and right now in terms of where we are returning capital to shareholders has been quite a shift the past 12 months, but part of it was we've just continued to accumulate cash and we've had this retain and invest mentality. We just haven't invested in anything. And so we look at it now and say the best investment we can make is in the company. And if we keep this pace up, Rick, every time you repurchase shares, our long-term owners, which include the senior management team, we own a little bit more of the company. And if I'm going to own a business, this is my favorite business. So we'll see. So sorry for the long-winded answer, but I want to again try to give some of the investors on the phone some context. Richard Shane: No. Mark, look, I appreciate it. And I suspect there are some folks who are listening to this call imagining the 2 of us on rocking chairs debating the stuff. And that's okay, too. I appreciate the answer. Operator: [Operator Instructions] And our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I actually want to follow up on Rick's last question there about just about the guardrails, around underwriting currently. I think there was news yesterday about Fannie removing the minimum credit score requirements. There's been some noise out of Washington about trying to do -- play a more active role in housing or lower increased housing demand, if you will. And I was just wondering from your seat, are you seeing any signs of that? Are originators trying to get more stuff underneath, gets more stuff approved that maybe wouldn't have been -- they wouldn't have tried a couple of years ago. Just wondering what that looks like. Mark Casale: It's a good question. There is a lot of noise around kind of credit scores and Vantage and Fair Isaac and Vantage can qualify more borrowers, all those sort of things. The reality is, Mihir, the GSEs haven't changed their systems yet. So until that happens, there's really not going to be changed. So like a lender would be unable today to kind of "get something past the GSEs." It gets back to my point, the GSE's, their systems are fantastic. And in terms of DU and LP, very sophisticated. And if they do get through it, they're most likely their QC and repurchase program, they're going to put that back to lenders. So lenders have I think lenders have really understood that the game today, and you're seeing some of the bigger lenders do it, the game today is all about lowering and being efficient on origination cost. That hasn't always been the case. So if you go before the crisis, what would happened is if you get a small or midsized mortgage banker, and all a sudden production is down, they immediately go to credit expansion right? I wouldn't normally do that loan, but I have fixed costs, I'm going to try to get that loan in either through the GSEs or to whole loan buyers. You can't do that today. I mean, whether it's -- you're trying to get it through the GSEs, you're trying to go through some of the larger correspondent purchases like PennyMac, whose systems are also excellent. And it's not going to happen. So you're almost -- you have to either you have to manage costs. And again, from a credit provider, that's exactly where we want it. So we're not too worried about it. And if it were to go, we mentioned this last call, if it were to change, right, and I'm not saying it's going. If it were to change and you could have like kind of a wider fairway, so to speak, so more things qualify. The fact that our credit engine doesn't really rely on FICO, we're really -- we're almost credit score agnostic. We're looking at the 400 kind of variables underneath that along with things in the 1003, we're not too worried. We can see through that. In fact, our model works better when things are a little bit more disparate, so to speak. It doesn't work as well in a market like this. It kind of works more from a premium standpoint, picking and choosing, but credit, not -- you almost don't really need it from a FICO standpoint. So again, I think I would look at it that way. I think it's something that we're pleased with, but I don't see any kind of chink in the guardrails to date. Operator: [Operator Instructions] And our next question comes from the line of Doug Harter with UBS. Douglas Harter: Can you talk about your plans to upstream capital from the MI subsidiary? It sounds like you have a lot of capacity left for the year. Do you plan to kind of spill that over or do a large dividend in the fourth quarter? Mark Casale: I think it's pretty consistent with the dividends. It might be a little bit larger in the fourth quarter for sure. I think, again, as we look at kind of PMIERs, Doug and credit and where it's going, we feel comfortable continuing to upstream cash from Guaranty to U.S. Holdings. And as I said earlier, there's a little bit of friction getting it back to the group level, but that's -- and that's not the worst problem to have. And also, we have the quota share reinsurance, that's one of the reasons we took it up to 50% earlier this year. That's another kind of backdoor way to get cash up to the holdco. Douglas Harter: And then you -- obviously, you bought Title a little while ago. Can you just talk about how you're thinking about the benefit of the great business that is MI versus looking to further diversify and have other avenues of growth? Mark Casale: Yes. I mean I think right now, it's a good question. I think Title has performed pretty much in line with what we thought, if we would have thought rates would be this high, to try to be honest with you. I think if rates go lower, we're very levered to rates given the lender focus of the business. We have an underwriter. It's really kind of in it's still small stages growing primarily in Texas and Florida and a bit of the Southeast. That's kind of the purchase angle of the business, but it's small. So the real lever is lenders and refinance. And we've continued to add lenders, we're working on developing a new system. We're still building the business out per se, and we're fine with that. So it's kind of in corporate and other, Doug. And think of that almost as like an incubator. So again, if it gets big enough, it will pop up as its own segment. If it stays small, it stays small. And that could happen. And clearly, Essent Re has some opportunities outside of mortgage. We haven't really done anything yet, but there's things that we look at. So I would look at it as another "incubator". We kind of call them call options. But for the time being, clearly, the focus and where the cash flow is coming in from the MI business. And when we look at investment opportunities whether it's title, other acquisitions that come to us, we still feel at this time, our stock is the best value, and we're kind of voting with our feet there. And I don't really expect it to change absent like some large movement in the stock. And then if there's a large movement in the stock, which it's -- it would be nice per se, but not necessarily. If you're in the business of buying back shares and shrinking ownership, this isn't the worst place to be in. If the stock were to move outside of our range, we would probably do like a special dividend. We'll continue to look for ways to get capital back to shareholders. But given just how good the MI business is today we would need to -- again, there's going to have to be a good reason for us to do it. And I look at it, if you're looking at a way to kind of quantify it, our book value per share today is right around $60. It's a tad below 58-ish. It will finish -- my guess is it will finish the year around $60 Doug. So if we look and say, hey, we're going to grow it, 10%, 12% a year, which we've been doing, that book value per share over the next 4 or 5 years is going to be $85, $90, right? It's big picture, right? Just looking at the numbers. So as we look at an acquisition, it's going to have to either help us increase that book value per share target or achieve that book value per share target sooner, all else being equal or making us a stronger company and things like that. There's other factors in there. That's a pretty high bar. That's a pretty high bar. We kind of know this business well. And like what I've said, just in my response to Rick earlier, this is such a good business. We're a little bit spoiled and in terms of how good the business is, again, there's going to be some bumps along the road. There always are, but that's why you have capital, right? You have capital to withstand those bumps and reinsurance is another form of capital. We expect kind of those expected losses per se. And then you have capital on reinsurance for unexpected losses, they'll come, but that's what we're prepared for. We don't necessarily try to sit down and say, where is the market going? We try to prepare for every different avenue that the market potentially could go down. I mean, that just comes with experience. We've been doing this for quite a while. But that being said, so to sum it up, the investment right now continues to be an asset. I don't expect that to change absent something really special comes along. Operator: And there are no additional questions at this time. So I will now turn the conference back over to management for closing remarks. Mark Casale: Thanks, everyone, for their time and questions. And have a great weekend. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the EcoSynthetix 2025 Third Quarter Results Conference Call. [Operator Instructions] Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on EcoSynthetix risks and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 18, 2025, which is posted on SEDAR. This morning's call is being recorded on Friday, November 7, 2025, at 8:00 a.m. Eastern Time. I would now like to turn the call over to Mr. Jeff MacDonald, Chief Executive Officer of EcoSynthetix. Please go ahead, sir. Jeff MacDonald: Thank you. Good morning, and thank you all for joining us. Yesterday afternoon, we reported our third quarter results. We're seeing good momentum across our core end markets. Sales were up 11% year-over-year. But more important in my view, is the strong demand we're seeing in our key end markets, specifically pulp, tissue, wood composites and personal care. In our view, it has led to higher quality revenue and an evolution in the composition of our book of business. We've largely diversified away from legacy graphic paper into these new end markets that can have a meaningful impact on our growth. Each of pulp, tissue and wood composites drove significantly stronger volumes in Q3 than the same period last year, well beyond 11%. We're making good progress with the account that is a leading global pulp manufacturer. They continue to invest resources to support the product that uses our SurfLock strength aids. They're also increasing the promotion of their product with end customers, driving awareness of its benefits through publications and social media as well as direct promotion and support around the world by their team members. Key players in their market are trying the new product. The broader market dynamics also support its adoption. The market price differential between more expensive softwood fiber remains well above $200 a ton globally compared to the lower-cost hardwood fiber. That is driving the use of hardwood pulp to be a top priority for any manufacturer that uses pulp in their products, and that's exactly where we help. Softwood fiber has greater strength than hardwood fiber or recycled fiber. Our strength aids enable the production of pulp with superior mechanical properties or the production of paperboard and tissue with lower-cost fibers while retaining the required strength. At the beginning of the year, demand for our strength aids from the global pulp manufacturer was approximately $1 million on an annual basis on their first line. They've now increased their run rate to more than $3 million a year on that line. They operate multiple lines, and we're on one today. We believe the market potential for Surflock could exceed $50 million at this customer. And while they are a leading global player, they have less than a 20% share of the global pulp market today. We believe the pulp end market is set to be a major component of our growth. On the tissue front, we won 2 new tissue accounts during the quarter. These wins were a result of our work with a European distributor, the R&M Group. R&M is one of several distributors that we're working with as part of our go-to-market strategy in the tissue and packaging end markets. R&M is a great example of the type of high-quality partners we've identified. They have a long track record of success in this industry and others of growing new chemistries and driving adoption based on the product's benefits to manufacturers and the strong support they provide. They're an impressive organization, and we believe there's more runway with them while we work to replicate this success with others as well. One of the key measures of our success to date in the tissue end market is our ability to drive repeat wins. Every one of our wins this year in tissue is a repeat win with an existing customer or a new customer that has already moved to a second line. Every account that we're commercial with in tissue now has multiple lines using our strength aids. They've proven it once and repeated it at additional mills. In the case of one smaller regional tissue manufacturer, we are now commercial across all of their mills as a result of another distributor relationship we work with in Europe. That repeatability with accounts that have really dug in and invested to drive it across their organization is a telling sign of how well our strength aids are working in the tissue end market. In the paperboard and specialty end market, we are running ongoing trials and volume expansion programs with existing accounts. Paperboard is a more complex trial program, which takes longer than tissue. But once commercial, the lines use more product than a tissue line, so the opportunity per line is larger. Just before turning to wood composites, one dynamic we're seeing play out in the broader pulp and paper market is consolidation. There have been a number of interesting and significant transactions this year. Large integrations can be complex and distracting, but we believe some of these consolidations could be a benefit to us in the longer term with the potential for broader adoption of our technology with players that already use our strength aids or binders, which once again speaks to the repeatability theme. In wood composites, progress continues at our key strategic account that is an international retailer, which is backward integrated into wood panel production. We experienced increased demand from them, both during Q3 as well as on a year-to-date basis compared to the prior periods. They've driven usage of our binder across more SKUs at the first mill. Part of the reason for that growth has been our continued push for innovation and improving the value of our product even over the course of this year. We've reached a stage now where we know we're very competitive on a cost basis, even cost advantaged over the incumbent solution at certain points this year. They're conducting regular runs of our product at a second mill now, but they're starting from a very small base. We believe their intent is to grow their usage at the second mill step by step as they build success and confidence just as they did at the first mill. I recently participated in a group panel discussion at an industry conference where our key customer was also present. They continue to act as thought leaders in the sector with a clear commitment to drive down their carbon footprint through the use of bio-based glues in panel production. They remain as committed as ever to reaching their 2030 targets, and that will require the other players in the market that produce wood panels for them to pursue bio-based solutions that are cost competitive and deliver the required performance. And we're a proven enabler of that change based on our work with the international retailer. Moving over to Personal Care. I often refer to this end market as a warrant on our growth. I still believe that today, but I'm becoming even more confident in it. We're seeing an uptick in demand from our marketing and development partner, Dow. It's still off a small base relative to our other end markets, but it's encouraging. Dow is building momentum with some of the smaller brands at top 10 players in the space. It's a positive sign that Dow's all-natural formulations are being proven in new niche products, but with big players gaining exposure to them. Lastly, a quick update on our work here in Burlington at the center of innovation. The productivity improvement that we've seen since internalizing our North American production base here at the COI has been great. Having the full team and production under one roof has increased the cycle time on both the commercial production and the research and development side. We believe the footprint we have today with a tolling operation in Europe, serving Europe and Asia and the COI serving the Americas provides greater flexibility and optionality for both sourcing raw materials and serving our accounts most effectively. And with that, I'll turn it over to Rob to review the financials. Rob? Robert Haire: Thanks, Jeff, and good morning. Net sales were $5.8 million in Q3 ' 25, up 11% or $600,000 compared to the same period in 2024. The improvement was primarily due to higher volumes of $500,000 or 10%. As Jeff mentioned, we're seeing higher volumes at our strategic accounts in tissue, pulp and wood composites. Net of manufacturing depreciation, gross profit as a percentage of sales was 34.2% in the quarter compared to 36.8% in the same period in 2024. The change was primarily due to higher manufacturing costs due to product mix. Gross profit was $1.7 million in the quarter, unchanged from the same period last year. SG&A expenses were $1.8 million in the quarter compared to $1.5 million in the same period in 2024. The change is primarily due to higher salary and benefit costs as well as higher repairs and maintenance costs during this quarter. R&D expenses were $390,000 in the quarter compared to $560,000 in the same period in 2024. The change is primarily due to higher product scale-up costs, which we incurred in the prior year as well as lower asset depreciation. R&D expense as a percentage of sales was 7% in the quarter. Our R&D efforts continue to focus on further enhancing the value of our existing products and expanding our addressable opportunities. Adjusted EBITDA was $200,000 in the quarter compared to $360,000 in the same period in 2024. The change was primarily due to higher operating expenses, partially offset by higher gross profit when adjusted for noncash items. We've reported positive adjusted EBITDA in 4 of the last 5 quarters, and we are adjusted EBITDA positive on the last 12-month basis. While we still expect some lumpiness in our results from period to period, we are very close to consistently reporting positive EBITDA on a go-forward basis. As of September 30, 2025, we had $30.4 million of cash and term deposits compared to $32.2 million as of December 31, 2024, representing a change of $1.8 million. During the first 9 months of 2025, we invested $1 million to purchase and retire 346,000 shares. We also increased our working capital investment, primarily due to $1.2 million higher inventory compared to December 31, 2024. We have demonstrated our ability to responsibly manage our cash reserves through multiple cycles while continuing to invest in our long-term growth strategy. With that, I'll turn it back to Jeff for closing comments. Jeff MacDonald: Thanks, Rob. Through the course of 2025, we're seeing significant demand growth in our key end markets, pulp, tissue, wood composites and personal care. Our ability to successfully diversify into new strategic markets through innovation and strong customer support has set the stage for sustainable and profitable longer-term growth. The composition of our revenue base is of a higher quality today. Our improving gross margin profile demonstrates that. It's indicative of the shift in our book of business to more strategic and higher-value applications of our technology. The demand outlook from our key accounts in pulp and wood composites underpins our confidence. Each account continues to publicly highlight targets that align directly with increased usage of our strength aids and binders. In pulp, the strategic account has identified a multimillion metric ton opportunity for the increased use of hardwood fiber to offset pricing and capacity constraints of softwood fiber. In wood composites, it's the strategic accounts 2030 plan to reduce its carbon footprint through the use of bio-based glues. Successfully supporting the demand profile for these 2 accounts and their supply chains position us for a significant step-up in growth over time. These opportunities are augmented by our momentum in the tissue end market and personal care. We're engaged with the right players in our core end markets to deliver for shareholders. And with that, I'll ask the operator to open up the call to your questions. Thank you. Operator: [Operator Instructions] Your first question comes from Brian McIntyre. Unknown Analyst: Let's start with Surflock on the pulp side. Last quarter, you had a second purchase order from a major pulp client. And then you said in the release that they're adding additional resources. Can you maybe just define what that means and what feedback you're getting with respect to the client reception to their product? Jeff MacDonald: Yes, sure. So we're seeing an increased number of people simply in major centers around the world that are educating customers on their ability to use more hardwood fiber. And those teams are actually online helping customers to implement their enhanced hardwood fiber solution. That team has expanded over the course of this year. And I guess in parallel to that and part of how we see this is they're putting out some really interesting publications in some of the technical journals in the market on the use of their hardwood fiber and lots of social media hives and explanations of how well this is going from their side. So that's what gives us some confidence that their end marketing efforts are going well. We're seeing and hearing about them more and more out in the market in the broader pulp use space. Unknown Analyst: Jeff, have you seen any additional players take note and start to accelerate their interest in the product? And on that front, are you seeing -- what can you say with respect to the cadence of trials or service providers? Is that increasing in terms of the number and volumes? Jeff MacDonald: Yes. So I guess we should probably separate those. So on the pulp side, our first customer has been at this now for a while, and it is a major undertaking when you consider the scope of a pulp mill. Absolutely, others in that same space have taken interest and have, let's say, an early start in that work. Our initial customer clearly has a lead. In the end markets of tissue and paperboard, we have continued to expand through the course of this year, the distributor relationships that have proven to work really well. We did a press release together with the R&M Group of their success. And I really consider them to be a model of the kind of partners we need to be looking for in their capabilities, their approach to business, their -- including their financial strength, their ability to support their customers. So we're really happy with that one, and that becomes a model for replicating it elsewhere. We're actually -- we're seeing distributors where we had to search them out at first. Some that even we may have had some initial discussions with have recently come back and said, "Hey, that thing you told us about, we're hearing more about it. Can we reopen those discussions. So I think that's going really well, and it shows that the market is really taking notice of what we're doing. Unknown Analyst: Okay. So in your press release, you say that pulp could be a major component of long-term growth. I'm just wondering, to the extent you have visibility, how should we think about maybe a cadence in terms of volume growing here? Jeff MacDonald: Yes. I guess that's probably the most challenging part of where we are right now. We're excited. It's showing up in our numbers. Our customer is clearly investing a lot. I'll put it in the tens of millions of dollars in their efforts to push this forward. But I'd also say, like for them as such a large entity and this being such a major undertaking, I think it's still pretty early for them. So our visibility is not great today. What we're relying on is the ramp-up, the consistent ramp-up in the need for our product to say that it's going well and maybe what we might need to be prepared for 6 months out. The good news is that our operations, both of them are fully capable of delivering this product, and we've added some suppliers within our supply chain to make sure that, that doesn't become a constraint. We're actually also making a pretty significant investment right now in Europe in putting some more tools in place within the operation to be able to flexibly use more raw materials and have raw materials on hand that we need to support this. So we're ready to go. The press release we put out was -- the whole thing was in pretty short term. So things were going really well, and they placed a quick call to us requiring more product in fairly short order. And what we did was demonstrate to them that we can unlock both operations simultaneously and get them what they needed in the rapid time frame they had asked for it. So that gave them confidence. It also showed ourselves just what we can do to make these operations work to serve a big opportunity. Unknown Analyst: In your prepared remarks, Jeff, you mentioned -- I thought it was very interesting, you mentioned vertical integration of pulp producers into the tissue market. Wouldn't it be a natural evolution for potential pulp producers moving into tissue to utilize your product as well? Jeff MacDonald: I don't think I quite put it in that detail, but there is some interesting consolidation going on. And there are players that in history, in their history as organizations are backward integrated to pulp. And certainly, their understanding of hardwood pulp flowing all the way through to tissue has helped with our efforts in one customer in particular, at both ends of the business where we're working with them in tissue and also working with them back upstream in the pulp end of their business. There have been some other -- I think what you're probably referring to some interesting ventures between pulp manufacturers and tissue manufacturers where, in my view, if it's been proven in tissue for one of the players, it seems to be a no-brainer to then roll out those results at some of the new operations you have under your fold. So I think stuff like that can be an accelerator for us. Integrations can sometimes be sort of messy and distract people, but the savings we offer, I think, can play right into like the synergies that these companies are reporting in coming together under new consolidated entities. So we see it as a net positive for sure. Unknown Analyst: Okay. Just I want to go back to one of the questions I asked just in terms of the range of trials ongoing, your progress with service providers. Can you give us maybe a ballpark in terms of the percentage increase or number of trials that are ongoing just to get a range of how much momentum you have? Jeff MacDonald: I can't give you an exact percentage, no. But like our trial activity is well up again over the course of this year. And that's partly with existing service providers having more experience and fanning that out. but it's also through the addition of some new service providers as well. So momentum continues to build. We're actually seeing tissue wins come through on a quarterly basis now. So that's the best direct indicator we have. I noted them in my comments, and we also did a press release to highlight 2 of them that just came in through the R&M Group. So that momentum is definitely building and the pipeline behind it is building as well. Unknown Analyst: Okay. I'm going to switch gears here for a second. I think maybe the most exciting new news in the press release was what you alluded to with respect to Dow. And maybe can you elaborate on what's progressing so well there? And I guess with respect to that, should we anticipate some potential news here and the potential for it to hit the bottom line in 2026? Jeff MacDonald: I mean they're certainly sounding like they see bigger things ahead, which has got us excited. But what we see that we can count so far is just a steady increase in their business to the point where the results you see in this quarter has an impact from their contribution, a meaningful impact in the direct results as well as the growth, the profitable growth. I think the biggest indicator, as I referred to, is that while the wins that they've had leading up to today have been niche brands that maybe haven't been tied to a major brand in many cases. But what we're seeing within this year is some of those smaller brands within the portfolio of large personal care companies. So think about kind of the top 5 personal care companies, we're seeing some wins within their portfolios. And what that says to us, and it's backed up by discussions with our partner is that there's more trialing activity in those kind of products and in larger products as well that's progressing quite well. So it's showing up in the numbers more and more, building off like a very small base at first to the point where it's a meaningful contribution now to our bottom line and some good signals of good stuff to come. Unknown Analyst: And just remind us the margin profile, why it's such an attractive margin profile in that business? Jeff MacDonald: Yes. It's -- I'll just put it in -- it's roughly 3x what our normal margin profile would be. Unknown Analyst: Okay. Wood products, maybe just -- you talked about it a little bit in terms of progressing with Line 1 and 2 now, I guess. Maybe update us with respect to the external clients? Is there a progression on that front? Jeff MacDonald: I would say there's progression in terms of being ready. It was interesting to be at the Wood industry conference a few weeks ago with the end customer and some of their supply chain and to see some of those discussions and that push happening. I think at the beginning of that conference, and I do think there was maybe a bit of a turning point in thinking at that conference. I think at the beginning of the conference, you had some skeptics as to whether the big market leader was going to stick to its 2030 commitments. But they made it super clear that they're not coming off those commitments and that they feel the solutions are already in place for them to get there, and it's just about driving them forward and those that are with them are going to be with them and those that aren't going to be with them. And they were already encouraging the industry not to look at who else could squeeze in there for that 2030 goal. They called that a done deal. They were already talking about how can you help us for our goals beyond 2030 now because that's the time frame we're thinking of. So they consider this now operational. They consider it proven, and they're clearly pushing their supply chain to get on board as well, along with their continued implementation of the solution. So that was encouraging. Unknown Analyst: Yes, for sure. So if they maintain their 2030 emission targets, should we not start to see things ramp up quite meaningfully in the next year or so? And what does that mean in terms of the potential addressable market for you? Jeff MacDonald: Yes. It's not a long time now for such a level of industrial change out to 2030. And so the needs of that one customer equate to roughly 17 lines of production. And for us, that would require somewhere between $50 million and $60 million worth of DuraBind products to support. So that's kind of the time frame and the magnitude that we're faced with today. It's a lot of change, but we're ready to support it. And I think they've now got the teams in place. And I think they've done enough with a few suppliers that the readiness is there in their supply chain to get there as well. So it was just -- it was great to hear that they are so emphatic about sticking to that goal. Unknown Analyst: For sure. So we have $50 million in pulp, we have $50 million in wood products. I guess I see where you're confident lies in terms of hitting this $100 million top line target. What needs to happen for you to really go out there and put a time frame on this? Jeff MacDonald: Seeing the trajectory in getting there. So far, it's been about replacing the legacy business getting things happening in a commercialized way with these key leaders in each of these segments, which I think we've done now. I don't think any company our size could hope for a set of first adopter customers like we have to drive this success. And now it's just -- it's really seeing the momentum step by step that puts us on that path toward $100 million. And as soon as we can see that trajectory, then we'll stick a pin on it again. Unknown Analyst: Okay. And you feel like -- it really feels, Jeff, like we've hit this inflection point now that we should start to see that trajectory start to move up in 2026. Is that fair? Jeff MacDonald: Yes, it is for sure. And I think you said it's $50 million to $60 million with one opportunity, $50 million to $60 million with another. Keep in mind, like that's serving one customer in one segment and one customer in another segment. And I think what makes us even more excited is that those are the thought leaders in those spaces. And if they really go, then the rest of the market follows them. And that's historically proven over changes with the leading retailer. And certainly, from a cost perspective, if the leading pulp manufacturer goes in that direction, others have to follow. Unknown Analyst: No, I agree. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Jeff for closing remarks. Jeff MacDonald: Okay. Thanks very much again to everybody for joining us, and we look forward to checking in with you again soon. 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: Thank you for standing by. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Miami International Holdings, Inc. Third Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to turn the call over to Andy Nybo, Chief Communications Officer. You may begin your conference. Andy Nybo: Good afternoon, and thank you all for joining us today for MIAX's third quarter earnings conference call and our first earnings call as a public company. With us today are your host, Thomas P. Gallagher, Chairman and Chief Executive Officer; and Lance Emmons, Chief Financial Officer. We also have Douglas Schafer, Chief Information Officer; and Shelly Brown, Chief Strategy Officer on the call, who will participate in the Q&A session today. Everyone should have access to our earnings announcement, which was released prior to this call. We have also published a slide presentation to accompany the press release. In addition, this call is being webcast and an archived version will be available shortly after the call ends. All of these materials can be found on the Investor Relations section of our website at ir.miaxglobal.com. We want to remind everyone that part of our discussion today includes forward-looking statements, which are based on the expectations, estimates and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our press releases and filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results, financial condition of MIAX. We undertake no obligation to update any forward-looking statements made in this announcement to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. During the call today, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. With that, I'd now like to turn the call over to Tom. Please go ahead, Tom. Thomas Gallagher: Thanks, Andy, and welcome to our third quarter 2025 earnings call. We're excited to have you join us for our first call as a public company and appreciate your interest in MIAX. Today, I will provide high-level third quarter results and a brief overview of MIAX, followed by Lance walking through our third quarter 2025 financial highlights, and then we'll open it up to your questions. For the third quarter, MIAX delivered strong results, growing net revenues 57% year-over-year to a record $109.5 million. These results were primarily driven by elevated industry options volumes and increased MIAX market share. Our market share in multi-listed options grew to a record 17.2% in the third quarter, up 24% from the prior year period. Furthermore, our successful IPO in August of this year represented a significant milestone that increased our access to capital markets and further enhanced our brand awareness. The proceeds from the offering allowed us to retire $140 million of debt and build a strong cash position. I'll now take a few minutes to walk through our value proposition and the factors supporting our long-term growth. MIAX is a technology-driven leader in building and operating regulated financial markets across multiple asset classes. Since our inception, we have built and launched 4 Options exchanges and 1 Equities exchange. We've also grown strategically through acquisitions. And since 2020, we've acquired 2 futures exchanges and clearing houses, 2 international exchanges and a futures commission merchant. This broad portfolio of licenses supports our growth initiatives and allows us to offer new products designed to meet the needs of a multitude of investor segments, both domestically and internationally. Our vision remains to cater to the needs of our customers and trading community and serve as the exchange of choice by delivering best-in-class technology, customer support, risk protections and reliability. A critical differentiator for MIAX is our commitment and focus on technology, which is the lifeblood of an exchange. Importantly, MIAX differentiates its technology by providing low latency, high throughput and industry-leading determinism, which serves as the foundation of our technology-first customer-centric approach to building innovative marketplaces. When we built our technology infrastructure, I'd like to say we built the church for Easter Sunday. Even when volume and quote traffic spikes in periods of extreme volatility such as the 2020 COVID outbreak or what was experienced in April of this year, we were ready and our technology performed without issue. In fact, these high volatility events reinforce our reputation for providing best-in-class technology. We understand the importance of continuing to invest in order to provide our members with high-performance technology to support their activity in today's rapidly evolving derivatives markets. Broadly, the options market is experiencing significant growth. Multi-listed options volumes are surging to record levels, with industry third quarter 2025 average daily volume of 56 million contracts, up 26% year-over-year. September industry ADV reached 61 million contracts while October ADV reached 67 million contracts. This growth has been driven by periods of elevated volatility in certain market sectors as well as continued strong demand from a range of market participants, especially for shorter exploration options products. While many industries and businesses are volatility adverse. For MIAX, volatility creates an increased need for risk management tools. As we look ahead, we continue to expect elevated volatility due to geopolitical tensions, uncertain trade policy and an evolving interest rate policy. Additionally, structural tailwinds, including increased retail participation which has begun extending into the futures markets and growing international investor demand are creating secular growth opportunities as we launch new futures products. Just as retail trading growth has fueled record options volume, expanding retail participation in futures represents another significant opportunity alongside our comprehensive product expansion pipeline. Our focus remains on offering technology designed to support the needs of our market makers by providing high throughput, low latency and highly deterministic technology with industry-leading risk protections, we allow our market makers to have greater confidence in their ability to properly manage their quotes and risk during volatile markets, offering those market makers the ability to quote more aggressively. For the retail investor, this means tighter and deeper markets, not just during normal trading, but also during times of volatility when liquidity is most in demand. In options, we see additional growth potential from a number of areas, including short-dated expirations for the most actively traded stocks, options listings on new IPOs and the use of options in structured product listings, all of which support higher industry volumes. Furthermore, we launched our new MIAX Sapphire trading floor in Miami in September. This state-of-the-art facility, which we built to address customer demand allows us to capture the additional volume opportunity in multi-listed options while bringing greater efficiencies to floor brokers and market makers. Miami has emerged as a major global financial center and is quickly becoming Wall Street South, and we're proud to have expanded our presence in our namesake City. We remain excited about the substantial growth opportunities in options as an asset class, driven by continued elevated global volatility issues that support the ongoing use of options for dynamic risk management. Moving to our growth initiatives. We continue to cultivate collaborative and strategic relationships across the industry that we are leveraging to introduce new and innovative proprietary products. In our Futures business, the launch of the new MIAX Futures Onyx trading platform at the end of June brings the MIAX technology advantage to this new asset class and offers MIAX the ability to list a range of new futures products. We plan to list futures on the Bloomberg 500 Index in collaboration with Bloomberg, starting in Q1 2026 with futures on the Bloomberg 100 Index to follow. Importantly, the new financial products will trade in a data center located in close proximity to U.S. equity markets, allowing our market participants to reduce potential latency in their trading strategies. Additionally, the Bloomberg 500 Index and Bloomberg 100 Index Futures products will clear at the Options Clearing Corporation, which is the central clearinghouse for all U.S. listed options. This provides our members with improved margin efficiencies in their equity derivative trading strategies. We believe these Bloomberg Index futures will provide the foundation for a broad portfolio of equity index derivatives we plan to offer on MIAX futures. Now moving to our Equities business. Our current focus is to maximize revenue by continuing to improve our capture rate and profitability. We continue to believe our presence in U.S. equity markets positions us to leverage a range of opportunities, including market data and adjacent assets. With the acquisition of the International Stock Exchange, or TISE, in Guernsey, we have expanded our ability to offer listing services to global debt issuers beyond what we currently provide through the Bermuda Stock Exchange. The TISE acquisition provides us with access to the European and U.K. markets and a valuable license in a respected regulatory jurisdiction. This helps accelerate our growth strategy by utilizing both BSX's and TISE's numerous international recognition and expertise in their respective products and markets. Now I'll turn over the call to Lance to provide details on our third quarter financial performance. Lance Emmons: Thanks, Tom, and good afternoon. As Tom mentioned, we had a strong quarter across our business. I will briefly discuss MIAX's revenue model before I jump into the financial details. We generate revenue from transaction and nontransaction fees. Our key performance drivers for transaction fees include industry trading volumes, market share and revenue per contract or share, which measures the average revenue we earn per contracts or shares traded. Beginning this month, we will publish RPC and capture rates on a 3-month rolling average basis on our website, in conjunction with our monthly volume press release. In terms of non-transaction fees, we generate revenue from access fees, which we charge to customers to connect to our exchanges. From market data, which we earned through direct subscriptions and through our participation in the U.S. pay plans and from listing fees in our International segment. For the third quarter, on a consolidated basis, total net revenue grew 57% year-over-year to $109 million. This was driven primarily by strong performance in our Options business. The third quarter also includes a full quarter contribution from the June 2025 acquisition of TISE, which contributed $4.7 million in revenue. Our adjusted EBITDA increased 157% year-over-year to $48 million for the quarter with an adjusted EBITDA margin of 44%, a significant improvement from the 27% margin in the prior year period. This performance demonstrates our ability to scale efficiently while also continuing to invest in our growth initiatives. Adjusted earnings significantly increased to $40 million compared to $8 million in the prior year period. Our adjusted operating expenses in the third quarter were $61.6 million compared to $51.1 million in the prior year period. The increase was primarily due to higher compensation benefits driven by planned increases in headcount to support our growth initiatives as well as the acquisition of TISE. Also contributing to the increase were investments in IT and communications costs due to the build-out of the MIAX Sapphire Exchange and the new technology platforms we rolled out for MIAX Futures and BSX. Moving to performance by segment. Our Options segment delivered strong results with net revenue of $94.5 million, up 55% year-over-year. Market share was 17.2%, up from 13.9% in the prior year period. This, along with elevated options industry volume led to MIAX average daily volume of 9.6 million contracts for the third quarter, representing a 56% increase year-over-year. Although we are still early in the fourth quarter, the momentum carried into October with our options ADV reaching 13.1 million contracts and our market share reaching 19.4%. Our Equities segment net revenue reached $4.4 million, up from $2.2 million in the prior year period, primarily due to improved capture rate as we continue to focus on maximizing total net revenues in this segment. Our Futures segment net revenue was $4.8 million compared to $5.3 million in the prior year period. Hard Red Spring Wheat revenues decreased during the third quarter as trading volumes were negatively impacted by participant migrations to our new MIAX Futures Onyx platform, as well as lower commodity market volatility. Our International segment net revenue was $5.5 million compared to $0.8 million in the prior year period, which was due to the acquisition of TISE in June of this year. The IPO enhanced our balance sheet. With a quarter end cash balance reaching $401 million and outstanding debt reduces $6.5 million following the payoff of our senior secured term loan. Additionally, our outstanding foot liabilities were terminated upon the IPO, further improving our balance sheet. In summary, we delivered strong financial results while investing in our technology platforms and expanding our product offerings. We believe that MIAX is well positioned to capitalize on the growing demand for innovative exchange solutions. With that, I will turn it back over to Tom. Thomas Gallagher: Thanks, Lance. We believe MIAX's differentiated technology, exceptional customer experience, track record of building innovative marketplaces and disciplined growth strategy positions us to deliver long-term shareholder value. To sum up, we now have in place a solid foundation to enable continued growth as the global technology-driven multi-asset class market leader that is anchored by 4 key pillars that I'd like to highlight next. First, we have now completed all of our purpose-built scalable technology platforms, which are differentiated by throughput, latency determinism and reliability. Second, we have a broad range of regulatory licenses, allowing us to operate across multiple asset classes and in multiple jurisdictions around the world. Third, we have secured a broad range of products that are diverse and expanding with multiple opportunities to launch new products across our exchanges. Fourth and most importantly, we have long-standing relationships with customers that we intend to leverage as we move into new asset classes together. These 4 pillars are technology, regulatory licenses, broad product range and relationships with our customers are real competitive advantages that we believe will continue to drive our performance. I'll now turn over the call back to Andy. Andy Nybo: Thank you, Tom. We will now open the call up for questions. Operator, first question please. Operator: [Operator Instructions] Our first question today comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Welcome to being a public company. Congratulations on your first quarter out of the gate here. I was just hoping to ask more of a bigger picture question. You mentioned just a moment ago around a lot of different licenses, aspirations for new products, asset classes, geographies. I was hoping you could unpack that a little bit more elaborate on your ambitions there. I think there may be some aspirations for crypto event contracts. So maybe you could help flesh out how you're thinking about new product opportunities, asset classes, geographies, you mentioned licenses. What are your ambitions and aspirations as you look out over the next 3 to 5 years? How might MIAX look compared to the MIAX today? Thomas Gallagher: Thanks, Michael, for that question. I think given where we are today, Michael, our primary focus is on the products we've already announced. We've got so many good things on our plate now in our primary businesses. That's going to remain my near-term focus in terms of opportunities. Having said that, if and when an opportunity presents itself that is compelling. Based on what we've built over the last 3 or 4 years, we have the technology infrastructure. We have the licenses and the various tools, so we could jump in, in areas such as economic or political or sports-related events-based contracts. But the near-term focus for us with the licenses that we have in both options and futures, is to exploit the opportunities that we've secured, including the opportunities as a result of the recent licensing of the B500 and the B100 from Bloomberg. Operator: The next question is from Ken Worthington with JPMorgan. Kenneth Worthington: I'll echo my congratulations. On the multi-listed market share, you rose to a new record during the quarter. We look at October. And as you mentioned, it had another step up again this past month. Can you talk about the launch of the Sapphire trading floor and help us better understand the dynamics that have driven the acceleration in market share gains that we've been seeing over the last quarter plus? Thomas Gallagher: Thanks, Ken, and I appreciate the kind words. I'm going to turn this one over to Shelly Brown. Shelly? Shelly Brown: Thank you, Ken, and thank you, Tom. So Options continue to be our most mature market segment, but we believe there's still room for additional growth. There are strong secular tailwinds in the industry, growing industry ADV, new optionable classes resulting from a robust IPO market and innovative products like short-dated equity options. That being said, we are very excited about the new Sapphire trading floor volume, but is a fractional portion of our recent market share growth. The Sapphire trading floor captured about 6.5% of the industry trading floor volume in October, our first full month of trading or about 0.35% of total multi-list volume. We are 1 of 6 trading floors, so we understand and believe there's lots of room to grow in that segment. We are not managing our current market conditions for the short term, but for the long term. We believe that there's going to be additional flow and there's plenty of room to grow. We're very happy with the trend for our market share. Operator: The next question is from Kyle Voigt with KBW. Kyle Voigt: Maybe just a question on single stock options. There have been some exchange filings in the past couple of quarters to offer additional expiries weekly for larger cap single stocks, I think, paving the way towards an eventual single-stock 0DTE type of launch. Can you just remind us what you see as the pathway to being able to offer single stock options with everyday expirations? And from a timing perspective, can you just kind of lay out a pathway in terms of how far away you think that ultimately will be? Thomas Gallagher: Yes. Thank you very much for that question, Kyle. It's certainly an area that we're well positioned for. So I'm going to turn it over to Shelly Brown, and maybe, Shelly, you could talk about the response here. Shelly Brown: Yes. Thank you for the question. With regards to 0DTE options, the timing for that depends on regulatory approvals, there's already an initiative with the commission, to list short-dated options initially just from Mondays -- ending Mondays and Wednesdays to the existing Fridays. Once these multi-list products are approved, we will certainly list them and all 4 of our options exchanges, meaning that they are multi-list options. Our exchange technology already supports rapid product innovation and launches such as this, and we're ready to support an expansion of the multi-listed options, 0DTEs and single stock options. Our system speed, throughput, and risk protections allow liquidity providers to offer tighter and deeper markets for these products. So we think we'll be able to gather an outsized market share. We do believe that the 0DTE actions in single stocks represent a significant growth opportunity across the industry, especially in the retail trading segment. But timing really depends on regulatory approval and market demand. Operator: The next question is from Jeff Schmitt with William Blair. Jeffrey Schmitt: A question about your October market share. It jumped quite a bit to 19.4%. Growth was obviously really strong. And just curious if you can maybe talk about what drove that sharp increase? And did you see a rise in complex trades at all during the month? Thomas Gallagher: Well, Jeff, thanks for that question. At the risk of overworking Shelly here. Shelly, do you want to just talk about the October market share gains? Thank you very much. Shelly Brown: The October gains were across the board. As you know, we have 4 options exchanges. We saw growth in all segments across those exchanges. There has been growth -- continued growth in complex orders. That's a focus for us due to capture, and we continue to be the second largest exchange in complex orders and continue to grow that segment. We've seen growth across all the different segments, including the price improvement auctions. I believe it comes back to the use of our technology. Operator: [Operator Instructions] The next question is from Chris Brendler with Rosenblatt. Christopher Brendler: Just wanted to drill down a second on seeing such strong market share gains and revenue per contract has been trending in an upward direction, ticked down a little bit this quarter, which I imagine is mixed. But is there any opportunity for you to lean into your success? I think like the market tailwinds are behind you and maybe extract a little more out of your revenue per contract in the options business? Or is it just naturally falling out of other successes you're having in the areas? I love to see if you get any more detail there? Thomas Gallagher: I really appreciate the question, Chris. I'm going to ask Lance to talk about the revenue per contract to the extent that he can. But I will say that as our market participants need to provide greater and greater liquidity to their retail customers, the investments we've made over the last 3 or 4 years in technology in terms of the latency, the throughput and the determinism, we really feel that we've differentiated ourselves and we're a partner that can help firms provide this liquidity to their retail customers. And because we can provide this assistance through the technology infrastructure, we're getting more and more volumes. Now in terms of your second part of your question. Lance? Lance Emmons: Yes, Chris. So yes, there's -- you know that there are some mix shifts between the second quarter and the third quarter. We haven't done any major fee changes other than we did do a change to the regulatory fee, a temporary reduction from September to December, which had a slight impact for the quarter. I'll also note that we continue to focus on, again, on maximizing revenue. So if there is business out there that is positive to us, even if it's a lower capture rate as long as it's positive, we will focus on it. And just also just to highlight again that beginning with today's monthly volume release, we are putting out the capture rates on a trailing basis. So I'll provide some additional transparency there. Operator: The next question is from Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: As we are seeing more participation in the options space by retail investors, do you have a sense for how your market share might differ between retail versus institutional customers? Thomas Gallagher: Patrick, thank you very much for the question. Shelly, do you want to address that in terms of the retail versus institutional mix? Shelly Brown: Certainly. Thank you, and I appreciate the question, Patrick. The retail versus institutional mix, obviously, we can't drive the demand from the end user. We're here to respond to that demand. Our focus has always been on giving the market makers the ability to provide liquidity, provide deeper markets, tighter markets and the tighter markets are what draw that -- those orders from both the institutional market and the retail market to our exchange. So it's all about the customer experience. We continue to roll out new technology and improve our customer service to continue that offering the premium product to those customers. Operator: Our final question today is a follow-up from Michael Cyprys with Morgan Stanley. Michael Cyprys: Just wanted to ask about the expense outlook. I was hoping maybe you could unpack how you anticipate the pace of expense growth to trend from here, how that might evolve or flex with volumes and revenues? And then if you could maybe just elaborate on the stock-based comp in the quarter, I think it looked like maybe $29 million was more recurring. Maybe you can elaborate on that, how much we can expect on a go-forward basis? And any other broadly notables to speak of in the quarter? Thomas Gallagher: Yes. Thank you, Michael. Lance? Lance Emmons: Yes. I can cover that, Michael. So in terms of total expenses, I think as you look at the third quarter, we did -- first quarter as a public company, so a little uplift in terms of like D&O and board fees and things like that. So maybe a little bit more in the fourth quarter as you kind of get a full quarter effect into that. I think that what you've seen also in the quarter is a pretty high incremental margin as we've sort of really completed the build-out, as sort of mentioned, right, we finished the build-out of Sapphire, both the electronic and the floor. We finished the rollout of the Onyx Futures trading platform earlier sort of middle of this year. So we would expect to see sort of less expense growth going forward. But look, we're still growing the top line pretty heavily. So I think that should be a consideration as well. In terms of share-based comp, yes, certainly a lot of noise in the quarter, a lot of uneven expenses. There was a lot of RSAs that vested at the time of the IPO and some additionals that kind of accelerate or vest over the next 180 days following the -- or up until the expiration of the lockup. But on Slide 23 of our deck, we provided sort of a breakout of the share-based comp, and that includes sort of the restricted stock awards, the options and some -- a little bit of warrant expense and I would probably consider the option expense to be sort of more recurring. Now that may change form. But in terms of the dollar amount, I would consider that more a recurring type of expense only because, as I mentioned, the RSAs as a private company, we're a little lumpy, and a lot of them vested either at the time of the IPO or over the period of the lockup. So hopefully, that gives you some good color there. Operator: The next question is from Patrick Moley with Piper Sandler. Patrick Moley: I just had a broad one on options market growth. We've seen very strong strength over the last few years. So just wondering how you guys are thinking about the setup from here, and I apologize if this was addressed earlier, we jug on a few calls, but just the outlook. And then heading into next year, what are one of -- some of the major themes that you're kind of focused on or expect to play out in options? Thomas Gallagher: Patrick, thank you very much for the question. I'll start it, and then I'll ask Shelly to add to it. But -- we -- when you look historically at what's happened in our industry, back in 2012, we were doing 15 million contracts a day. And then we hit 54 million contracts a day last year, only to see ourselves in October at 67 million contracts today. I feel that the industry tailwinds, particularly the growing retail base of market participants bodes very well for continued growth in our Options segment. When you couple that with some of the new filings from some of our competitors with respect to short-dated options, I see continued growth opportunities. Yes, this is our more mature business segment, but we still think there's robust growth because of the industry tailwinds, the infrastructure that we've invested in and the very recent launch of the MIAX Sapphire trading floor. Maybe Shelly, you could fill in a little more details as we talk about the opportunities for our more mature business. Shelly Brown: Thank you, Tom, and thank you for the question, Patrick. The growth in retail, I believe, will continue. The experience they have by the offerings from the retail firms, the ability to trade basically for free will fuel further growth with the market rising, I think there's more exuberance in the marketplace. There's more ability for people to get involved in the marketplace and the short-dated options bring prices -- options that are priced lower and can -- the retail can reach easier. So we think that the retail experience will continue to expand going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gallagher for any closing remarks. Thomas Gallagher: Thank you very much. Obviously, we're very excited to have just released our third quarter earnings, and we're very grateful for the support that our member-based community of our members in options, equities and now futures. We're very excited about the opportunities going forward. And we really feel good about having a fortress-type balance sheet now as a result of the IPO. So thank you for your time today, and we're looking forward to future calls as we move forward as a public company. Thank you, and have a nice evening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Banco de Chile's Third Quarter 202 Results Conference Call. If you need a copy of the financial management review, it is available on the company's website. Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Institutional Relations Officer; Mr. Pablo Mejia, Head of Investor Relations; and Daniel Galarce, Head of Financial Control and Capital. Before we begin, I'd like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed notes in the company's press release regarding forward-looking statements. I will now turn the call over to Mr. Rodrigo Aravena. Please go ahead. Rodrigo Aravena: Good afternoon, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the third quarter of this year. We are pleased to report that Banco de Chile has once again delivered strong results, reaffirming our solid market position. Our performance this quarter reflects not only robust financial outcomes, but also meaningful progress in a strategic initiative that strengthens our long-term competitiveness. Key highlights for the quarter include net income as of September 2025 reached CLP 927 million, representing a year-on-year growth of 1.9% that resulted in an ROAC of 22.3%. These results were driven by strong customer income, fund asset quality and ongoing efficiency improvements. These achievements are particularly significant given the challenging macroeconomic and political environment marked by subdued loan growth, especially among corporations. In times of uncertainty, solid fundamentals and proven risk management become critical differentiators. Banco de Chile continues to stand out among peers in asset quality, additional provisions and capital strength, providing resilience and a solid basis for the future. Let's now turn to the macroeconomic context. Please refer to Slide #3. Consistent with the trend observed in previous quarters, the Chilean economy continues to show signs of recovery, particularly in consumption and investments. As illustrated in the graph on the left, GDP growth has maintained an upward trajectory since the second half of 2024, supported by a notable rebound in domestic demand. In the second quarter of this year, GDP expanded by 3.1% year-on-year, remaining above the estimated long-term potential growth rate of around 2%, which resulted in a 2.8% year-on-year expansion in the first half of this year. It is worth noting that this acceleration occurred despite a moderation in external demand. Export growth slowed to 5.4% year-on-year in the second quarter, down from 10.5% in the previous quarter. This reflects the trends of domestic demand, which improved significantly from 1.6% year-on-year in the first quarter to 5.8% year-on-year in the second quarter. A key driver behind this performance was the sharp increase in investment, particularly in machinery and equipment, which surged by 11.4% year-on-year during the period. These indicators confirm that the positive trend in domestic demand has persisted into the second half of this year. As shown in the chart on the upper right, imports have accelerated in recent months, driven by stronger domestic expenditure, particularly investments, evident in the sharp increase in capital goods imports. Furthermore, weighted investments for the next 5 years according to the corporation of capital goods rose by 19% in the second quarter, reflecting a substantial expansion in the pipeline of new projects across the mining and energy sectors as illustrated in the chart on the bottom right. All these figures would result in improved economic performance over the next period while positively impacting loan growth and banking activity. Please go to Slide #4 to analyze inflation and interest rate evolution. Inflation remains above the Central Bank target at the chart on the left displays. In September, headline inflation increased to 4.4% from 4.1% in June. The measure that excludes volatile items was relatively stable, rising just 10 basis points to 3.9% in the same period. This suggests inflation is still driven by volatile items such as energy, which increased 11.4% year-on-year in September. In response, the Central Bank maintained the interest rate at 4.75% in the monetary policy meeting held in October. According to the statement released after the meeting, the persistence of some inflationary risk and the slight improvement of macro conditions require more information before continuing to reduce the interest rate towards neutral levels. Despite this decision, it's important to mention that the Central Bank of Chile has already reduced the interest rate by 650 basis points from the peak of 11.25% reached in 2023, positioning it among the most proactive central banks in terms of monetary easing. The Chilean peso has remained volatile, hovering around CLP 150 per dollar in recent months. However, as shown in the bottom right chart, the U.S. dollar measured by the DXY index has globally weakened this year, a trend not yet reflected in the local exchange rate, partly due to faster pace of interest rate cuts. Now I'd like to present our base scenario for this year. Please go to Slide #5. We have revised our GDP forecast up for 2025 from 2.3% in the previous call to 2.5% now. This adjustment is due to stronger-than-expected growth in domestic demand and improvement in some leading indicators, as mentioned earlier. As a result, the economy will likely achieve a similar expansion as compared to 2024 despite weaker global activity, which is expected to reduce the export pace of growth. However, the better outlook for domestic demand has offset this external drag. This scenario is consistent with a gradual decline in hyperinflation to 3.9% by December 2025, assuming no relevant shocks or significant depreciation of the Chilean peso in the coming months. Under this condition, we expect the Central Bank will likely cut the monetary policy interest rate once more in the fourth quarter to end the year in 4.5%. Finally, it's important to reiterate the unusually high level of uncertainty we face, particularly from global factors. Domestically, attention will also be focused on the upcoming presidential and parliamentary election scheduled for November and the presidential runoff expected in December 2025. Before reviewing the bank's results in detail, let's take a brief look at industry trends. As shown in the chart on the top left, the banking industry delivered another solid quarter. Net income reached CLP 1.3 trillion and the return on average equity stood at 14.7%. While below the previous quarter, this figure confirmed the central ability to sustain healthy profitability despite lower inflation. This performance reflects the resilience of core banking activity, particularly concentrated in commercial banking after a long period that was dominated by the extraordinary revenues coming from treasury activities on the ground of extremely high levels of inflation and higher-than-normal interest rate, among others. Turning to asset quality. The chart on the top right shows that nonperforming loans remain relatively stable for the industry at 2.5% with a coverage ratio of 143%, consistent with recent quarters. Despite a challenging macroeconomic backdrop marked by elevated borrowing costs and labor market pressures, banks have managed to keep delinquency under control while maintaining prudent provisioning and strong buffers to absorb potential increases in credit risk. On the credit side, the bottom left chart highlights that the loan-to-GDP ratio stood at 76% as of September 2025, continuing a below-trend behavior from pre-pandemic highs. This reflects the subdued pace of credit expansion relative to economic activity in recent years. Finally, the bottom right chart further illustrated the persistent weakness in real loan growth across all segments. Since December 2019, total loans have contracted 2.3% with consumer lending showing the sharpest decline of 18%, followed by commercial loans at 9.5%. This slow demand for credit has been driven by, firstly, by liquidity surplus caused by pension fund withdrawal in 2021, 2022, which was after followed by high interest rates, increased inflation and cautious corporate borrowing amid economic and political uncertainty and persistent labor market challenges more recently. In summary, while profitability and asset quality remains strong, lending activity continues to lag. Looking ahead, a gradual recovery in loan growth could materialize as uncertainty eases, particularly regarding external risk and in the local front, the outcome of upcoming presidential and parliamentary election, together with revised approval procedures for large-scale investment projects, allowing the industry to return closer to historical GDP multiples. Next, Pablo will share information regarding Banco de Chile developments and financial results. Pablo Ricci: Thank you, Rodrigo. Let's turn to Slide 8, which brings our strategy and ambitions into focus. It's our road map for growth and leadership. The core of our strategy is guided by a well-defined purpose, which is to contribute to the progress of Chile, its people and its companies. Supporting this are our guiding principles that shape how we operate in the medium term, efficiency, collaboration and a customer-first mindset and a focus on creating value in the areas we compete. These elements ensure our agility, innovation and long-term sustainability. On the right, our midterm targets show where we're heading. industry-leading profitability, market leadership in lending and local currency deposits, superior service quality as reflected by a top Net Promoter Score and a strong corporate reputation among the top 3 companies in Chile. We're also committed to efficiency, which translates into a cost-to-income ratio that must remain below 42%, driven by digital transformation and continuous improvements in technology and operational processes. In short, this strategy enables us to deliver sustainable growth and create lasting value for all of our stakeholders. Please move to Slide 9, where we will go over our key business achievements. In the third quarter of 2025, we continued advancing initiatives that strengthen our position as a more efficient digital and sustainable institution. A major milestone this quarter was the successful integration of our former collection services subsidiary, SOCOFIN, into the bank's operations. This merger was completed without affecting productivity metrics for the collection of overdue loans and has generated important cost and operational synergies that have translated into increased efficiency and enhanced customer experience. Productivity also continued to rise in the third quarter of 2025, driven by technological innovation and digital solutions. In consumer loan originations, executives increased productivity by 13% in the number of operations and 11% in the amounts sold compared to the same period last year. These results highlight the positive impact of our digital transformation on overall performance. We also worked to optimize our physical branch network and strengthen customer service. Through branch efficiencies, we aim to keep our service line aligned with clients' evolving needs while improving efficiency and delivering a better experience. On the digital front, we expanded the use of AI virtual assistants for both customers and employees. FANi, our chatbot now supports all FAN accounts, including SMEs through the FAN and Print the Plan. Additionally, we introduced AI tools to assist staff with internal processes, boosting productivity and service quality. To deepen partnerships with businesses, we launched the API store, a platform that enables secure technological integration with corporate clients. This initiative allows companies to automate operations directly with our financial services, adding value to our offerings. In line with this is our sustainability commitment. We introduced a training plan to promote responsible supplier management. As part of this effort, we are developing educational capsules to inform suppliers about our revised purchasing procedures and encourage best practices within their organizations. Another highlight of this quarter was the 4270 project, an unprecedented audiovisual initiative that captured Chile's 4,270 kilometers from north to south through a 90-day drone journey. By documenting the country's diverse landscapes, traditions and cultural richness, this project aims to strengthen national identity and reconnect Chileans with their shared heritage. Beyond its artistic value, this initiative reinforces our brand positioning by associating Banco de Chile with pride, unity and long-term commitment to the country. The project was conceived as a gift to Chile, offering more than 500 royalty-free high-quality images for education and cultural use and has earned international recognition, including a Gold Lion at the Cannes Festival and the showcase at Expo Osaka 2025. Finally, our customer-focused strategy continues to deliver solid results. For the third year in a row, we ranked first in customer satisfaction at the Procalidad Awards, and we were honored as the best of the best among large financial institutions, the only bank to achieve this distinction. These recognitions confirm the success of our strategy and their commitment to serving clients with excellence. Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the third quarter of 2025, posting a net income of CLP 293 billion, equivalent to a return on average capital of 22.4%, as shown on the chart and table to the left. This represents a net income increase of 1.7% compared to the same period last year despite a sequential decline from the previous quarter, reflecting the impact of lower inflation on margins. It's important to highlight that we outperformed our peers in both net income market share and return on average assets, as illustrated on the charts to the right. Specifically, as of September 2025, our market share in net income reached 22%, well above the closest -- our closest competitors and our return on average assets stood at 2.3%, maintaining a wide gap over peers. These results underscore our consistent focus on customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income-generating capacity, particularly centered on customer income, which has continued to grow steadily and enabled us to deal with the expected normalization of key market factors. Our strategy remains firmly oriented towards building a sustainable and profitable bank, and we continue to aspire to be the industry benchmark in profitability. Let's take a closer look at the operating income performance on the next Slide 12. We continue to demonstrate the strongest operating revenue-generating capacity in the local industry, reaffirming the resilience of our superior business model through different market cycles. As shown on the chart to the left, operating revenues totaled CLP 736 billion in the third quarter of 2025, representing a 2.1% increase year-on-year despite a backdrop of subdued business activity and the effect of lower inflation on treasury revenues. This performance was supported by solid customer income of CLP 630 billion, which grew 5.4% year-on-year, while noncustomer income amounted to CLP 105 billion, reflecting a 14.1% decline compared to the same quarter last year. The contraction in noncustomer income was mainly explained by lower inflation-related revenues from the management of our structural UF net asset exposure that hedges our equity from changes in inflation as UF variation dropped to 0.6% this quarter from 0.9% recorded in the same quarter last year. To a lesser extent, revenues coming from the management of our trading and debt securities portfolios also recorded a slight decrease year-on-year due to both lower market mark-to-market revenues due to unfavorable changes in interest rates and a decrease in revenues coming from the management of our intraday FX position. In turn, customer income has continued to grow, supported by a robust performance in income from loans and net fees, which helped offset the pressure from lower inflation-related revenues. Within loans, better lending spreads and growth in average balances drove income generation, particularly concentrated in consumer and commercial loans as our loan book has continued to return to more normalized margins to the extent FOGAPE loans keep on amortizing. Furthermore, net fee income expanded by 10% compared to the third quarter of 2024, led by mutual fund management fees, which increased 19% and transactional services up 6%, together with increased contributions from insurance and stock brokerage fees due to improved cross-selling and credit-related insurance and the participation of our stock brokerage subsidiary in a couple of important transactions carried out in the local capital market this quarter. This performance highlights the strength of our diversified revenue base beyond traditional lending activities. As a result, our net interest margin stood at 4.65% for the 9-month period ended September 30, 2025, maintaining a clear market-leading position in the industry despite margin compression caused by inflation and the financial environment marked by lower interest rates. Furthermore, our fee margin as a percentage of interest-earning assets reached 1.3%, which enabled us to further drive our operating margin to the level of 6.4%, well above the industry average and our main peers, demonstrating the effectiveness of our strategy and our ability to consistently deliver value to our customers and shareholders regardless of prevailing economic conditions. Please turn to Slide 13, where we will review the evolution of our loan portfolio. As shown on the left, total loans reached CLP 39.6 trillion as of September 2025, representing a 3.7% year-on-year increase and a 0.6% sequential growth. This expansion remains contained and continues to reflect subdued credit dynamics across the industry, consistent with the Central Bank's latest credit survey, which indicates that overall demand and supply conditions remain stable, although noticing some signs of recovery in certain segments. Breaking this down by product, mortgage loans grew 7.3% year-on-year, well above inflation, supported by stronger demand through selective origination in middle- and upper-income segments and demand for housing that continues to be driven by demographic issues rather than economic cycle. Consumer loans increased 3.7% year-on-year amid cautious borrowing behavior and interest rates that remain above neutral levels as well as the profile of our customers characterized by liquidity levels above our peers would partly explain our performance in consumer loans. While loan growth in this lending family has been slower than the industry, it's important to note that our strategic focus continues to be centered into the higher income segments, avoiding aggressive expansion into lower income markets targeted by some market players, which explains an overall loss in market share that, however, is consistent with our long-term strategic view. Regarding commercial loans, we posted a 1.3% year-on-year increase in September 2025, constrained by weak investment and uncertainty. However, we'd like to emphasize that we are seeing some early signs of recovery, particularly in the SMEs and certain wholesale banking units, such as the large companies area, which is consistent with higher-than-expected capital expenditures in some industries earlier this year as reported by the Central Bank and national accounts. On the right side of this slide, you can see that retail banking continues to be the main commercial focus by accounting for 66% of total loans with personal banking representing 52% of the whole book. Accordingly, wholesale loans represent 34% of our book and is split between corporate clients, representing 20% and large companies, representing 14%. When looking at the loan growth by segment, we can see some interesting trends. Personal banking expanded 5.8%, driven by mortgage loans, while SMEs and large company segment have also posted positive year-on-year growth levels of 4.8% and 7.1%, both above 12-month inflation. SME loan expansion was supported by demand from non-FOGAPE loans that continues to grow steadily by expanding 8% year-on-year, while the large companies banking unit has managed to grow positively for the third quarter in a row on the grounds of commercial leasing and trade finance loans. Corporate loans, however, contracted 4.3% year-on-year, reflecting lagged investment activity and selective credit demand among corporations, which is highly aligned with findings released by the Central Bank in the last quarterly credit survey. It's important to note that our loan growth remains slightly below the 12-month inflation, and we have experienced a minor decline in overall market share over the last year, mainly due to competitors expanding into segments outside our strategic scope and the countercyclical role played by the state-owned bank BancoEstado. Positively, we gained share in mortgage loans, thanks to our competitive funding and strong customer relationships. Overall, our portfolio remains well diversified and positioned to capture opportunities as business sentiment improves, interest rates continue to converge to neutral levels and the domestic demand strengthens. Slide 14 highlights our strong balance sheet mix supported by long-term financial stability. As shown on the chart to the left, loans represented 71.4% of total assets as of September 2025, while our securities portfolio reached 12.5% of total assets, up 54% from a year earlier. The increase in our securities portfolio was primarily driven by the funding strategy carried out by our treasury in the third quarter, which resulted in long-term bond placements aimed at replacing upcoming amortizations, reducing term spread and currency mismatches in the banking book and supporting future loan growth. In the short run, part of this funding has been invested in high-quality fixed income securities, which has translated into improved liquidity metrics over the last couple of months. In this regard, our securities portfolio is mainly composed of securities issued by the Chilean Central Bank and government, which accounted for 65% of the total amount, followed by local bank instruments, mostly certificates of deposits, representing 28%. As a percentage of total assets, available-for-sale securities represented 5.9%, trading securities amounted to 5.8%, while held-to-maturity represented only 0.8% of total assets, all as of September 30, 2025. On the funding side, deposits remain our main source of financing, representing 53.1% of the total assets with demand deposits accounting for 25.8% and time deposits representing 27%. Given these figures, our noninterest-bearing demand deposits fund 36% of our loan book, which is a key competitive advantage that supports our leading net interest margin, as shown on the chart on the top right. More importantly, our deposit base is highly concentrated in retail banking counterparties, which provide us with more stable sources of funding over time. Regarding debt issued, it increased significantly during the third quarter of 2025, rising from 19% of our total liabilities in the third quarter of 2024 to 20% in the third quarter of 2025 as a result of recent placements. This growth was mainly driven by senior bond issuances in the local market, particularly this quarter, which added CLP 1.6 trillion to our former balances, representing a year-on-year increase of 16%. Prior to this quarter, long-term bond placements had primarily been focused on replacing scheduled maturities of previously issued bonds. However, beginning this quarter of 2025, we reassessed our funding strategy in light of the gradual rebound expected for lending activity, particularly in longer-term loans. Similarly, the gradual convergence of key market factors such as the monetary policy rate and inflation towards neutral levels significantly reduces the opportunity to benefit from temporary balance sheet mismatches. With this outlook in mind, during this quarter, we carried out several placements of bonds in the local market for an amount of CLP 1.1 trillion with an average interest rate of approximately 3% and an average maturity of 11.1 years and a 5-year bond denominated in Mexican pesos equivalent to CLP 50 billion, bearing an interest rate of 9.75% in Mexican currency. Together with raising long-term funding for future loan growth, these bond issuances also allowed us to reduce our structural UF gap from the peak of CLP 9.7 trillion in March 2025 to CLP 8.3 trillion in September 2025, implying a sensitivity of roughly CLP 83 billion in net interest income for every 1% change in inflation. This is aligned with our revised view on inflation that does not significantly differ from the market ones. The placement of long-term bonds also had a positive effect on interest rate mismatches in the banking book as bonds issued were mostly denominated in U.S. with tenures above 10 years, which closed the gap generated by steady growth in residential mortgage loans. As a result, regulatory and internal rate risk in the banking book metrics for short- and long-term rate risk posted a significant sequential decrease of around 20% Furthermore, our liquidity ratios remained well above the regulatory requirements with an LCR of 207% and NSFR of 120%, both well above the prevailing regulatory thresholds of 100% and 90%, respectively, reflecting prudent liquidity management and the positive impact of recent bond placements on this matter. Please turn to Slide 15 for our capital position. As illustrated, Banco de Chile continues to demonstrate a strong capital foundation, comfortably above regulatory thresholds and peer averages. Our CET1 ratio reached 14.2%, reflecting our leadership in the industry. When including Tier 2 instruments, our total Basel III capital ratio stood at 18%, providing wide room to support organic and inorganic growth initiatives and absorb potential market volatility. The solid capital position reflects a disciplined approach to profitability and sustained earnings retention over recent years. Additionally, the modest loan growth has also contributed to maintaining positive capital gaps. Our capital strategy was designed to navigate the final stages of Basel III implementation while preserving flexibility for both organic expansion and potential strategic opportunities. It's worth highlighting that Chile operates under one of the most demanding regulatory environments globally, characterized by higher risk-weighted asset density as compared to jurisdictions where internal models play a significant role. In fact, risk-weighted asset calculations under Basel III in Chile resemble those under the formal Basel I framework. Furthermore, local regulations impose capital requirements similar to those in markets with lower risk-weighted asset densities, including systemic surcharges, Pillar 2 charges and the conservation and countercyclical buffers, all working together and on a fully loaded basis. Despite these stringent conditions, Banco de Chile consistently exceeds all capital requirements, underscoring once again the resilience and the strength of our business and balance sheet by delivering a unique combination of lower risk and higher capital and outpacing in profitability. Please turn to Slide 16 to review our asset quality. We continue to set the benchmark in asset quality, supported by disciplined risk management and a conservative provisioning framework. In the third quarter, expected credit losses only reached CLP 80 billion, marking a sequential decline and reinforcing the positive trend we saw during the year. Despite the year-on-year figure remained almost unchanged, there were notable shifts in the composition of expected credit losses. Specifically, the Wholesale Banking segment recorded a net provision release of CLP 18 billion, mainly driven by a comparison base effect following the deterioration of asset quality of certain customers belonging to the real estate construction and financial services industries during the third quarter of 2024 as well as an improvement in the credit profile of a manufacturing client this quarter. Conversely, the Retail Banking segment posted a year-on-year increase of CLP 4 billion in risk expenses, primarily due to higher level of overdue loans above 30 days when compared to the same quarter last year. These movements were largely offset by a rise of CLP 5 billion of impairment of financial assets explained by a comparison base effect related to lower probabilities of default for fixed income securities issued by local financial institutions in the third quarter last year, a loan growth effect of CLP 5 billion, driven by a 4.2% year-on-year increase in average loan balances, mainly fostered by residential mortgages and a year-on-year increase of CLP 2 billion in provisions for cross-border loans. Mostly driven by a comparison base effect associated with the lower exposures to offshore banking counterparties and Chilean peso appreciation of 4.7% in the third quarter of 2024. As a result, this performance translated into a cost of risk of 0.8% in the third quarter of 2025, which remains below our historical average and highlights the resilience of our diversified loan portfolio amid a still-adjusting credit cycle. Nonperforming loans across the industry remained above pre-pandemic levels, as shown in the top right chart. Our delinquency ratio stood at 1.6%, significantly below peers. This gap underscores the strength of our underwriting standards and the proactive risk management. From a forward-looking perspective, despite fluctuations observed in 2025, we believe that the delinquency indicators will continue to converge to historical levels in both retail and wholesale banking segments. Now in terms of coverage, we maintain the highest ratio in the industry. As of September, total provisions amounted to CLP 1.5 trillion, including CLP 821 billion in specific credit risk allowances and CLP 631 billion in additional provisions. As a result, our total coverage ratio stands at 234%, positioning us with the highest coverage among peers. In summary, our strong asset quality metrics, exceptional coverage levels and prudent risk practices continue to differentiate Banco de Chile and position us to navigate evolving credit conditions with confidence. Please turn to Slide 17. Operating expenses totaled CLP 276 billion this quarter, representing a modest increase of 1.2% when compared to the third quarter of 2024. This growth remains well below the UF variation rate of 4.2% over the last 12 months, highlighting our disciplined approach to cost management. The contained increase reflects our continued efforts to optimize resources and drive efficiency through strategic initiatives and diverse digital transformation projects across the organization. The top chart provides a detailed breakdown of the annual variation expenses. Personnel expenses decreased by 1%, supported by headcount optimization of 5.7% over the last 12 months, which helped offset inflationary pressures on salaries. On the other hand, administration expenses rose by 5.3%, mainly due to higher marketing expenses linked to sponsorship activities aligned with our commercial strategy, increased IT-related costs and to a lesser extent, higher ATM rental costs due to relocations of part of our network. As shown on the chart on the bottom right, our efficiency ratio reached 36.8% for the 9-month period ended September 30, 2025, which significantly outperforms historical levels and competes closely with the market leader in this indicator. This achievement underscores the effectiveness of our ongoing productivity initiatives, which should provide further efficiency gains in the future. Looking ahead, we remain confident that our strong cost discipline, branch optimization efforts and continued investment in technology will allow us to sustain this positive trend. Please turn to Slide 18. Before we conclude, I want to highlight a few ideas presented in this call. First, we have adjusted our GDP forecast for 2025 to 2.5%, up from 2.3%, reflecting a more positive outlook for the Chilean economy. Chile continues to stand out for its strong macro fundamentals, a resilient financial system and a credible policy framework, making it a reliable destination for long-term investment even amid global uncertainty. Second, Banco de Chile remains the clear leader in profitability and capital strength. As shown on the left, we delivered CLP 927 billion in net income with a CET1 ratio of 14.2% and a return on average assets of 2.3%, significantly ahead of our peers. These achievements reinforce our ability to combine strong earnings with robust capital levels. Third, we have revised our guidance for the full year 2025. We expect our return on average capital to be around 22.5%, efficiency near 37% and cost of risk close to 0.9%. These metrics reflect our disciplined approach to both risk management and operational efficiency. Finally, we're confident in our capacity to remain the most profitable bank in Chile over the long term, supported by a strong customer base, solid asset quality and sound capital levels. Thank you. And if you have any questions, we'd be happy to answer them. Operator: [Operator Instructions] So our first question is from Daniel Vaz from Banco Safra. Daniel Vaz: I just want to touch base on your midterm targets. I think the only thing a little bit more distance that we see is the top 1 market share for commercial loans and consumer loans, and we see some stable market shares like in the past few months when we look at the big tables. Just wondering, you're a bank that focused a lot on profitability and focus on maintaining the discipline of the underwriting process. Trying to understand how are you going to tackle this top 1 commercial loans and consumer loans going forward, especially considering that the Chilean market is probably going to a better outlook for commercial loans. We see a little bit more appetite for consumer as well. So how exactly you're going to tackle this first position on both market shares? Like is going to the same clients or going to a more attractive position versus your competitors to still clients or any other things that you would highlight? Pablo Ricci: Daniel, thanks for the question. Maybe Rodrigo will start on the first part there. Rodrigo Aravena: Perfect. Well, thank you very much for the question. Today, we have a more positive view of the Chilean economy in the future. Even though the economic growth expected for this year, which is around 2.3%, 2.5% and probably in the next year, the economic growth will be similar. It's very important to pay attention to the composition of the growth because, for example, in the last year, when the economy grew by 2.6%, we have to remember that the key driver were exports, which are not very relevant as a driver for loan growth, for example, right? More recently, we have seen some positive signs for investment including the acceleration for capital good imports and also the pipeline of expected projects for the next 5 years is also improving a lot, especially in the last quarter. In terms of consumption, we see that the lower trend for inflation is also a positive news for the perspective for consumption as well. So at the end of the day, in our baseline scenario, we're going to have a more dynamic domestic demand, especially on the investment side which will be a positive driver for loan growth in the future. Even though we are not expecting an important acceleration in part of investment because we have to remember that in Chile, between 50% and 55% of investment is related with construction. That part of investment will likely recover not in the short term, but the 45% remaining of investment, which is related with machinery and equipment today is getting better. So that's why even though we are not expecting important changes in the GDP forecast for the next year, we are expecting a more -- a different composition of growth with a more dynamism in domestic demand, which is a good news for loan growth in the future. Also, we have to pay attention to the evolution and the final results of elections in Chile. We're going to have election from the President for the Senate for the lower house as well. So at the end of the day, there are important factors that could accelerate or not the economic growth in the future. But I think that so far, the most important aspect to keep in mind is the potential recovery in domestic demand. Pablo Ricci: So yes, in terms of our midterm targets, these are midterm targets that go beyond not only 2026, but it's a midterm aspiration. And those aspirations, as shown on the slide, we want to be #1 in terms of total commercial loans and consumer loans. So our growth strategy is focused on 3 key ideas. So the first, and we'll go into each one of these a little bit, is digital transformation as a growth engine for the bank. Also as a second area of focus is focus on the high potential segments, notwithstanding all the entire commercial loan book is interesting for us, but it's been more challenging in this environment. And third is operational productivity. So in the digital transformation area, what we've been focusing is leveraging technology to scale the efficiency, enhance customer experience and really drive new growth opportunities across the bank in all the segments. So in that regard, what we're seeing is an increase on digital onboarding. Most of transactions are being done online, and we're expanding our digital capabilities in order to capture this new growth through different channels of the bank in order to grow consumer loans in the middle- and upper-income segments. And we're also implementing the use of AI across the bank in order to improve the service, improve the understanding of our customers and risk management as well. So all of this is improving the customer experience and operational efficiencies and the ability to grow. And in the high potential customer segments or high potential segments, what we're looking to do is to grow and create a larger value creation. And in that area where we're focused on in commercial loans, especially as SMEs, where we see potential to continue growing in the medium term. We've seen good levels of growth recently, especially if we exclude certain government-guaranteed loans. Consumer loans as well, there's a large area to grow. If we look at what's happened today versus prior to the pandemic, this segment has decreased its importance in the overall proportion of loans in Chile. So the loans to GDP penetration has come from levels above 90% to around the 75%. And one of the strongest hit not the most important in the total loan book of the industry is consumer loans. So the strongest hit with a lower percentage in the mix is consumer loans that dropped somewhere almost 20%, 18%. So this area, we think will continue to grow once the economy improves, once unemployment reduces, there's better growth in labor across the board. So here is a very interesting area to grow. SME is very interesting because it's also very cyclical in terms of the economy. So as long as the economy continues to improve, better unemployment, we should see a better activity in these segments and with a better overall view -- business view of Chile, there should be more demand for loans in these 2 segments. And finally, in the large corporate segment, we've seen very little growth, very little demand. But as Rodrigo said, there's a lot of projects in the pipeline with a positive evolution in the future. This should also help drive loan growth for the industry. Saying that, we're in a very good position to capture this growth in organically or inorganically because we have a huge level of capital that allows us to do this. We don't have any impediments that make us more reluctant to grow and take on growth because we have a very good level of capital in order to do this, and that's the idea of the capital that we have. And finally, operational productivity, which is what we mentioned in the presentation, this helps all the areas improve overall and maintain our profitability high. Operator: Our next question is from Tito Labarta from Goldman Sachs. Daer Labarta: Just with the upcoming presidential elections, just kind of curious sort of where you think things stand from here? And depending on which candidates when -- how do you see that potentially impacting the macro-outlook for next year and then also trickling down to the bank's profitability? Rodrigo Aravena: Thank you for the question. I'm Rodrigo Aravena. I think that it's very important to be aware that in Chile, we have a political system, which is based on important counterweight between the central government, the Congress, the system, et cetera. So that's why it's not only a matter of who's going to be the next in Chile. We have also take into consideration the future composition of the Congress as well. According to the surveys, there's going to be a runoff in December, but we're going to have the final results of the Congress in November in the next week. Even though there is uncertainty about the final composition of the Congress and also in terms of who's going to win the election. I think that it's worth mentioning that today, which is an important difference compared to the election that we had 4 years ago, that there are some consensus in Chile between different candidates and different political factors as well. In terms of put on the table, I would say, 3 important aspects in the policy agenda. First of all, there is a consensus in Chile in terms of the need to improve the long-term sources of economic growth. When we analyze all the different proposals, they are aware about the importance to promote more economic growth mainly investment, especially considering that the external environment will be a bit more challenging in the future. So we don't have important differences in terms of the diagnosis of the importance of economic growth. Also, today, there are not important proposals with higher tax rates. In fact, there are some proposals that are based on lower corporate tax rate, for example, which is a good news as well for the future. And also, we also have an important consensus in terms of the importance to improve, for example, the licenses and permit system that we have in Chile, which is an important factor to promote investment in the future. So all in all, today, I, which is the main difference compared to the elections that we had 4 years ago, there are not important differences in terms of proposals for economic growth for taxes, et cetera. So when we consider this scenario and also the recent improvement in some leading indicators, I think that we have good reason to expect a more dynamism in domestic demand in the future, especially in investment and consumption, even though we have uncertainty for the final result of the presidential elections. Pablo Ricci: And in terms of the bank, the most important result of this is more demand and activity in Chile, which should drive loan growth in all the segments. So in commercial loans, large corporates and multinationals concessions and SMEs, consumer loans, et cetera. So what we've seen is a period of low growth, high interest rates. And now we're moving into a more attractive period with better business confidence, hopefully, better consumer confidence, and that should lead to stronger loan growth, and we have the capital in order to grow. So we don't need more capital. So that means additional points in terms of the bottom line for ROE. Operator: Our next question is from Neha Agarwala from HSBC. Neha Agarwala: Congratulations on the results. Just a quick one on the outlook for 2026. What kind of pickup should we -- can we expect in the coming quarters in terms of loan growth? And what would be the drivers for earnings for 2026, given that there should be some pressure on the NIMs with easing inflation? Pablo Ricci: Neha, I think in 2026, well, today, we don't have guidance yet because it's -- we're working on the budget, and it's something that's being discussed internally in the bank. But what we can say is similar to what we've said in the other questions is what we're foreseeing is a better overall aspect of Chile in the next years. And this should allow us to have in the banking industry to have better results in terms of loan growth, the main area, the main driver for growth for us in the following year. The inflation level, what we expect is to return to levels closer to 3%, somewhere similar in terms of the overnight rate, not too much lower. We're already close to the long-term levels there. So in order to really generate a stronger bottom line over the next years, we should see loan growth is the main driver. So what we have and what's very positive for Banco de Chile is that we have an attractive level of CET1 total base ratio, and this is allowing us to grow when the opportunities arise. And hopefully, that's sooner than later. Rodrigo Aravena: And also Neha, this is Rodrigo Gara. Important to mention as well that we are not expecting important changes in interest rate for the next year. Today, it's likely that the Central Bank will reduce interest rate by 25 basis points the next meeting or probably in the first quarter of the next year. Today, the annual inflation is at 3.4%. So for the next year, it's reasonable to expect a convergence towards the target, which is 3%. So I mean we are not expecting important adjustment in the key factors behind the ROE and NIM as well since we are not seeing important room for adjustment in both interest rate and inflation as well. Operator: [Operator Instructions] Our next question is from Andres Soto from Santander. Andres Soto: My first question is for your loan growth next year, which I will assume you are expecting an acceleration versus 2025. Which segments are you expecting to see faster growth? Is going to be commercial lending in your comments about the third quarter results. You mentioned some market share losses in consumer as other players are focusing in the lower segments of the population. So I would like to understand what is missing for you guys to take a more optimistic view on consumer lending. You have mentioned in this call, this is a segment that is still depressed compared to the pre-pandemic levels. So what is missing for you to see faster growth in the consumer? And overall, what is going to be the driver in 2026 for the total loan growth? Pablo Ricci: Well, in terms of loan growth, what we're seeing the main driver, as you know, commercial loans is the largest mix of the portfolio. So -- and what's been most impacted over the last 5, 6 years has been commercial loans as importance in terms of volumes. So in terms of volumes, we should see a recovery in terms of commercial loans. Within that, we're expecting with better business confidence with more -- less uncertainty, we should see a return of larger corporate demand in Chile. SMEs as well should have a very good activity in this environment with a better global activity in GDP, unemployment, they're much more cyclical, as I mentioned. And in consumer loans, we should see slowly as we should continue to see slowly that the consumer loans will continue to improve in line with unemployment rates. For what's happened in the consumer loan segment is that some players in Chile have implemented or have focused on the lower income segments where we're not active today, penetrating that market more than us. Probably we have a customer base that's a higher net worth customer base. as well that it's not demanding as much loans. But we continue to grow well. So in a new environment next year with better business and consumer confidence, we should see more attractive loan growth in this segment, and we're implementing different digital initiatives to understand the customers in order to offer them products to the channels that they desire with business intelligence, much more focused on each customer rather than global plans that are focused over the entire segment. So we're trying to personalize much more of the information that's going to these customers. Next year should be a more positive year overall. Andres Soto: My next question is regarding capital. Your core equity Tier 1 is 400 basis points above all your peers, basically. What level do you guys feel necessary for the growth that you see ahead? And how you imagine the capital normalization of Banco de Chile taking place? How long is going to take place for you to get to a level you see as the adequate level for capital? Daniel Ignacio Galarce Toro: Andres, this is Daniel Galarce. From the capital point of view, as we have said, of course, we have today important buffers and favorable gaps over the regulatory limits. Basically, everything depends on how the portfolio will normalize in terms of loan growth in the future. And basically, in which products we will increase and we will expand our portfolio in the future as well. As Pablo said, we are expecting to grow more in commercial and consumer loans. We want to be leaders in those lending products and those products are more intensive in terms of use of capital, of course. So everything depends on the evolution of loan growth in the future. So probably we will have a normalization in terms of capital buffers probably over the midterm, 3 years or something like that, depending on the economic activity in the country. Andres Soto: And which level will be that? Daniel Ignacio Galarce Toro: Well, we don't have any specific target, but in the long run, we will -- we need and our aim is to be always at least 1.5%, 2%, something like that in the range of 1% to 2% above regulatory limits. Operator: We would like to thank everyone for the questions and the participation. I will now hand it back to the Banco de Chile team for the closing remarks. Pablo Ricci: Thanks for listening, and we look forward to speaking with you for our full-year results next year. Operator: That concludes the call for today. Thank you and have a nice day.
Kimberly Callahan: Good morning, and welcome to Camden Property Trust Third Quarter 2025 Earnings Conference Call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today for our prepared remarks are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, Executive Vice Chairman; and Alex Jessett, President and Chief Financial Officer. We also have Laurie Baker, Chief Operating Officer; and Stanley Jones, Senior Vice President of Real Estate Investments available for the Q&A portion of our call. Today's event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available shortly after the call ends. And please note, this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden's complete third quarter 2025 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We would like to respect everyone's time and complete our call within 1 hour. So please limit your initial question to 1 then rejoin the queue if you have a follow-up question or additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Ric Campo. Richard Campo: Thanks, Kim. Our on-hold music theme today was moving. This week, we completed the move of Camden's Houston corporate headquarters from Greenway Plaza to the Williams Tower in the Galleria. This is a big deal. Camden has been at Greenway Plaza for over 40 years. We are excited about moving on and the new beginnings that it will bring for 2026 and beyond. As I was leaving my office for the last time, the thought that popped in my head was don't look back. And that reminded me of a song by the classic rock band Boston. The first versus of the song captured my sentiment as I was leaving the building. Don't look back, a new day is breaking. It's been too long since I felt this way, I don't mind where I get taken. The road is calling today is the day. Team Camden is not looking back. We look forward to welcoming you to our new offices, and we look forward to the continued success for the next 40 years. Strong apartment demand continued through the third quarter, making 2025 one of the best in the last 25 years for apartment absorption, helping to fill up the record number of recent deliveries. The summer peak leasing season was met with continuing new supply, slower job growth and economic uncertainties that led apartment operators to focus on occupancy instead of rental increases earlier in the season than usual. Apartment affordability improved during the quarter with 33 months of wage growth exceeding rent growth and increased affordability improves apartment residents' ability to absorb higher rents when new apartment deliveries are leased up in 2026 and beyond. Apartments and our shares are on sale, but not for much longer. Resident retention continues to be strong, in large part because of living excellence provided by our on-site teams. Great job, Team Camden. The case for investing in apartments is compelling. Demand is high, supply is falling to below 10-year pre-COVID averages, bringing balance back to the market. Rents are affordable, apartments provide flexibility and mobility to residents. Rent versus buy economics favor renting more than ever. And demographic and migration trends both support new demand going forward. We look forward to moving to a stronger growth profile after the excesses of post-COVID supply environments end. Camden is positioned well with one of the strongest balance sheets and no major dilutive refinances over the next couple of years. Private market sales of apartments have been robust with cap rates for high-quality properties landing in the 4.75% to 5% range. And there is a clear disconnect between private and, and public market values for apartments. In the quarter, we bought back $50 million of our shares at a significant discount to consensus net asset value. If market conditions remain at current levels, we will continue to buy the stock, and we have $400 million remaining in our authorization. This can be funded through dispositions of our slowest growing higher CapEx properties. I want to give a big shout out to Team Camden for their steadfast commitment to improving the lives of our teammates, our customers and our stakeholders, one experience at a time. Thank you. And next up is Keith Oden. D Keith Oden: Thanks, Ric. Camden's third quarter 2025 operating results were in line with our expectations with same-store revenue growth of 0.8% for the quarter up 0.9% year-to-date and up 0.1% sequentially. Occupancy for the quarter averaged 95.5%, consistent with third quarter of 2024, and down slightly from 95.6% last quarter. Year-to-date through September, occupancy has averaged 95.5% versus 95.3% last year. Rental rates for the third quarter had effective new leases down 2.5% and renewals up 3.5%. Our blended rate growth was 0.6% declining 10 basis points from last quarter and 40 basis points compared to the third quarter of 2024. Our preliminary October results reflect typical seasonality and a moderation in both pricing and occupancy as we move into our slower leasing season during the fourth and first quarters. Renewal offers for December and January were sent out with an average increase of 3.3%. Turnover rates across our portfolio remain 20 to 30 basis points below last year's levels and move-outs attributed to home purchase were a record low of 9.1% this quarter. Moving into new office space is never easy, especially when it involves 5 floors and several hundred corporate team members. But the end result was definitely worth a significant amount of time and effort invested by our design and special projects team. Our new headquarters look amazing. A big shout out to Venmills, Chrissy Hopper, Luther Alanis, Kevin Neely, Amy Funk, Zev Malone, Teresa Watson, Blake Robinson, Pango, Derek, Aaron and the entire IT support team. And finally, we want to give a special thanks to Camden's team of executive assistance on a job incredibly well done. We can't wait for everyone to get a chance to visit. I'll now turn the call over to Alex Jessett, Camden's President and Chief Financial Officer. Alexander Jessett: Thanks, Keith, and good morning. I'll begin today with an update on our recent real estate activities, then move on to our third quarter results and our guidance for the remainder of the year. This quarter, we disposed of 3 older communities for a total of $114 million. Two of the 3 disposition communities were located in Houston and the third in Dallas. These disposition communities were on average 24 years old. These older, higher CapEx communities were sold at an average AFFO yield of approximately 5%. We used the proceeds in part to repurchase approximately $50 million of our shares at an average price of $107.33, which represents a 6.4% FFO yield and a 6.2% cap rate. During the quarter, we stabilized Camden Durham and completed construction on Camden Village District both located in the Raleigh-Durham market of North Carolina. Additionally, we continue to make leasing progress on Camden Long Meadow Farms, one of our two single-family rental communities located in suburban Houston. At the midpoint of our guidance range, we are now anticipating $425 million of acquisitions and $450 million of dispositions for the full year, reduced from our prior guidance of $750 million in both acquisitions and dispositions. This implies an additional $87 million in acquisitions and an additional $276 million in dispositions in the fourth quarter. Turning to financial results. Last night, we reported core funds from operations for the third quarter of $186.8 million or $1.70 per share, $0.01 ahead of the midpoint of our prior quarterly guidance, driven primarily by the combination of higher fee and asset management income and lower interest expense resulting from the timing of capital spend and lower floating rates. Property revenues were in line with expectations for the third quarter. We are pleased with how well our property revenues are performing considering the peak lease-up competition we are facing across many of our markets, illustrating the significant depth of demand in the Sunbelt, and we did adjust our full year 2025 outlook for same-store revenue growth from 1% to 75 basis points, and property expenses continue to outperform, particularly property taxes coming in well below our forecast once again. As a result, we are decreasing our full year same-store expense midpoint from 2.5% to 1.75%. And maintaining the midpoint of our full year same-store net operating income growth at 25 basis points. Property taxes represent approximately 1/3 of our operating expenses and are now expected to decline slightly versus our prior assumption of increasing approximately 2%. This is primarily driven by favorable settlements from prior year tax assessments and lower rates and values primarily from our Texas and Florida markets. For the fourth quarter, we are assuming occupancy will be in the range of 95.2% to 95.4%. Blended lease trade-out will be down approximately 1% and bad debt will be approximately 60 basis points with then 10 basis points of our pre-COVID levels, almost entirely as a result of the decreased transactional activity anticipated in the fourth quarter combined with lower floating rate interest expenses, we are increasing the midpoint of our full year core FFO guidance by $0.04 per share from $6.81 to $6.85. This is our third consecutive increase to our 2025 core FFO guidance and represents an aggregate $0.10 per share increase from our original 2025 guidance. We also provided earnings guidance for the fourth quarter. We expect core FFO per share for the fourth quarter to be within the range of $1.71 to $1.75, representing a $0.03 per share sequential increase at the midpoint, primarily resulting from the typical seasonal decreases in property operating expenses, favorable final property tax valuations and rates and lower interest expense, partially offset by the impact of our anticipated fourth quarter net dispositions. Noncore FFO adjustments for 2025 are anticipated to be approximately $0.11 per share and are primarily legal expenses and expense transaction pursuit costs. Our balance sheet remains incredibly strong with net debt-to-EBITDA at 4.2x. We have no significant debt maturities until the fourth quarter of 2026 and no dilutive debt maturities until 2027. Additionally, our refinancing interest rate risk remains the lowest of the peer group, positioning us well for outsized growth. At this time, we will open the call up to questions. Operator: [Operator Instructions]. Our first question today comes from Eric Wolfe from Citi. Eric Wolfe: I was just wondering if you could provide any early thoughts on 2026 in terms of the building blocks earning -- any thoughts on other income or whatever else you can share about how you're thinking about 2026 at this stage? Alexander Jessett: Yes. So certainly, we're not giving guidance for 2026 quite yet. What I will tell you is the earn-in for us is probably going to be pretty much flat, which is going to be consistent with the earn-in that we had for 2025. Everything else we will give you when we have our next earnings release. But I will tell you, if you look at just the broad environment and what's going to be happening in 2026, it certainly does shape up much better than we saw in '25 in terms of uncertainty that's out there. If you think about when we were going through 2025, obviously, there was a tremendous amount of uncertainty around tariffs, around taxes, et cetera, most of that should be worked out as we go through 2026. The other thing that we think about is a significant amount of multifamily supply that was absorbed in 2025 that we will not have to absorb in 2026. So as I said, we're not going to give any guidance, but if you're an optimistic person, there's certainly things to be optimistic about when we look at next year. Operator: Our next question comes from Jamie Feldman from Wells Fargo. James Feldman: You talked about the public-private disconnect around apartment valuations. I was hoping to get your thoughts on the current broader appetite for investment in apartments from private investors, especially for groups that can write the really big checks, given the growing concerns on jobs, immigration, the government's focused on fixing the housing market? And are there any specific markets that stand out in terms of more interest, less interest or even from your end, more concerned or less concerned given the macro overlay. Richard Campo: So the first thing I'll tell you is there remains robust demand for multifamily. In fact, if you look at the amount of dry supply -- or excuse me, dry powder that is there by asset class, multifamily absolutely leads all asset classes. And so everybody is looking for assets. The challenge is, there's just not a lot out there. Stanley, I don't know if you want to opine on this. Stanley Jones: Sure, Alex. Just a little bit of additional color on the current transaction environment. Like Alex said, the market is healthy. There's a ton of debt and equity capital available. There's really good bid depth and thus really strong liquidity in the market. So with respect to volumes, 2025 is trending about the same as 2024, so still well below pre-COVID levels, which is, to some extent being driven by lenders continuing to modify and extend loans. So no meaningful distress in the market. And from a pricing standpoint, cap rates have really stabilized over the last few quarters with cap rates for Class A assets in our markets in the 4.5% to 5% range and in the Class B space in the 5% to 5.5% range. Richard Campo: Let me add to that, that there's probably -- there's definitely been more sales on the coast than there have been in the Sunbelt. And the reason being that clearly coastal revenues, you can predict in terms of positive growth easier than you can in the Sunbelt, given the supply issues that we've been facing there. And when you think about sellers, the seller in the Sunbelt is looking at the market saying we do know that supply and demand will be in balance. The question is when. And so there is a -- to Stanley's point, the lenders are not pressing people to sell. So why would you sell into a market when underwriting future growth is more difficult today just because of what's going on in the marketplace. So there's less transaction volume in the Sunbelt. I think what's going to happen, however, there will be a pivot and that pivot will probably happen sometime in, I would guess, mid-26 and you'll have a combination of lenders finally saying, "All right, we've extended. Now you need to do something." so that's going to put pressure on sellers to sell. But at the same time, once you get to the middle of '26, based on Alex's discussion a minute ago, you should have a more constructive environment, and it should be easier than for people to look out into '27 and '28 and see a very robust rental growth scenario given the supply dynamics that we have today. Operator: Our next question comes from Adam Kramer from Morgan Stanley. Adam Kramer: Just wanted to ask about sort of how you see the fourth quarter shaping up relative to normal seasonality. I think one of your peers talked about a sort of a relatively normal 4Q, maybe even a little bit better than normal seasonality in the fourth quarter. I think that was a little bit of a surprise, just given some of the headlines and some of that is a little bit sensational out there. But just wondering, within your portfolio with absorption data that actually, I think, still looks pretty good for the Sunbelt and even nationally, how do you see the fourth quarter shaping up in terms of lease spreads relative to typical seasonality? Richard Campo: Yes. So the first thing I'll tell you is, if you think about our portfolio, and it's important before we talk about the fourth quarter to go back and look at the third quarter, if you look at the deceleration that we saw from 2Q '25 to 3Q '25 on a blended rate, it was only 10 basis points. I think that's the lowest deceleration in the space. And what that tells you is that we're starting to get some footing here in the Sunbelt markets. When we go into the fourth quarter, what we're anticipating and what I said in the prepared remarks is that we think our blend will be down about 1%. If you sort of think about that on a typical seasonality basis, this sort of is what you see in the fourth quarter. And this year, now we did sort of hit the slower leasing period 1 month earlier than we typically would, but the fourth quarter is shaping up like a traditional fourth quarter. Operator: Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Austin Wurschmidt: Kind of going back and piggybacking on the last question, I mean, so with this sort of reacceleration now in lease rate growth, -- would you expect that to just carry into the early part of next year and into the spring leasing season based on what's going on in the fourth quarter versus what you expect -- what you saw in the third quarter? And then just also -- so is it occupancy that's the driver of that 25 basis point decrease to 2025 same-store revenue growth guidance? Stanley Jones: So Austin, thanks again for the '26 guidance question. We're not going to answer '26 guidance questions quite yet. But what I will tell you is -- the main driver that we saw in the reduction, which is a very minor reduction in top line revenue growth, was an occupancy driven. It was rate driven, and that is because we were making sure that we could get the occupancy to the level that we felt comfortable for going into the fourth quarter. And in order to do that, we did have to drop rental rates slightly. Richard Campo: I think the key takeaway that we're going to give you for 2026 is based on Alex's answer to the question, maybe 2 questions ago. And that is there should be less uncertainty in 2026. And the uncertainty that we have today, we know that tax reform is off the table, we know inflation is coming down. We know that Federal Reserve's lowering rates. And we know that there's a midterm election coming, which means that the administration is going to do whatever they can to make sure the economy is good in November of 2026. The big tariff debates will likely be less of a debate during that period for all the obvious political reasons. And we have a 25% reduction in new deliveries in Camden's markets. And so -- with all that said, generally speaking, when you have a midterm election in this environment, you're going to have a -- unless something really comes off the rails, it should be a reasonable environment to improve demand and to create more optimistic scenario in 2026. Now obviously, there could be lots of slips that change that, but we'll see. Operator: Our next question comes from Steve Sakwa from Evercore ISI. Steve Sakwa: Ric, I guess going back to your question about the disconnect between public and private, I guess, how big are you willing to lean into that on the share buyback and do dispositions. There hasn't been many very large buybacks in the REIT space. And typically, they haven't been overly success, but I'm just curious, how much would you lean into this size-wise? Richard Campo: Well, the -- if you go back in history, in the -- leading up to the bubble and the tech rec in 2000, we bought 16% of the company back at that point. We could sell properties on Main Street for $0.75 or for $1, and we could buy our stock back for $0.75 on the dollar. Right now, with the current stock price today, it's a 30% discount to consensus NAV. It's a mid-6, mid-6% cap rate. And the market today is a 4.5% to a 5% cap rate. So with simple math, that's a 150 to 200 basis point positive spread to sell an asset and buy stock. And we've always said that we would allocate capital in this way if we had a significant discount, I think 30 is pretty significant. And it was persistent, meaning that we had enough time to be able to sell assets to fund the buybacks. We will not increase leverage to do that. And it's very typical capital allocation model. And over the last maybe 7 or 8 years, we've had opportunities to buy stock back, but it's never lasted long enough and with the constraints that we have on how much we can buy in a day and that kind of thing. The opportunity is not lasted long enough to actually make a material difference. Today, we'll see how long it lasts, and we're going to lean in pretty well. Operator: Our next question comes from Michael Goldsmith from UBS. Michael Goldsmith: Can you talk a little bit about the impact of direct supply? And if there's any way to quantify how that will improve like, for example, are you able to provide how much of your portfolio is directly competing with supply now? How does that compare to last year? And if there's an anticipated figure for next year? D Keith Oden: So you -- I didn't hear the first part of your question. You said direct supply? Michael Goldsmith: How much of your portfolio is directly competing with some new supply? D Keith Oden: Yes. So every part of our portfolio is directly competing with delivered supply. So we're in the -- between last year and this year going into 2026 -- we're going to see the highest number -- the largest number of supply across Camden's portfolio in the last 45 years. So it's pervasive. Obviously, some places are better than others, but all -- everyone is dealing with some level of supply. The highest 2 markets in our world, for supply and the impact thereof is or Austin and Nashville. And to various degrees, all of our markets are dealing with some level of oversupply. California would probably be at the very far end of the range, but still there's supply issues and supply that we're having to deal with there. So to one degree or another, every market has been impacted. The good news is as Ric mentioned, we're likely getting going to see a 25% decline in deliveries next year. If we continue to see good demand that has continued across our platforms, incrementally, it should be better in terms of the absorption making a difference for our ability to push rents and maintain occupancies. Stanley Jones: When we look at specific assets that are younger, that are directly in submarkets where there is a tremendous amount of new supply we are seeing significant improvements on that. Last year when we first started talking about this number, we said that about 20% of all of our assets were directly competing with new supply, thanks to the record level of absorption that we've seen in '25. The good news is that number is down to 9% of our portfolio today. And that's just going to continue to improve as we go through '26 and into '27. Richard Campo: I think the other thing you have to think about in -- and I'll just use an example like Austin, which is like the poster child or poster city for excess supply. So in Austin, even the suburban properties that are older and kind of B properties in good locations, are all feeling the supply pressure. And the reason it's not that they're so competitive with the new supply. It's just that consumers in Austin read the paper every day, saying apartment rents are coming down, and they expect a deal. And so you have a consumer sentiment issue in some markets like Austin, Nashville, and a couple of others. And where the consumers, even though there's not as much competition in the suburban B properties, the consumer has this mindset that they have to get a discount and then that just kind of feeds into the market and you end up with a market that -- where you can't actually raise rents because of that sentiment. Once that -- you have that pivot point, it changes dramatically. Laurie Baker: And I would just add, Ric, this is Laurie. That if you look at Austin, which does have quite a bit of supply, a great example of a story where the tides eventually will turn is Rainy Street, and it can turn quickly. And so we're going from the lowest occupied community in our portfolio mid-summer to now the highest occupied community. So it's starting to turn. And when it does, I think it will turn quickly. Operator: And our next question comes from Jana Galan from Bank of America. Jana Galan: Congrats on your move. I was hoping, can you provide some commentary on what your team is seeing in greater DC, given it's been such a strong performer this year and into the third quarter, but some of the years noted less activity. If you could just comment on that. Stanley Jones: Yes. So D.C. Metro remains our top market. And if you sort of look at how it progressed throughout the year, in the first half of this year, it was just an extreme outlier in terms of new leases and renewals. And we think most of that was driven by the return to office movement, in particular on the government side. As we're progressing throughout the year, obviously, we think most of those folks have returned to office and have now leased their apartments and so now it's gone from being an extreme positive outlier to just being the best market we have, which we'll still definitely take you look at it, it is our -- in the third quarter, it's our top sequential revenue market. It's our top quarter-over-quarter revenue growth market. And -- and it just remains incredibly strong. When it comes to DOGE, because obviously, that's what we talk about so much. I will tell you, we are still not seeing any evidence of our consumer being directly impacted by DOGE. What we're seeing more is a shift in the market of the way our competitors are reacting and concerns about potential impact from DOGE. But we're just not seeing it whatsoever. It remains an incredibly strong market. And as you know, when we're talking about D.C. Metro, we're really talking about the DMD and the trend continues where Virginia is -- or Northern Virginia, which is where we have most of our real estate is incredibly strong followed by the district and then followed by Maryland. Operator: And our next question comes from Rich Anderson from Cantor Fitzgerald. Richard Anderson: So I understand the uncertainty or lack or maybe lower uncertainty next year. I'm in the camp that I don't know, I think there will always be a lot of uncertainty in the next few years, but we'll see. But in terms of supply and its impact on 2026, not a guidance question, I just want to know your history is with -- when guidance -- excuse me, when supply delivers what's the typical tail of disruption from that asset or those collections of assets that come to market essentially vacant. Is it an 18-plus month sort of issue and maybe the real growth story for Camden doesn't materialize until 2027? Or is it quicker than that? And maybe you can say something specific about your portfolio that makes it quicker or longer based on your own circumstances. So I just want to get some color on how supply might impact things next year, even though the deliveries are coming down. D Keith Oden: They are coming down. I think in our portfolio, if you kind of look at the mix between Whitten and RealPage's numbers, they've got supply in Camden's markets coming down from 190,000 in 2025, down to about 150,000 in 2026. If you roll that forward to 2027 on their numbers, you're going to be somewhere around 110,000 completions across Camden's platform. So the trick and the tail that you're talking about, it's always a little tricky because when something delivers, usually the data providers are talking about building completed buildings, if they have the granularity to say that they've received their certificate of occupancy that becomes supply. The reality is, is that people don't go to that level of detail on when an apartment community delivers actual leasable units. So that -- but if you think about the time it takes from the beginning of first apartments delivered, and I'm talking suburban, walk-up type product, from that point forward on a typical 300 apartment community, average lease-up is going to be somewhere around 25 units per month. So call it, 10 to 12 months if things are kind of at a normal pace, you would expect to see all of those units absorbed over that 10- to 12-month period from the time that you first start turning your apartments. So there's just a lot of gray areas around when does that happen? When does construction end, does that really matter? It doesn't really -- what really matters is leasable apartments that come online for the developer to be able to put to sign a lease on. So that's kind of what we're looking at. So if you think about the average coming down from 190,000 apartments to 110,000 over a 2-year period, it's pretty significant. And if the demand side of the equation stays kind of like it is today, doesn't have to get a whole lot better, just kind of in this zone, then you're going to see a significant impact -- positive impact in 2026. And there's no chance that, that doesn't get better in 2027 because that cake is already baked on deliveries for 2027. Richard Campo: I think we need to talk more about demand than supply because we know what supply is, right? And so when you think about demand, 2025 was the best year in 20-plus years of apartment absorption in spite of the incredibly high supply that came into the market. What's driving that is the same thing that's been driving apartment demand for a long time, migration, demographics. And today, we have even a more interesting one, which is the retention. So retaining more people than we ever have, which means that we don't need as many people coming in the -- to lease new apartments when the people are moving out. And so you have this really interesting situation where people are staying longer everywhere. You have less mobility in America today for lots of different reasons, and it's really helping the apartment markets. And then if you pivot to, to home purchases and think about that, we have 9% of our people moving out to buy homes. That is not going to change anytime soon. If you look at the math on homes, if you look at medium income for a home or medium home price plus interest at current cost, it's $3,200 a month compared to in 2019 when it was $1,750 a month. And what's driving that clearly are 3 major things. One is home price appreciation is up over 50% since in most markets, some doubled in -- since 2019. You had increases in interest rates, obviously, and increases in taxes and insurance. if you had a 0 to 30-year mortgage rate, the monthly cost for a medium price home today would be about $1,900 a month compared to $1,750 in 2019. And the driver of that is not interest rates, the driver is home price cost and insurance and taxes. So it's going to be a long time before you have people moving out to buy houses. The other part of the equation, I think the medium age of first-time homebuyer today is 40 years old before COVID, it was like 34 or 35. So there's been a massive shift and the ability of Americans the demographics continue to be in our direction plus migration. And so I think the demand side is going to be much higher than people believe because of that -- those equations. And so I think we need to focus on demand as much as supply for sure. Operator: Our next question comes from Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Ric, we'll stick with the 40 years of experience that you guys have. I was just looking at a stock chart of Camden and not to -- I'm not picking on Camden, but REITs have had a tough go in the public world. And maybe the private world isn't any better, but it just seems that in the private world, the assets are rewarded more than they are in the public world. I'm just curious, in the 40 years, you and Keith took Camden public, what do you think is missing there? And do you think that the current setup where, as you just described, less home affordability, more propensity to rent, do you think it's finally the time where we will see the REITs actually deliver what they're supposed to? Richard Campo: If you do take a look at the private values and public values, over a long period of time, they're pretty close. We have for 40 years or 33 years as a public company, there's times when the markets get dislocated like they are now. And generally speaking, it hasn't lasted very long because once the market decides that, that the assets are undervalued then smart investors come in and buy the stock, so they drive the prices back closer to NAV. And so for me, being in the public market, I think it's great. We have access to capital that none of our private competitors have. We don't have the same sort of business model, which is I got to sell my properties in order to create value for my shareholders or from my owners. So you're constantly buying and selling and buying and selling or building the selling. And that's a great business model for some, but -- but for us, we buy and hold and create long-term cash flow and benefits for our shareholders. And I think it's a great space. D Keith Oden: Yes. So Alex, I kind of think of it like a playing field. And the playing field over our 30-plus years as a public company, sometimes it's been tilted in our favor. Sometimes it's been tilted in the favor of the private guys -- and it can happen pretty quickly. If you think about kind of coming out of the COVID world or in the bottom of that time frame, the playing field got tilted pretty quickly towards the private guys because debt was free and plentiful. And that's never a good -- that's more interesting to private guys than it is to public companies. So for the last couple of years, in my mind, has sort of been tilted our way a little bit on the -- certainly on the debt side, certainly on the balance sheet side of things, the ability to finance projects that private guys probably couldn't have gotten done in the last 18 months. I think there's still some of that out there, and I think that we're going to continue to use that to our advantage. Richard Campo: Let me just add one last thing because oftentimes, people would ask me, especially when we get to a discounting NAV like we are right now, they go, why are you public? And why wouldn't you just go private? Just sell the company. They're like, okay, I got that. So there is a disconnect, and it's significant, right? It's like $3 billion, okay? So if somebody buys the company, then they're going to make an expected rate of return on that asset that they buy. And ultimately, they believe that the prices are going to continue to rise and therefore, we're going to make a reasonable rate of return. And so at the end of the day, if the reason that we are at a significant discount to NAV is because people don't trust management. We are a value trap. We really are a poor operator, and we just are awful and you can't really bridge that gap. And yes, so the company move on because the market is voting you deserve to be a public company and valued at least what your assets could trade for in the private market. On the other hand, if you have a dislocation in the market like we have today, right? So we have slow growth or flat growth and you have uncertainty environment, you have an oversupply condition, and there's a lot of concern about when that supply condition is going to change. That will change. And what will happen, the same thing that's happened over the last 30-plus years is the market will recognize that the stocks are cheap, the stock will go up to or above its NAV, and that you'll be back. And so to me, the issue is what is causing the disconnect and then what -- how do you get out of that disconnect and ultimately, the market will figure that out, and it may take longer or shorter. It just depends on what's out there and what's the du jure of investors today, but we feel pretty comfortable where we are. Operator: Our next question comes from Wes Golladay from Baird. Wesley Golladay: I just wanted to ask you about selling the assets that you're doing. Are you able to shield the taxable gains there? And then one separate tax question. I believe you mentioned there was a big accrual the big rebate you got from a prior year. How much of a headwind will that be for next year? Richard Campo: Yes. So the first thing I'll tell you is if you look at the sales that we're doing, we are doing 1031 exchanges on those with the acquisitions. We're doing reverses. So we bought the real estate first. And then we're selling the real estate. So that's what we're going to do now. To piggyback to one of Ric's earlier comments about buying back shares, we do have the ability to sell or to absorb about $400 million of gains where we don't have to do 1031 exchanges if we want to use those proceeds to repurchase shares. When you think about property tax refunds, here's the best way to think about it. If you look at 2024, we had about $6.5 million of property tax refunds. If you look at 2025 that number dropped down to about $5.5 million. But we are consistently good in getting refunds. This is something we do. As we've talked about in the past, we contest almost every one of our valuations. If we go through a normal contesting process and we don't win and we don't feel comfortable with where we're settling, we will file lawsuits. And a lot of what you're seeing are -- is the settlement of those lawsuits. We have no reason to anticipate that in '26 and '27 and '28 and going on forward that we won't continue to have the same level of success that we're seeing. And so I'm not anticipating any significant sort of headwinds associated with the refunds that we got in '25. In particular, as I said, because the refunds we got in '25 were actually less than the refunds we got in '24, and we're still showing a negative growth on the property tax side. Operator: Our next question comes from Rich Hightower from Barclays. Richard Hightower: Covered a lot of ground this morning, but I believe at Camden sort of has an operational philosophy not to use concessions. But obviously, the market around you, we'll use concessions and flex up or down based on the individual operators. So as you think about -- or as we think about sort of market rents next year comping against sort of the net effective market rents in '25, what's the impact of concessions as far as you can tell. So it's a bit of a sneaky question on '26, but just help us understand. Richard Campo: Well, a little bit of a sneaky question. But I think what would be helpful for you is for Laurie to sort of give a rundown of what we're seeing in the market, not for Camden, but in the market on the concession side. Laurie Baker: So in our highest supply markets, we continue to see elevated concessions as operators work through the success inventory. But on average, these markets are offering right around 5 weeks of concessions, approximately 10%. So those key markets include Austin, Nashville, Denver and Phoenix. And so where supply pressures remain most pronounced, that's what we're seeing. But despite these headwinds, we've been able to kind of navigate these markets pretty well, and we're outperforming the market average, each with kind of limited pricing power. But again, those are embedded into our net prices. So beginning in July, we actually initiated incremental price reductions, so that we could prioritize our occupancy, and that strategy has really paid off. So while conditions remain challenging, we are taking a disciplined approach to really position ourselves to remain strong on the occupancy side as we head into next year. Richard Campo: So if you look at the concessionary impact in the market then. So if you look at the highest supply markets, we just talked about Austin, Nashville, et cetera. So they're having 10% concessions or sort of think about effectively 6 weeks, that's what needs to burn off in 2026. Now the good news is, is that those concessions are not being prorated mostly and so they're upfront, which means that the consumer is used to paying the appropriate rental rates. And so when they go to renewals, it shouldn't be a big shock to them. But that is what needs to roll off in those markets. Operator: Our next question comes from John Kim from BMO Capital Markets. John Kim: Despite the favorable supply outlook with deliveries going back to pre-COVID levels, you haven't started the development projects since the first quarter. And I'm wondering why projects had not leveled out for you at this time. Or do you plan to accelerate development starts as indicated on the last call? Richard Campo: Yes. I mean what I'll tell you is today, you can buy real estate at a discount to replacement cost. And if you can buy real estate at a discount to replacement cost, then that is a better use of capital. In addition, obviously, as we just talked about, we are using some of our capital to repurchase shares. Now I will tell you, this is going to change. We are already seeing construction costs starting to come down. Depending upon where you're building those costs can be down 5% to 10%, which will certainly help the math. The other thing I would tell you is we are very good developers. And when we find land sites and we are actively looking at additional land sites, we've got land sites under contract as well. when we pulled in a trigger, it's because we believe that we can create value for our shareholders. And we do believe with construction costs coming down, looking at, what, '20 -- call it, '26, '27, '28 could look like in terms of revenue growth. That can make a lot of math work -- and so expect to see us get a little bit more active on the development side. But in 2025, as I said, when you combine a discount to replacement cost, that just seemed like a better use of capital. Operator: Our next question comes from Linda Tsai from Jefferies. Linda Yu Tsai: Nice work with your 3Q blends being down only 10 bps quarter-over-quarter. With your 4Q blends expected to be down 1%. Is that all of the new leasing spread side, as it seems like the 4Q comparisons are a bit easier than 3Q. So just wondering if there are certain markets where you're seeing more softness or that somewhat reflects conservatism. Richard Campo: Yes. So the first thing I'll tell you is, I made the comment that as we were going through the end of the third quarter, we did make a push on the occupancy side. And when we made that push on the occupancy side, that was at the expense of some new lease growth. And so when you sign something in the third quarter, you're effectively seen in the fourth quarter. So yes, we are expecting new leases in the fourth quarter to be the primary driver of what we're seeing in terms of having a blended fourth quarter of just negative 1% approximately. So that's where we're seeing it. Markets that we're seeing additional softness, there's no one market that jumps out. I will tell you, that we are starting to see some markets that are doing the inverse that are actually doing better than we had expected. And call out a couple of those markets because I think we focus too much on the ones that are a little softer, let's focus on some of the good ones. And so we absolutely saw second and third quarter improvements in Nashville, in Dallas and Charlotte and in Atlanta. And then Laurie can give some quick entail of what we're seeing on the ground there. Laurie Baker: Yes, absolutely. So while we experienced the elevated supply in these markets, we're starting to see really some encouraging signs, signs as demand rises. So on -- or actually, I would say, as the demand really remains strong. But on total rent gain for renewals and new leases, blended rents have actually turned positive in Dallas, Charlotte and Nashville. And we're also seeing improvements in Atlanta. So some specifics just to give you a little color. So in Dallas, for instance, blended rent gains improved quarter-over-quarter, moving from a negative point -- or negative 1.2% to a positive 0.6%. We also saw our average days vacant improved by 7 days. So moving from 38 days in Q2 to 31 days in Q3. If you look at Charlotte, again, blended gains moved from negative 0.2% and to a positive 0.5%. So an improvement there. We also saw 61 more move-ins in Q3 than we saw in Q2 just in Charlotte. Nashville, let's talk about that in another high supply market, but we saw blended gains improve from a negative 1 point -- yes, negative 1.3% to a positive 0.4% in the quarter. And we also saw our renewals and transfers peak in August. So again, that was the highest they've seen in Nashville for the whole year and then I'll end with Atlanta. Blended gains increased from -- it was already positive, but it was positive 0.3% and we improved 2.7% quarter-over-quarter and recorded 96 more move-ins during the third quarter than the second quarter. So just some positive improvement particularly with the blended shift in rents being strong occupancy trends or signaling just progress we're making in managing these challenges in the these concessionary supply-driven markets and positioning ourselves for really a sustained recovery if all things remain the same. Richard Campo: Yes. I just want to piggyback really quick because Nashville is an interesting market. Granted, we only have 2 assets in Nashville. But obviously, it's a market that we talk about supply quite a bit. And Laurie had talked really great about how fast Rainy Street in Austin turned. In Nashville, when you look at the actual lease rates on new leases, that went up $61 from the second quarter to the third quarter. $61 is pretty dramatic, and that tells you how fast things can turn. Operator: Our next question comes from Michael Lewis from Truist. Michael Lewis: Great. So I want to go back to the conversation about demand that came up in a few questions. And I want to push back on anything you said, I agree with all of it, but I think you left out at some point. And so -- let's pretend I'm not an optimistic person, and I look at October, the most layoffs in any month since 2003, 22 years ago, manufacturing activity down 8 straight months, inflation is now 3% and Fed's going to be cutting. The ADP drives number came out. It's really just healthcare and education, not really adding jobs anywhere else. So why shouldn't I be concerned about demand as we kind of move forward the next few months? And I know you're not giving '26 guidance, but would it be completely shocking if same-store revenue was not materially better than it was this year? Like would that be stunning? Richard Campo: I think the -- look, I put, I think, a cautionary side of the equation and said the glass is half full, but it's still half, right? And it could be half empty if you don't believe that the economy will hold in there for the midterms. So there are things to be optimistic about. There are also things to be worried about. And you just mentioned a number of them, right? I think at least for us, the good news is we don't need as much demand because we have less supply coming in, and we have a retention rates that are at historic highs, right? So we have fewer people moving out. So we don't need as many people to move in to offset those folks. And so I think these are definitely your points are well taken and are -- and we understand them. But I don't think any of us know what the economy will look like. I think we need fewer jobs than normal to have a reasonable apartment market in 2026 because of the other things we talked about. But it's still an issue out there, obviously. D Keith Oden: And just one follow-up, Michael, on the idea of the stats that you gave about layoffs, et cetera. We have a very good barometer in our portfolio given our platform that we know immediately when people start losing their jobs because they move out. I mean it's like almost automatic you lose your job, there's stress, maybe you stay a month, but it's a really quick read-through for us. And we're just not seeing people -- we're not seeing that as an increase as a reason for move out. I lost my job. Obviously, there's always people in the economy who are losing their jobs, but we've not seen what you're talking about, the read-through that would suggest that our residents in Camden's markets are losing their jobs. And that's been -- that's certainly been a hallmark of the past. Our demographic is different. Our markets given the growth profiles of our markets from in migration and the concentration of the jobs that are being created being the preponderance in Camden's markets, I think we've been pretty resilient in the past, and my guess is we will be in the future. Operator: Our next question comes from Omotayo Okusanya from Deutsche Bank. Omotayo Okusanya: Just curious, portfolio-wise if you seen any really big differences in performance in regards to your Class A versus your Class B or your urban versus suburban assets? Richard Campo: Yes. I'll tell you, and I think it's entirely supply driven. We are seeing our Class A assets to a little bit better than our Class B -- and then I will tell you that in the third quarter, our urban assets actually did a lot better than our suburban assets. But once again, that makes sense to me because it's just following where the supply is. If you think about -- the first wave of supply was very urban focused. And then the second wave was suburban-focused. And so now you're seeing the supply disproportionately in the suburban markets. Omotayo Okusanya: But I believe you said that your Class B is doing -- your Class A is doing better than your B, but a lot of the supply is, A, isn't it? Richard Campo: Well, a lot of the supply is A. But if you think about where most of our B assets are, most of our B assets are in the suburbs where the supply is. Operator: Our next question comes from Julien Blouin from Goldman Sachs. Julien Blouin: Alex, on the second quarter earnings call, you mentioned fourth quarter blends would look a lot like the second quarter, but it sounds like guidance now for the fourth quarter is about 150 bps below the second quarter. I guess when you sort of think of all the things you mentioned earlier, slower job growth, supply economic uncertainties. What has changed the most in the last 90 days to drive that? Or is it just the posture of landlords sort of moving more aggressively than anticipated to prioritizing occupancy over rate? Alexander Jessett: I think you nailed it. That's exactly what it is. And it's really interesting to see because D.C.is a great example of that. As I talked about earlier, D.C. is incredibly strong. The reason why we saw a drop off in the third quarter and an anticipated -- continued drop off in the fourth quarter is just all of the talk about those resulted in some reactionary actions from the competitors out there. And I think when you sort of look at the uncertainty that we've talked about quite a bit on this call already, the uncertainty that confines 2025, I think a lot of competitors when they were looking at where they were and realizing that they're about to hit their slow season, which is the fourth quarter and the first quarter, really tried to go after occupancy. And the way they did that is they drop rates. And I will tell you that even though demand is very strong when you have this amount of supply and you've got competitors that are dropping rates all around you, you do have to sort of move in the same direction, and that's exactly what we saw. Operator: And our next question comes from Alex Kim from Zelman & Associates. Alex Kim: Congrats on the move to the new office here. You're down the street from one of my pocket picks, Kenny and Ziggy's now. I want to dive a little into marketing costs here a little bit. This expense bucket has been elevated the past couple of years with double-digit year-over-year growth. And I was wondering if this is somewhat reflective of weaker front-end demand that's required more advertising to maintain leasing traffic and occupancy or something else entirely? Richard Campo: Yes. I'll tell you what it is. It's really 2 things. It's number one, we're really big into SEO, search engine optimization. And so we are buying -- we're buying the placements when people search for apartments. And with the level of supply that is out there and folks are trying to obviously chase the same traffic that we're trying to chase. What we found is that, that the cost of SEO has gone up pretty dramatically. And obviously, if you've got a lot of folks that are buying and trying to make sure that they are the first name that appears, you're going to expect to see some additional costs on that front. So we're absolutely seeing that. And then the second thing, which is in line with your question is if you sort of look at, although demand is record high, supply is also pretty high. And so we're all fighting for the same prospects. And so because of that, we absolutely are trying to make sure that we can generate as much traffic as we possibly can. So that's what you're seeing now. I would expect that once we get this supply absorbed that the SEO costs will come down pretty dramatically. Operator: Ladies and gentlemen, our final question today is a follow-up question from Julien Blouin from Goldman Sachs. Julien Blouin: I just wanted to go back to something you mentioned last quarter's earnings call, which was that Witten Advisors was telling you that 2026, you could see over 4% market rent growth across your markets. I'm just curious, are they still telling you there's a path to that kind of market rent growth in 2016 despite the fact that the second half is maybe playing out a little bit weaker than we had hoped. Richard Campo: The numbers have come down a bit, but they still have 3% or 3.5% in '26 and over 4% in '27, so they have moderated their numbers slightly, but it's not dramatic. And it's likely to be more second half is what they've showed in their model. Operator: And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Ric Campo for any closing remarks. Richard Campo: We appreciate you being on the call today, and we will see some of you in Dallas in December for NAREIT. So thanks a lot. We'll see you then. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to Trinseo's Third Quarter 2025 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO; David Stasse, Executive Vice President and CFO; and Bee Van Kessel, Senior Vice President and Corporate Finance and Investor Relations. Today's conference call will include brief remarks by management team, followed by a question-and-answer session. The company distributed its press release along with its presentation slides after closing market on Thursday, November 6. These documents are posted on the company's Investor Relations website and furnished on Form 8-K filed with the Securities and Exchange Commission. [Operator Instructions] I will now hand the call over to Bee Van Kessel. Please go ahead. Bregje Roseboom-Van Kessel: Thank you, Calvin, and hello, everyone. [Operator Instructions] Our disclosure rules and cautionary note on forward-looking statements are noted on Slide 2. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described or implied in these statements. Factors that could cause actual results to differ include, but are not limited to, risk factors set forth in Item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements. Today's presentation includes certain non-GAAP financial measurements. A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until November 7, 2026. Now I would like to turn the call over to Frank Bozich. Frank Bozich: Thanks, Bee, and welcome to our third quarter 2025 earnings call. I'd like to begin by sharing some information on trade flows in our chemistries as we believe this is instructive for understanding how the end markets we serve have reacted to tariff uncertainties. We've included some of this information on Slide 4 of our presentation materials. In general, we saw a sharp increase in imports of Asian polymers to both the U.S. and Europe beginning in Q1. We believe this was a reaction to the threatened tariff levels that ultimately were announced in early April and an attempt to fill supply chains in the U.S. ahead of the tariffs being implemented. And a redirection of trade flows to Europe from Asia because of slowing demand in China. With respect to the U.S. on Slide 4, you can clearly see a significant increase in imports of ABS, primarily from Asian producers beginning in the first quarter to get ahead of the tariff implementation. Exports from the U.S. of both ABS and PMMA decreased versus prior year, and the decrease was most pronounced in the exports to Canada and Mexico. A similar dynamic occurred in Europe, where Asian material that is typically consumed in China was redirected to the European market, putting margin pressure on the more standard grades of ABS and PMMA. These industry trade flow dynamics continued into the third quarter, resulting in lower volumes versus prior year, but similar volumes quarter-over-quarter. Whether these new levels of demand are transitory or structural remains to be seen. However, late in the third quarter and into the fourth quarter, we are seeing an increased run rate of sales of our more formulated, higher-margin products that is higher than the year-to-date average and prior year levels. In the case of our more formulated PMMA resins, the year-over-year increase in volumes was over 10% beginning in late Q3, and this has continued into Q4. We do believe there is a drive to reshore demand even at slight premiums to the import parity price to derisk longer Asian supply chains and address potential tariff impacts in both Europe and the U.S. Concerning our focus on sustainability, I want to highlight the fact that the European Parliament finalized its vehicle end-of-life directive in September. This mandates that new vehicles must contain 20% recycled plastic within 6 years, 15% of which must come from end-of-life vehicles and this increases to 25% within 10 years. This action formalizes the EU's drive for greater product supply chain circularity. We have remained committed to pursuing investments to scale up our technology for our circular recycled content containing platforms and expect these regulations to drive demand in the near term. Our pilot plants for recycled polycarbonate, ABS and MMA are sold out. The volumes are still small, but will become more meaningful as we ramp up. Year-to-date, our recycled content containing plastic sales grew 2% across all applications with our recycled solutions in Engineered Materials growing at 12%. Before I hand the call over to Dave, let me comment on our press release from the 6th of October, in which we announced the discontinuation of Virgin MMA production in Italy and the intention to close our polystyrene production facility in Germany. We took this difficult decision after carefully considering our options and the impact on our employees. However, it is clear to us that these assets will not be competitive in the long term. Our Rho, Italy site will remain focused on PMMA resin production and will also be the site for our investments in recycled MMA. Pending works council negotiations in Germany, these projects should lead to $30 million of EBITDA improvement next year, and the cash savings will exceed restructuring costs beginning in 2026. Now I'd like to turn the call over to Dave. David Stasse: Thanks, Frank. We ended the third quarter with $30 million of adjusted EBITDA, which was impacted by $9 million of unfavorable raw material timing and negative equity affiliate earnings from Americas Styrenics due to an $8 million headwind from repair and other costs related to an unplanned outage that occurred in June. At the segment level, Engineered Materials adjusted EBITDA was flat versus prior year as fixed cost improvements and slightly higher volumes in PMMA resin for building and construction and automotive applications were offset by lower volumes in medical. On Medical sales, I want to remind you that we reported increased sales last year related to the closure of our Stade polycarbonate site and customers stocking up prior to the shutdown. Latex Binders adjusted EBITDA was $9 million below prior year, mainly driven by lower volume in Europe paper and board applications as well as significant pricing pressure in Europe and Asia. Our higher-margin targeted growth platforms in CASE and battery binders continue to outperform the market. Sales volume in battery binders were up 27% versus prior year for the quarter as we continue to enhance our portfolio, including new customer wins in anode binder applications. We're currently working closely with 5 of the 15 largest lithium-ion battery producers in the world. Lastly, Polymer Solutions adjusted EBITDA was $19 million below prior year, driven by $9 million of unfavorable timing, lower ABS volumes and unfavorable mix related to the closure of our polycarbonate plant. Third quarter free cash flow was negative $38 million, and we ended the third quarter with $346 million of available liquidity. The fourth quarter is typically our seasonally strongest quarter for free cash flow due to a working capital release. We expect our free cash flow in the fourth quarter to be positive $20 million and our year-end liquidity to be over $350 million. Now I'll turn the call back over to Frank. Frank Bozich: Thanks, Dave. Looking forward, we expect fourth quarter 2025 adjusted EBITDA of roughly $30 million to $40 million, and as Dave mentioned, positive free cash flow of $20 million. This forecast assumes a continuation of the year-to-date market dynamics and a somewhat exaggerated seasonal year-end effect as well as $5 million to $10 million of negative raw material timing. We will remain intensely focused on what's under our control, including improving our free cash flow in the short and long term through continued inventory management, restructuring activities and other actions. Additionally, we continue to believe that there are at least 5 triggers that could improve the demand environment. First, trade certainty in any form would improve consumer confidence and provide a landscape for new investments. Second, a continuation of Federal Reserve interest rate cuts, which will lower our own interest expense and improve demand for housing and consumer durables. Third, a resolution of the conflict in Ukraine. Fourth is a rationalization of higher cost, less environmentally sound chemical assets in Asia; and lastly, stronger support for the EU chemical industry as outlined in the EU chemical industry action plan. Thank you and now we're happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Alex Kelsey of Wells Fargo. Alex Kelsey: I wanted to start with Slide 4 on the trade flows. I think one of the dynamics we've seen among another -- a number of chemicals companies is just structurally higher imports of China products into Western markets that's just structurally depressed pricing and influence demand. So I'm just curious, is it your view that this is transitory in nature, truly just getting ahead of tariffs? Or are you seeing just a structural difference in how China is behaving with regard to your markets? Frank Bozich: So yes, thanks for the question. Actually, the -- we don't know whether it's structural or transitory. It's too early to tell, as we said in the prepared comments. But I would tell you that the -- in our chemistries, the biggest, I guess, the more problematic dynamics. So the countries that are -- we're seeing the most increase in inflows are actually Taiwan and Korea. And in our chemistries, we believe that those -- their domestic markets don't support the significant capacity that's been built over the years. And where they used to have an outlet to supply China, that volume or that surplus capacity is now being redirected to Europe and North America. And I would point out that at least our analysis would indicate that those are higher cost assets in these chemistries. The other thing I would point out that's problematic from a trade flow standpoint is the use of using imports of resin produced in China and Korea into Mexico that can be compounded relatively lightly compounded locally and then brought into the U.S. under the USMCA tariff convention, tariff-free. Now our understanding is from our trade associations and our discussions that this sort of pathway or loophole in USMCA is a goal to be closed by the administration, but that would be helpful in our value chains. And that's where China -- Chinese products, we see more of the impact of Chinese flow into Mexico. Alex Kelsey: Do you have any perspective of like within PMMA and ABS, maybe this is a tricky one, but how much of the market Taiwan/Korea/China represents today versus, I don't know, 12 months ago, 24 months ago, whatever the right time frame might be? Frank Bozich: Well, I can't precisely answer what share of the market that they represent. But what I would tell you is that the import volumes on, for example, the percentage increase in imports to, for example, from -- into Europe from South Korea in the first half of 2025 was up 18% over prior year. And in Q2, it went up to 26% increase over prior year. And they are by far the biggest importer of ABS into Europe. In the case of PMMA, imports from South Korea were up marginally in the first half into Europe. But in the case of imports into the U.S., the biggest import increase in imports sorry, the biggest imports -- increase in imports came from South Korea and Taiwan for ABS, where it was approximately 23% increase, but then Mexican product increased 75%. So that was that pathway that we were talking about. Now I want to point out though that remember, we make mass ABS and these are basic -- generally basic grade or standard grade polymers that are coming in under these conventions that are more broadly used in the less specified or formulated products. Alex Kelsey: Got it. Okay. And then on the PMA comment, the formulated PMA comment, I thought the commentary about seeing sequential ramp into Q4 was positive. One, has just something changed in that market from a supply or demand dynamic to suggest we're at trough and rising off trough levels? And then within the EM segment, like what percentage of that is [ Air quotes-formulated ] PMMA? Frank Bozich: So yes, I think it's too early to -- we don't know that the market dynamic is changing necessarily. It's too early to tell. And like I said, this is a late Q3, early Q4 dynamic that we observed, and we're watching it and trying to understand it. We believe that there is an effort on behalf of many of the customers in North America and Europe to derisk their supply chain from a complexity standpoint and also with regard to potential tariffs or trade barriers in North America and Europe. So I guess at this point, that's -- we're watching it. But again, it was good to see that increase over prior year. Alex Kelsey: And then to that second question that I asked in terms of however you want to define it, like what percentage of revenue/EBITDA/volumes in EM would you define as formulated? Frank Bozich: Yes, I wouldn't disclose that specifically. It's a material part of our EM segment and -- but we wouldn't share that information generally. Alex Kelsey: Okay. And then on AmSty, I have one question maybe accounting related. But if the shutdown unplanned maintenance was taken in Q2, I'm curious why there's an impact on Q3 EBITDA? And then more generically, can you just talk about what's being done within AmSty to sort of rightsize that business, just given how underperforming it's been this year? David Stasse: Alex, this is Dave. So the unplanned outage occurred at the end of the second quarter in June. And it was related to the production of styrene. So what that forces in which is obviously upstream to polystyrene. So what they have to do then is go out and buy styrene, obviously, at a cost higher than what they can make it for. And those increase -- that increased cost of goods sold in this case goes through the P&L in the second -- in the third quarter, right? So there's both repair costs that are included in the -- so the total impact for the year for AmSty was $10 million -- or excuse me, the total impact to our equity income was $10 million, $2 million of it was in June and $8 million of it was in the third quarter. And the composition of that is both the cost of repair, but also the higher cost raw materials from the styrene that they had to buy going through the P&L. So look, related to the second question about what are we doing to rightsize it. I mean, look, I don't think we're doing -- I don't think anything is necessary to rightsize the business. They've got 2 styrene units that are very competitively positioned on the global cost curve for styrene. 70% of the styrene they produce, they consume internally in polystyrene downstream and the other 30% goes into the merchant market. But again, they're on the kind of the left side of the cost curve. So look, I don't think there's anything necessary to do there from a rightsizing perspective. Clearly, styrene is long globally. I mean it's why we exited our European plants. So styrene margins are lower, a lot lower than they used to be. But I don't think a necessary step there is going to be any capacity rationalization. Alex Kelsey: Okay. That's helpful. And then last one for me. If we like -- when we were entering 2025, and I understand things have changed, the expectation was flat volumes kind of started us at $200 million-ish of EBITDA plus cost saves got us to something closer to $300 million, if I'm remembering correctly. I know it's probably early on 2026. But again, it feels like we're lower for longer, maybe troughing. But if you kind of take some of that same analogy, where the business is forecasted to be at the end of 2025, like all else equal in like up 10% volume environment, down 10% flat, any range of outcomes for what we could think about for 2026? Frank Bozich: So yes, maybe let me tackle the last thing first. So we've said this consistently that at 10% volume increase across the portfolio results in about $100 million of EBITDA. And so again, we're not prepared to talk about -- we don't have a view on 2026 or are prepared to give any guidance for 2026. But I think it might be helpful to go back to how we were -- as we entered the year, how we thought about it. And our expectation for significant increase was really in 2025 over '24 was driven by 5 factors. One was stable volume. Number two was the disposition -- the sale of our polycarbonate assets to Deepak. The also known business wins that we had as well as a more normalized earnings from AmSty as well as the cost savings initiatives that we announced last year. What I would tell you is that we got the known business wins or the incremental business wins in our downstream markets. We delivered the cost savings, and we executed on the Deepak sale, where we've had a shortfall versus our expectation was on the more normalized earnings from AmSty and then the volume development that occurred, what we would attribute to really global tariff uncertainty. So again, I think what's in our control, we've done a good job of managing, but that's sort of how this year developed. And again, too premature -- it's premature for us to give you guidance for next year. Operator: There are no further questions at this time. And with that, ladies and gentlemen concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to Allbirds' Third Quarter 2025 Conference Call. [Operator Instructions] Now I would like to turn the call over to Christine Greany of The Blueshirt Group. Please go ahead. Christine Greany: Good afternoon, everyone, and thank you for joining us today. With me on the call are Joe Vernachio, CEO; and Annie Mitchell, CFO. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about these risks, please review the company's SEC filings, including the section titled Risk Factors in our report on Form 10-Q for the quarter ending June 30, 2025, for a more detailed description of the risk factors that may affect our results. These forward-looking statements are based on information as of November 6, 2025. And except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of our non-GAAP measures to the most directly comparable GAAP measure can be found to the extent reasonably available in today's earnings release. Now I would like to turn the call over to Joe to begin the formal remarks. Joe? Joe Vernachio: Good afternoon, everyone. Thanks for joining us today. In the third quarter, we demonstrated continued progress and delivered results consistent with our expectations. We believe that great product is the foundation for revitalizing the brand and rebuilding Allbirds place in the hearts and minds of consumers. Allbirds holds a truly distinctive position in the market, one we are uniquely positioned to serve through our core principles of Comfort, Style and Sustainability. It is through this lens that we are laser-focused on returning the brand to growth and driving the business toward profitability. Since we last spoke in August, we delivered a steady stream of compelling products that consumers are clearly responding to. Enthusiasm for our new styles continues to build, and I'll share a few examples in a moment. While the majority of the new products are elevating the brand and performing well, some of our foundational franchises such as the original runner have been slower to rebuild. This underscores that rebuilding our brand perception is a process that will require sustained execution across multiple product cycles. Importantly, the positive momentum we're seeing for new products affirms that we're on the right path. It's undeniable that the products we've introduced over the past several quarters are the strongest we've delivered since the early days of the brand. The team has done an outstanding job creating a line that will serve as the foundation for years to come. One of our most successful launches this quarter has been the debut of the Wool Cruiser in September, a court-inspired silhouette introduced in a spectrum of 19 colors. To mark the moment, we teamed up with the Pantone Color Institute to launch 5 exclusive shades celebrating self-expression. What's interesting is that the most vibrant colors are selling out first. Normally, our natural tones lead in sales. But with the cruiser, it's shades like blossom and citron that are leading the pack. These distinctive colors are becoming a form of branding in their own way, instantly signaling Allbirds. Paired with a comfortable easy-to-wear silhouette and the right price point, the Wool Cruiser is clearly hitting the mark and is poised to become a key franchise for the future. Later in September, we launched our first 100% waterproof collection in 3 silhouettes. And it has quickly become another standout performer. The collection is redefining what waterproof can be, comfortable and stylish while still delivering true performance. In its first month on the market, it is exceeding expectations and proving that Allbirds can offer full waterproof functionality without sacrificing the comfort, style and sustainability people have come to expect from us. In our new Relaxed category designed for life in and around the house, we introduced a slipper collection that is a top seller today. To round out the season, we introduced the Kiwi collection this week, indoor/outdoor styles, including a mule, a clog and a low boot. They're cozy, easy to slip on and intentionally casual, exactly how people dress today. This is an additive collection that builds on our core and shows how much opportunity there is for future growth in this category for us. In the back half of the year, we aligned our marketing efforts to directly support our evolving product engine. We shifted to a steady rhythm of mid- and lower funnel marketing focused not just on driving traffic and conversion, but also on building long-term brand equity. Our program centers on 3 priorities: partnering with the right influencers and collaborators to spark awareness, highlighting product utility to drive conversion and increasing both the volume and variety of the content to accelerate growth. We are deploying a deliberate mix of traditional media, performance marketing, PR moments and brand activations, each reinforcing the other. Notable examples this quarter include our Wool Cruiser launch event with Pantone, a significant increase in influencer activation and strategic celebrity seating, all helping to create a cultural relevance and expand our organic reach. As we deliver on our product and marketing work streams, we are also focused on creating a standout experience for our customers, both online and in-store. We continue to deliver fresh new floor sets to our retail stores. And importantly, we relaunched our website in July, which transformed the look and feel of the site. Our goal is to refine the customer experience at every moment of the shopping and purchasing journey from richer storytelling on the home and landing pages to more utility and clarity on our PDPs. We're also redesigning every communication and touch point in the post-purchase experience to ensure it feels thoughtful, seamless and brand-centric. We are delivering a clearer expression of our values and a greater sense of care with every interaction. In short, we're making it easier and more enjoyable for customers to discover products and complete their purchases. With our product flywheel in motion, we are now positioned to begin executing against a renewed wholesale strategy. For spring 2026, we anticipate the brand will be available in approximately 150 specialty retail stores across the United States. And just last month, we hosted our sales meeting for the fall 2026 season, welcoming both international distributors and U.S. sales agencies to experience the new line firsthand. The collection was very well received and reinforce confidence that both domestic and international channels will contribute to growth as we move into next year. We see this expanded presence in specialty retailer as a powerful tool for increasing overall brand awareness, setting the stage for long-term growth. We see meaningful opportunity ahead. New collections like Kiwi, standout style introductions like the Cruiser are expanding our product footprint, while utility-driven offerings such as waterproof styles help us meet more of our customers' everyday needs. In the near term, we believe we are well positioned to drive improved top line trends in the fourth quarter. The updated guidance we're providing today reflects sales ranging from flat to high single-digit growth versus prior year. This outlook takes into account current business trends, an uncertain macro backdrop and our expectations for a highly competitive holiday shopping period. Throughout the season, we plan to participate in key promotional moments while delivering creative attention-grabbing messaging to engage consumers and keep Allbirds top of mind. Our teams are working with urgency and discipline to accelerate progress on the turnaround in the quarters ahead. In parallel, we are taking steps to reduce costs and recognize the need to enhance liquidity, which could include raising capital. We will consider all opportunities to maximize shareholder value. We deeply appreciate the dedication and commitment our employees have shown throughout our transformation. Thank you for the important work you're doing to reignite the Allbirds brand. We are also grateful for the continued support of shareholders. We remain focused on value creation and look forward to keeping you updated on our progress as we move forward. Now I'll ask Annie to review the financials and discuss our guidance. Annie Mitchell: Thank you, Joe, and good afternoon, everyone. We delivered strong third quarter performance with bottom line results just ahead of our expectations. Third quarter net revenue totaled $33 million, coming in at the low end of our guidance range. The results reflect strong customer response to many of our new product introductions such as the Wool Cruiser and waterproof collections as well as mixed performance from our original icons, all against the backdrop of a challenging macro environment. Gross margin in Q3 came in at 43.2% compared to 44.4% in Q3 of 2024. The year-over-year decline primarily reflects a higher mix of digital and international distributor sales as well as increased duties in our U.S. business, which partially offset higher average selling prices. For the full year, we anticipate that channel mix and tariff impacts will result in full year margin profile similar to Q3 in the low 40s. Looking at expenses, we continue to demonstrate exceptional cost management during the quarter. Q3 SG&A totaled $22 million, down $9 million or 30% on a year-over-year basis. This improvement was primarily driven by lower personnel expenses, occupancy costs, stock-based compensation expenses and depreciation and amortization. Q3 marketing expense came in at $12 million, up 19% to last year as we invested behind our new product launches. We continue to expect that full year marketing expense on both a dollar basis and as a percentage of sales will increase compared to 2024. Our strong gross margin profile and strict cost control enabled us to deliver bottom line performance slightly above the high end of our guidance range despite top line results that came in at the low end of our expectations. Q3 adjusted EBITDA loss totaled $15.7 million compared to a loss of $16.2 million a year ago. Looking at the balance sheet, we ended the quarter with $24 million of cash and cash equivalents and $12 million of outstanding borrowings under our $50 million asset-backed revolving credit facility. Inventories totaled $43 million at quarter end, down 25% year-over-year. Operating cash use totaled $15.2 million. That's up sequentially from Q2 as planned, reflecting higher marketing spend to support our new product launches as well as our seasonal working capital needs. While the financing steps we took midyear provided us with added flexibility, we are exploring options to improve our liquidity position in the quarters ahead. We are diligently managing costs and taking immediate actions to capture incremental expense savings across such areas as headcount, occupancy and technology. Moving now to guidance. We are updating our top line outlook and reiterating the midpoint of our full year guidance range on the bottom line. Full year net revenue is expected to be between $161 million and $166 million. This compares to our prior guidance range of $165 million to $180 million and includes approximately $23 million to $25 million of impact associated with our international distributor transitions and retail store closures. We're also introducing fourth quarter net revenue guidance of $56 million to $61 million, flat to up 9% versus a year ago. Looking at adjusted EBITDA, we are tightening our full year guidance range to negative $63 million to $57 million, which compares to our prior range of $65 million to $55 million. For the fourth quarter, we expect adjusted EBITDA loss to be in the range of $16 million to $10 million, a significant improvement compared to $19 million a year ago. We appreciate your time this afternoon. Now I'll ask the operator to open the call for Q&A. Operator: [Operator Instructions] The first question comes from Alex Straton with Morgan Stanley. Alexandra Straton: Perfect. Can we just focus on the third quarter sales results came in on the low end of what you were expecting. So maybe what kind of disappointed or came in lower than you thought? And then also just with the inflection in the fourth quarter that you're assuming, is that reflective of quarter-to-date trends? Or how do you get there? And then maybe even going forward, just initial thoughts on '26, -- like should we carry forward that sales growth into that year or any initial thoughts there? Joe Vernachio: Alex, thanks for your question. Yes. So it's really kind of a tale of 3 things. First, we've introduced a lot of new product this quarter, and I'm happy to say that all of that product is working and some of it is exceeding our expectations in the formal remarks, I outlined a few of those products. But we're really delighted with how the product is -- the new product is performing. Underneath that, we have some core franchises, particularly the runner, which has a significant amount of business against it that hasn't yet inflected yet. And there's more work to be done to reactivate that style and that model and/or to add -- make up some of those sales in these new products. Even though we -- it feels like these new products have been in the market for a while, it's really only been a handful of months at most. And some of these are literally just weeks. But again, they're performing as planned, if not better than planned. So we're very encouraged by the fact that we've been able to bring in a significant amount of new product that is hitting the mark with the consumer. But underneath that, the third component to it is that we can see that there are macro environment and macro events taking place that is distracting the consumer. 60% of our sales are through a telephone, on their mobile phones. And we know what the distractions are on the phones and trying to break through that with everything that's coming through to people right now is challenging. It is something that we have to continue to work towards. What we are seeing is that when we communicate to consumers either new products that are right on the mark or a promotion program that is advantageous for them, they are converting. It's in these in between times, especially when we see a macro event take place where we see the consumer get really quiet and very considered on the purchases that they're making. So those are the 3 dynamics that are going on that led us to the sales that we're at. Annie Mitchell: And looking forward, many of those trends continue over into Q4. But when we take a step back and look at how Q3 evolved, we were introducing more product each month. And so each month, results got a little bit better, and we're seeing that again as we go into Q4 and some of the early trends so far this quarter is that as we've been introducing this new product. Hopefully, you saw that Waterproof launched on September 30, and we had our Kiwi pack, that cozy at home just launched this week. So -- that is one of the main reasons behind the improvement that we are expecting in Q4 is the building as we continue to put more and more new product into the market. Another piece when we consider Q4 is the structural changes between international distributor transitions and retail door closures really impacted us in the first 3 quarters of this year. I think, Alex, we talked about this previously, the first quarter impacted us by about almost $7 million. Q2 was about $10 million. In Q3, it was about $5 million. And for the last quarter, we expect that to be about $2 million to $4 million. As we go into next year, we have 2 things in our favor. One is, again, the product momentum that we've been building this -- the back half of this year, plus all of the fantastic new product coming starting with spring/summer '26. And then those structural impacts that I just listed off for this year get smaller and smaller. And so that is why we are optimistic about 2026. Operator: And the next question comes from Tom Forte with Maxim Group. Francesco Marmo: It's actually Francesco Marmo from Maxim. I was hoping you could add some color around your inventory composition. I mean, in absolute terms, it looks like -- it looks relatively lean. I was hoping you could give us some comments around what kind of products are in inventory, especially considering all the new product launches and as we head into the Black Friday period and the holiday season, especially because I was looking at your new website, and it feels very kind of new product focus and very brand story focused. So I was wondering what is your strategy for the Black Friday period. Annie Mitchell: Great. Francesco, thanks for joining us today. I'll start out by talking a little bit about big picture inventory, and then I'll turn it over to Joe to add some color for you. When you look at our inventory, we ended the quarter at $43 million. That's down 25% year-over-year and just up slightly from last quarter. Being down year-over-year, it's really driven by 2 things. First is the international transitions. We did our last international transition at the very end of Q2, and that was for the EU region. Now our international transitions are complete. And as you might recall, we talked about this previously, the international distributors, they pick up the product right at source versus before, for instance, like in the EU, we would be holding all of that inventory until it's sold to the end consumer. So one is a structural change. And the second is really just about continued very strong inventory management. It was a priority for us in '23 and '24 to clean up inventory, which we did successfully. And really, it was in service of all of this new product coming. We want to make sure we were as healthy as possible and had great process and rigor around inventory, knowing that we were excited to invest in all of the new product coming. So with that backdrop, Joe, do you want to add some color? Joe Vernachio: Yes. I'm glad that you asked about inventory. It is a big focus of ours. When you bring in a lot of new product, you have to be really cognizant of inventory and make sure you stay focused on that. So that's something that we are very rigorous about and keep our eye on for sure. You talked about the -- what the website looks like. I'm glad that you feel that it looks very brand-centric and is telling a story. That was our objective. We launched the new site in July. And part of it -- a big portion of this was to be able to get our story out there to be able to tell great stories about the product and have a lot more opportunity to share different aspects of the product on the PDP and the landing pages. You asked about what our strategy is going into Q4. We anticipate that it's going to be a competitive marketplace in Q4. We think people are going to be looking for promotions, and we have our normal preparation for all the different aspects of Black Friday, Cyber Monday that we will need. We will have different products that we'll put up and take down in order to create some rhythm to the promotion. We're not going to be precious. We know we need to compete, and we need to be in the market. Otherwise, we will lose our share. So we've got a very rigorous Black Friday, Cyber Monday plan queued up, and we are going to be executing against it. Operator: I am showing no further questions at this time. I would now like to turn the call back over to Joe for closing remarks. Joe Vernachio: Thank you, everyone, for joining. We'll see you at the next quarterly review. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings. Welcome to Kingstone Companies' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Joining us on today's call will be President and Chief Executive Officer, Meryl Golden; and Chief Financial Officer, Randy Patten. On behalf of the company, I would like to note that this conference call may include forward-looking statements, which involve known and unknown risks and uncertainties and other factors that may cause actual results to differ materially from projected results. Forward-looking statements speak only as of the date on which they are made, and Kingstone undertakes no obligation to update the information discussed. For more information, please refer to section entitled Risk Factors in Part 1 Item 1A of the company's latest Form 10-K. Additionally, today's remarks may include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available on the company's website at www.kingstonecompanies.com. With that, it is my pleasure to turn the call over to Meryl Golden. Meryl? Meryl Golden: Thank you. Good morning, everyone, and thanks for joining us. We delivered one of the strongest quarters in our history with net income of $10.9 million, diluted earnings per share of $0.74, a GAAP combined ratio of 72.7% and an annualized return on equity of 43%. Direct written premium grew 14% and net investment income increased 52%. This was our second most profitable quarter in history and our eighth consecutive quarter of profitability, underscoring the consistency and enduring competitive advantages we have created. I want to emphasize what sets Kingstone apart. First, our select product does a great job matching rate to risk and with risk selection, which reduces claim frequency over time. Second, our producer relationships support high retention and consistent new business flow. Third, our efficient operations and low expense structure enhance margin durability; and last, our great team, all of whom act with an ownership mentality. The hard market conditions in our downstate New York footprint have not changed materially. While we've seen some competitors broaden their underwriting appetite, our overall volume remains strong. New business this quarter has moderated compared to last year's surge when we benefited from the market exits of Adirondack and Mountain Valley. But we've seen a month-over-month increase in new business since June, and that has continued into the fourth quarter. We've also begun writing policies under our renewal rights agreement with GUARD, which will meaningfully add to new business policy counts going forward. Growth of 14% for the quarter was driven primarily by an average premium increase of 13% and improved retention. Looking ahead, we expect retention, which represents over 80% of our premium base to continue trending higher as rate changes transition to high single digits from the high teens pace of the past 3 years. Policies in force increased 4.2% year-over-year and 1.4% sequentially, underscoring the stability and loyalty of our agent and customer base. Net earned premium growth continues to be a powerful tailwind, exceeding 40% for the third consecutive quarter. The increase is primarily due to our reduced quota share, which allows us to retain a greater share of premiums and underwriting profits. Additionally, the surge in new business written in the second half of last year continues to earn in, further fueling the growth in earned premiums. On underwriting, our underlying loss ratio was 44.1%, an increase of 4.9 percentage points versus the prior year quarter, driven by higher claim severity. Claim frequency, especially for non-weather water and fire, our largest perils, declined versus last year, a trend we have shared previously. We believe this is driven by a mix shift to more preferred risk in our Select products. The Select homeowners program now represents 54% of policies in force. And on an inception-to-date basis, Select homeowners claim frequency is 31% lower than our legacy product. During the quarter, large losses were modestly higher than the prior year's unusually favorable experience, but remained consistent with the prior 3 years otherwise. Year-to-date, our underlying loss ratio is up only 0.1 percentage point from the prior year. The variability in large losses is random and does not indicate a change in trend. Catastrophe losses contributed 0.2 percentage points to the loss ratio compared with 1.7 percentage points in the prior year quarter. While catastrophe activity was light, our strong results aren't solely driven by favorable weather. With a normalized third quarter catastrophe load, our combined ratio would have been in the low 80s. Our state expansion initiative is progressing, and we intend to present Kingstone's multiyear road map to you in the first half of next year. With 3 quarters behind us, we've updated our 2025 guidance to reflect our outstanding performance. We are raising guidance for our net combined ratio, EPS and ROE, while reaffirming direct-written premium growth for all states to range between 12% and 17%. With anticipated net earned premiums of $187 million, we expect a GAAP net combined ratio between 78% and 82%, basic earnings per share between $2.30 and $2.70, diluted earnings per share between $2.20 and $2.60 and return on equity between 35% and 39%. Relative to our prior guidance and on the same net earned premium base, we have improved our GAAP combined ratio range by 100 basis points at the midpoint, raised both basic and diluted EPS ranges by 9% and 12%, respectively, and increased our ROE target range by roughly 300 basis points at the midpoint. This increased guidance reflects strong underwriting performance, sustained investment income growth and lower expenses, while maintaining our disciplined posture on pricing and exposure management. With regard to fiscal '26 guidance, our baseline assumes normal seasonality and catastrophe activity. In both 2024 and 2025, we have very mild winters and low cat losses overall. Weather is unpredictable, and we assumed more reversion to the mean for our '26 guidance. We will refine our outlook as the year unfolds and moving forward, we'll announce subsequent years guidance in March, along with fourth quarter results. Now I'll turn the call over to Randy Patten, our Chief Financial Officer, who joined Kingstone in late August. Randy brings 3 decades of insurance experience, most recently serving as Chief Accounting Officer and Treasurer at Next Insurance. Randy? Randy Patten: Thank you, Meryl, and good morning again, everyone. Q3 was our most profitable third quarter on record and our eighth consecutive quarter of profitability. We generated net income of $10.9 million, diluted earnings per share of $0.74, a 72.7% combined ratio and an annualized return on equity of 43%. Year-to-date, net income was $26 million, more than double the prior year. Performance was driven by strong net earned premium growth as our reduced quota share in the second half of 2024 new business surge continued to earn in, combined with very low catastrophe losses, favorable frequency trends and lower expenses aided by an adjustment to the sliding scale ceding commissions. Our net investment income for the quarter jumped 52% to $2.5 million, up from $1.7 million last year. Year-to-date, we've seen a 39% increase, reaching $6.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our portfolio and benefit from higher fixed income yields. We capitalized on attractive new money yields of 5.2% in the third quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio's yield and duration. As of September 30, 2025, our fixed income yield is 4.03% with an effective duration of 4.4 years, up from 3.39% and 3.7 years at September 30, 2024, an increase of 64 basis points and 0.7 years, respectively. During the quarter, we recognized an increase of $1.4 million in sliding scale contingent ceding commissions under our quota share treaty, reflecting low catastrophe losses, which contribute to the 4.6 percentage point decrease in the quarter's expense ratio. 2025 marks the first period in some time in which a significant portion of the quota share ceding commission is on a sliding scale basis. While sliding scale ceding commission for the attritional loss ratios look quarterly, sliding scale ceding commission for the catastrophe loss ratio cannot be reasonably estimated until after the peak of the hurricane season, so it was recognized this quarter. As a result of this adjustment, our year-to-date expense ratio is down 1.1 percentage points to 30.8% versus the same period in 2024, and we anticipate ending the year with an expense ratio for the full year 2025 lower than the prior year. I will conclude my portion of the call today discussing our capital position. Our capital position remains strong. We have no debt at our holding company, KINS, and shareholders' equity exceeded $107 million, an increase of 80% year-over-year. Year-to-date return on equity is 39.8%, an increase of 3 percentage points from the same period last year. Given this foundation and our outlook, we reinstated our quarterly dividend during the quarter and have ample capital to fund disciplined growth. With that, I'll open it up for questions. Operator? Operator: [Operator Instructions] Our first question is from Bob Farnam with Janney Montgomery Scott. Robert Farnam: So on your New York admitted basis, the Select product now is 54% of the policies in force. Will all accounts eventually move to Select, or some just renew on the legacy product indefinitely? Meryl Golden: Yes. So we are maintaining our legacy book because it's profitable. So any policy written in legacy will stay there. But clearly, when it gets to be small enough, we'll probably convert it to Select, but we don't want our customers to experience that dislocation because it's profitable. So we don't have any plan to do that in the near term. Robert Farnam: Okay. But all new business, is that put on the Select platform? Meryl Golden: Yes, all new business has been written in Select since the beginning of 2022. Robert Farnam: Right. Okay. So when you're getting into the new states on an excess and surplus lines basis, I'm assuming this is going to be a new product. So -- because it's E&S rather than admitted. So how is this product going to differ from Select? And how are you developing it? Meryl Golden: Yes. So we are certainly going to benefit from the Select product and the experience we've had. But depending on the states we enter, there may be new perils or new rating variables that we'll need to account for. And we're currently deep in the development of that product as we speak. And we've been working with an outside actuarial consulting firm, the same firm that helped us develop the Select product for New York. So again, we're deep into it and feel really good about how we'll -- what the outcome will be. Robert Farnam: And has the new E&S carrier been finally been approved yet? Meryl Golden: So we are filing -- we have filed for a new company in Connecticut. It has not yet been approved. And we will be writing on an E&S basis as in Kingstone Insurance Company as well in certain states. Robert Farnam: Okay, okay. A little change in direction. So I know it's only been 2 months, but the AmGUARD book, you started writing at the beginning of September. So how has that performed thus far relative to expectations? Not performed in terms of profitability, but in terms of having policies move over to Kingstone? Meryl Golden: Yes. So it's early on. We started writing business effective September 1st. But so far, it's right within our expectations. So I had indicated that we write between $25 million and $35 million of business over a 3-year period. And we're right on track. We're writing about a little bit less than $1 million a month so far. And what I can tell you is we're very happy with the mix that we're seeing. It's very similar to what we've achieved in Select. However, we're writing a bit more business in the boroughs, and that is giving us some geographic diversification. So we're happy with that. So far, everything is right on track. Robert Farnam: Okay. And one of the bigger questions I always get is just the competition in downstate New York. Now you said that some companies are expanding their target areas. How -- can you give us any more color as to how competitors are going into that environment? Meryl Golden: Yes. So we compete with mostly MGAs in New York. And last year at this time when there was this surge of business from Adirondack Mountain Valley, a lot of companies stopped writing business. And throughout this year, they've just been opening up and writing more classes of business than they've written in the past, but it's not stopping us. Our growth is very healthy. And as I mentioned, every month since June, we've seen a sequential increase in our new business. So again, the way they're expanding is, it's not always obvious to us, but our conversion rate remains really high. So we feel good about where we're at competitively. Operator: Our next question is from Gabriel McClure with private investor. Gabriel McClure: Congrats on a great quarter. And also, please thank whoever puts a PDF in place for us, that's very helpful. Meryl Golden: Great. Gabriel McClure: Yes. I had one question for you. I think maybe a couple of months ago at the Sidoti conference or somewhere, you mentioned that these states you're looking at expanding into, you kind of described it as there being more demand for our policies that we'd offer on a homeowners policy that we'd offer on an E&S basis than there was supply. And so just my question is a couple of months ago, is the market still that way? Has it changed? Whatever you could offer up? Meryl Golden: Sure. So the homeowners market, particularly catastrophe-exposed homeowners nationally is in a bit of a crisis and because companies are not making money. And so we do have an opportunity to expand geographically and be opportunistic so that we can have -- earn the same return that we are in New York. So nothing is really -- in a quarter, markets don't change much. So we have not seen a material change in the market and believe the opportunity still exists for us to expand successfully. Operator: There are no further questions at this time. I would like to turn the conference back over to Meryl for closing remarks. Meryl Golden: Excellent. Thank you for joining today. As we wrap up, I'd like to reemphasize what continues to set Kingstone apart, our Select product, our producer relationships, our low expense structure and our great team. This quarter's results reinforce the durability of our earnings power. We will continue to execute with discipline, advance our measured expansion road map and allocate capital prudently to support profitable growth. We appreciate your continued support and remain focused on delivering long-term shareholder value. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's third quarter 2025 earnings results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holley. And as a reminder, this call is being recorded and will be made available for future playback. I would now like to introduce your host for today's call, Anthony Rozmus with Investor Relations. Please go ahead. Anthony Rozmus: Good morning, and welcome to Holley's Third Quarter 2025 Earnings Conference Call. On the call with me today are President and Chief Executive Officer, Matthew Stevenson; and Chief Financial Officer, Jesse Weaver. This webcast and presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the third quarter and discuss guidance for the full year 2025. At the conclusion of the prepared remarks, we will open the call up for questions. With that, I'll turn the call over to our CEO, Matthew Stevenson. Matthew Stevenson: Thank you, Anthony, and good morning to everyone joining us live on the call today. As we look back on the third quarter of 2025, I'm pleased to share that the positive momentum we have been building for more than 2 years continues to gain strength. This quarter marks another clear step forward in our transformation journey, a reflection of disciplined execution, sharp focus and a resilient team that keeps delivering results in a constantly changing consumer and macroeconomic environment. For the third consecutive quarter, our core business delivered strong growth. Just as a quick reminder, when I say core business, I'm referring to our results, excluding the operations we divested and the product lines we phased out as part of last year's strategic rationalization. This quarter, we made meaningful progress across the company with core growth in every division. It's especially encouraging to see continued momentum in both our direct-to-consumer and business-to-business channels, reinforcing the strength and balance of our omnichannel strategy. As we've said before, our omnichannel approach remains central to our core strategy as the leading consumer enthusiast platform in the automotive performance aftermarket. We're committed to serving customers wherever they choose to engage, whether that's through e-tailers, distributors, wholesalers, third-party marketplaces, installers, national retailers or our own e-commerce platform. The foundation we've built through our strategic framework continues to deliver from product innovation and digital capability to operational excellence and commercial capabilities. With these fundamentals in place, our focus remains on sustaining momentum and executing against our 3-year plan. We're also staying proactive in managing external factors like tariffs and supply chain costs. While these remain dynamic, our diversified sourcing strategies and pricing discipline have positioned us well to manage impacts and protect margins. Overall, it was an excellent quarter, one that reflects the hard work, focus and determination driving our organization forward. I couldn't be prouder of our team and the meaningful progress we continue to make together. Now let's turn to Slide 5. I'll walk you through a few of this quarter's standout highlights. We delivered strong results this quarter, achieving 6.4% growth in our core business. This performance reflects genuine volume-driven expansion, which continues to build momentum quarter-over-quarter. Year-to-date, our 5% core growth is composed of a 4% increase in volume and a modest 1% pricing tailwind. This performance showcases the strength of our business model designed to drive consistent growth and the deep commitment of our enthusiast consumer base for whom this is more than a hobby. It's a passion and it's a way of life. Importantly, our growth was broad-based across all channels, divisions and within 70 brands. That breadth speaks to the success of our transformation initiatives across the company and the strong execution behind our go-to-market strategy. In our B2B channel, we saw a 7.3% growth as we deepen engagement with key partners. Through strong joint planning, continued data integration and expanded sales enablement tools, we've enhanced collaboration and delivered more value to our channel partners. It's a great example of how our customer-first approach is driving strong relationships and measurable performance gains across the business. Our strategic initiatives also contributed meaningfully this quarter, generating about $26 million of revenue. Roughly $11.3 million came from new product innovation and portfolio management, including strategic pricing and channel margin optimization. These results underscore how well our commercial and operational teams are working together to drive sustainable, profitable growth. Even in what's typically our slowest quarter of the year, we generated $5.5 million of free cash flow, a $7.6 million improvement from last year. That improvement came from higher margin and disciplined capital management across the organization. We ended the quarter with net debt-to-EBITDA leverage at 3.9x, ahead of our year-end target of 4x. Now this is the first time we've been below 4x leverage since 2022, a clear marker in our transformation and a reflection of our stronger financial position. And after the quarter ended, we prepaid another $10 million in debt, bringing total prepayments to $100 million since September 2023. That's an important milestone for us and reinforces our commitment to strengthening the balance sheet, positioning us for continued long-term value creation. Let's move over to Slide 6 and take a look at some of the key quantitative highlights from the quarter. Net sales for Q3 was $138.4 million, which translated to core business growth of 6.4%. That marks our third consecutive quarter of year-over-year growth in the core business, and it underscores our outperformance in the market and the share gains we are seeing in key categories across the company. Gross margins came in at 43.2%, up more than 400 basis points from last year. That improvement reflects strong pricing discipline and operational improvements across the company while keeping our focus on quality and serving the customer. Adjusted EBITDA margin rose to 19.6%, an increase of over 300 basis points year-over-year. This strong performance highlights the operating leverage within the business and the benefits of maintaining cost discipline and execution focus, resulting in a significant $7.6 million improvement in free cash flow compared to the same quarter last year. On the right-hand side of the slide, you can see a few additional business highlights. Product innovation continues to be central to our philosophy, and this past quarter delivered a range of successful launches across our divisions, including digital dashes from our Holley EFI product suite, Big Claw heavy-duty brake kits from Baer, at-home BMW performance tuning solutions from Dinan and [ Club Sport ] racing seats from Simpson. We'll see the impact of these and many other recent product introductions when we review our strategic initiatives tracker in the upcoming slides. Operationally, we also continue to move the needle. In-stock rates for our top 2,500 products improved 2.2% year-over-year, giving customers better access to what they need. Efficiency was up more than $3 million and past due orders were down 20.7%. Those are strong signs of progress and a testament to the impactful additions we made to our operational leadership team across supply chain, manufacturing and quality. On the consumer side, we continue to see strong engagement from our enthusiast base. Direct-to-consumer sales were up 4.2% year-over-year, supported by a sharper promotional execution and stronger digital performance. The third quarter also represents the peak of our event season. And this year, engagement across our enthusiast community was strong. Attendance at our events was on track to break records, but a rainy weekend during our flagship LS Fest East did impact that momentum, leaving overall attendance roughly flat for our event season this year. Even so, the impact of these events extends well beyond in-person attendance. A key part of our event strategy is leveraging these experiences to grow and engage our digital audience. With more than 8 million followers growing steadily this quarter at 2% year-over-year, our brands continue to reach and inspire enthusiasts across platforms, keeping our community energized during marquee weekends like LS Fest. On Slide 7, we can see some standout examples of the core business growth driving our performance across divisions in Q3. Our Domestic Muscle division roared ahead with 6.2% year-over-year growth, powered by an unwavering enthusiast passion for our legendary brands. Multiple brands delivered standout high-single and double-digit gains across categories, reinforcing the vitality of this portfolio. The Modern Truck and Off-Road division accelerated with 5.2% growth, led by exceptional performance from Baer, Flowmaster and Range, each posting double-digit gains. DiabloSport also delivered robust high single-digit growth, further strengthening the division's overall performance. Meanwhile, our Euro & Import division continued its impressive trajectory, climbing 16.6%. Dinan and APR sustained remarkable growth throughout the year, driving strong segment performance. We've also shifted AEM to our Domestic Muscle portfolio, better aligning its fuel delivery and monitoring focus with that vertical. Going forward, the Euro & Import division will include only Dinan and APR, sharpening focus and alignment. In our safety division, distributors began ramping up ahead of the Snell 2025 certification changeover, which officially began on October 1. Simpson Motorsport, Motorcycle and Stilo all posted solid gains, signaling renewed momentum across the category. This acceleration follows the typical precertification cycle slowdown earlier in the year, and it positions the division for continued strength through the balance of 2025 and beyond. Together, these results highlight broad-based growth across our divisions, setting the stage for continued progress. Let's move next to our strategic initiative tracker to see how these efforts are fueling our long-term growth. But before that, just a quick reminder on Slide 8, where we revisit the 8 areas forming the foundation of our strategic framework centered around 3 core principles. First, fueling our teammates, making Holley great place to work, where team members are empowered, see clear paths for growth and thrive in an engaging and inclusive culture. Second, supercharging our customer relationships, delivering the premier consumer journey in our industry, strengthening B2B partnerships through shared growth and leading with innovation that defines performance excellence. And finally, accelerating profitable growth, expanding into new markets, pursuing transformational M&A and driving continuous operational improvement to enable reinvestment and long-term value creation. Together, these principles continue to guide our strategic initiatives and keep our teams aligned around Holley's long-term vision. Now on Slide 9, I'm pleased to share our third quarter highlights as captured in the updated strategic initiative tracker. Under our Trailblazer and trusted partner pillar focused on B2B growth, we delivered another strong quarter. Enhanced product data adoption at key retailers drove $1.7 million in new sales, bringing year-to-date gains to $83 million. Our smaller account segment also remained strong, growing $2.4 million year-over-year in Q3. The largest driver of growth in the quarter was continued share gains with our largest e-tailer and wholesale partners. Altogether, B2B initiatives generated $13.5 million in revenue this quarter. Turning to our premier consumer journey pillar. E-commerce and direct-to-consumer channels continue to perform well. Third-party marketplaces grew 28% year-to-date to $12.9 million, with our new Amazon program driving over 50% growth in the chemical product sales. Enthusiast events also fueled record merchandise sales and overall e-commerce sales were up 5% year-to-date. In total, this pillar contributed nearly $2 million year-over-year. New product launches across divisions, paired with continuous sales strength in tuning and exhaust for their new innovations delivered $2.5 million in year-over-year growth and set the stage for strong momentum heading into Q4. Within portfolio management, strategic pricing actions and distributor margin enhancements contributed an additional $7.7 million in sales during the quarter. Combined, this pillar contributed approximately $11.3 million in revenue during Q3. Our global expansion in new markets pillar also continues to gain traction. Mexico shipments reached 240,000 in September, our second straight month above 200,000, tracking toward a $2.5 million annual run rate. Powersports delivered record revenue of nearly $300,000 in September and $1.1 million year-to-date, keeping pace with a $1.8 million target. Together, these efforts generated $1.1 million in revenue for Q3. Under our Fund the Growth pillar, cost and efficiency initiatives yielded $6.2 million in total savings this quarter. In-stock rates for our top 2,500 products are near our 93% goal with significant reductions in past dues with decreased overall inventory levels. Finally, our Great Place to Work initiatives continue to build engagement and productivity. Employee engagement rose 4%, and we remain on track to achieve our revenue per employee goals by year-end. Altogether, execution of our strategic framework delivered about $27.8 million in revenue from key initiatives and $6.2 million in cost savings this quarter, clear proof of focus, discipline and consistent execution. Holley's third quarter showcased strong broad-based growth, margin expansion and disciplined execution across our business. We've strengthened our financial position, bringing net debt-to-EBITDA leverage below 4x for the first time since 2022, a major milestone in our transformation journey. These results reflect the hard work and focus of our team and position us well for continued momentum. With that, I'll turn it over to Jesse to walk through the financial highlights and refined guidance for the remainder of the year. After Jesse's remarks, we'll return for Q&A. Jesse? Jesse Weaver: Thank you, Matt, and good morning, everyone. I'd like to start by providing an update on our progress against our financial priorities, then discuss our third quarter '25 financial results before discussing our guidance updates. Moving to Slide 11. Turning to our financial priorities. Our focus remains on strengthening the fundamentals of the business by restoring historical profitability and optimizing working capital. We built on our progress with operating efficiency by generating $3.2 million in incremental savings during the quarter, achieved through ongoing improvements in logistics and the recovery process. These efforts have already pushed total '25 savings to $5 million with additional initiatives still underway. As of the end of the quarter, we remain within our target range and expect further savings through year-end as the team continues to execute on previously outlined initiatives moving steadily toward the midpoint of our annual goal. Turning to working capital. I'd like to take some time to discuss our inventory performance in the third quarter. Year-to-date, inventory reduction moderated from $9 million in Q2 to $5 million in Q3. This shift reflects operating decisions made during the quarter aimed at enhancing long-term visibility, control and operational efficiency, specifically around the consignment inventory and bonded warehouse. While these actions temporarily increased inventory on hand, they are foundational to our improvements in operations and delivering on our commitments to our customers. While these operational changes mean we are not currently on pace to reach the low end of the $10 million reduction target for the full year of '25, they are setting the stage for sustainable improvements in working capital management. We remain focused on refining our SIOP process to improve planning and forecasting, optimizing safety stock levels, all of which are expected to drive further gains in '26 as these initiatives mature. And on Slide 12, we'll walk through our key financial metrics for the third quarter. Net sales for the third quarter grew 3.2% to $138.4 million versus $134 million in the same period a year ago. It's important to note that this is the first time we achieved net sales growth on a GAAP reported basis in 2 years. On a core business basis, we achieved net sales growth of 6.4%, which is the third quarter in a row of core business growth. The increase was primarily related to a combination of improved pricing realization of $4.6 million and volume mix increase of 3.7. Core business growth once again came across all divisions as well as both channels and continues to be the result of our commercial transformation efforts with B2B and D2C. Gross profit was $59.8 million in the quarter, a growth of 14.4% compared to $52.3 million in the same period last year. Gross margin for the quarter was 43.2%, an increase of 422 basis points versus 39% in the prior year. This improvement was through a combination of pricing flow-through as well as operational initiatives highlighted earlier in the presentation across facilities efficiencies, reduced excess inventory write-downs and improvements in quality through reduced warranty claims. SG&A, including R&D expense for the third quarter was $38.2 million versus $34.7 million in the same period for the prior year. Primary drivers in SG&A are related to lapping reduced payroll expense in '24 from the furlough activity, reduced '24 incentive comp accrual and increased investments in '25 related stocks and tariff mitigation support. Net loss for the third quarter was negative $800,000, a $5.5 million improvement versus a net loss of $6.3 million in the third quarter of '24. Adjusted net income in the third quarter was $3.3 million, a $3.8 million improvement versus an adjusted net loss of $500,000 in the same period of last year. Adjusted EBITDA for the third quarter was $27.1 million versus $22.1 million in the prior year and driven by a combination of higher sales and improved gross margin. Adjusted EBITDA margin was 19.6%, a 309 basis point improvement versus 16.5% in the third quarter of 2024. On Slide 13, the third quarter was another strong quarter of free cash flow generation of $5.5 million compared to negative $2.1 million in free cash flow for the same quarter a year ago. This performance was driven by improved EBITDA, slightly offset by working capital investments, as previously noted in the presentation. And year-to-date, we have generated $30.3 million in free cash flow. On Slide 14, we reduced our covenant net leverage at the end of the third quarter to 3.9x versus 4.2x a quarter ago. In the third quarter, we prepaid an additional $15 million of debt, which helped drive our leverage down under 4x target we set for the end of '25. This marks the first time we are under 4x leverage in 12 quarters. In addition, at the end of October, we prepaid another $10 million of debt. And since September of '23, we have prepaid $100 million of debt, exercising our commitment to strengthening our balance sheet and enhancing our financial flexibility. And just as a reminder, our leverage remains well under the 5x covenant that is only in place when the revolver is drawn at the end of the quarter. There is no outstanding balance on our revolver, and we concluded the quarter with $51 million in cash with no expectation of drawing on the revolver in the near-term. As we look ahead to guidance on Slide 15, we've been closely monitoring the broader economic environment throughout the year. Conditions remain fluid as tariff developments continue to evolve and consumer trends adjust. While factors such as higher unemployment, persistent inflation and tariff uncertainty have influenced sentiment as reflected in the University of Michigan Consumer Index, U.S. households continue to navigate these challenges with measured caution. But even within this complex backdrop, Holley continues to deliver strong results. Our disciplined execution, focus on operational excellence and commitment to strategic priorities have driven growth that exceeded expectations through the first 9 months of '25. This performance highlights the resilience of our business model and our ability to perform in a dynamic environment. Given our results year-to-date and momentum we've built across our core operations, we are raising our full year guidance for revenue at the bottom end of our range on adjusted EBITDA. This update reflects both our confidence in the team's ability to execute and our disciplined approach to navigating an evolving macro environment. For '25 revenue, we now expect a range of $590 million to $605 million, which implies 3.8% growth at the midpoint over the core business base of roughly $575 million in '24. Additionally, for adjusted EBITDA, we now expect a range of $120 million to $127 million as we raised the bottom end of our guidance from $116 million. We look forward to closing the year on a strong note and roll this momentum into 2026. We remain focused on strengthening our balance sheet, enhancing free cash flow generation and maintaining disciplined capital allocation to position ourselves for long-term growth for years to come. This concludes our prepared remarks. We would now like to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Christian Carlino with JPMorgan. Christian Carlino: You had talked about taking high single-digit pricing, but price realization was only around 3% in the quarter. So could you talk about why that delta exists? What was same SKU inflation? And then is it simply a function of channel mix and more B2B sales versus D2C or is there some trade down or favoring smaller projects over larger ones? Jesse Weaver: Yes. Good question, Christian. I think it's -- from what we can tell, it's a combination of those things. Obviously, continued strong growth on B2B as it relates to the ASP, you're going to have a bit of a lower price realization on a comparable basis as well as we've got several of our customers who, from a contractual perspective, the pricing doesn't flow through immediately. It comes in later periods. And then there's just -- as it relates to some of the contractual prices on some of the other items that we do for our existing distribution partners that are not playing in there but it really is a combination of them. As it relates to some of the trade down piece, Christian, we're not necessarily seeing that as much. It's just the other items. Christian Carlino: Got it. That's helpful. And you're not tracking to above your gross margin and EBITDA margin targets for the year. So how should we think about the structural margin profile of the business? I guess, 2 parts there. One, is there anything unsustainable in the base right now? And then the flip side is that you've achieved this despite a subdued sales environment. So as sales growth returns to more normalized levels, is there room to expand margins further or will you generally look to reinvest upside back into the business? Jesse Weaver: On the first question, no structural change. I think, obviously, the pricing is certainly helping here and particularly at the lower volumes. But to your second question, yes, I mean, I think Matt and I continue to hold to -- while we're 2 years into the transformation, there's still things to be looked at as it relates to driving growth, particularly operations. And so we don't want to overcommit here in terms of just all of the growth flowing through. But obviously, we do keep an eye towards just driving continued margin acceleration, and our commitment is above 20%, but I wouldn't expect it to all flow through until we get to a much cleaner glide path, particularly on operations. Operator: Our next question comes from the line of Phillip Blee with William Blair. Phillip Blee: The question. The midpoint of your guidance implies a fairly big step down in organic sales growth in the fourth quarter it seems. So is that more just a function of conservatism in the current environment or is that driven by something more specific that you've seen quarter-to-date that warrants a bit more caution here? Jesse Weaver: Good question, Phillip. And it's a combination of the conservatism, like the current environment is a bit murky, and I think we're all reading the news every day. And so, Matt and I are really big on making sure that we don't overpromise on this. Plus, this time last year, we're lapping a marketing calendar event that we decided not to reengage in this year just from a margin profile perspective. So that's impacting the top line a bit. So those 2 things combined really account for the majority of it. Phillip Blee: Okay, great. And then given what you know about who your average customer is, how do you think about the potential benefits from the One Big Beautiful Bill between no tax on tips and overtime and the potential for a bigger tax refund season next year? Do you think that, that could have maybe a more meaningful impact on your business and underlying demand? Matthew Stevenson: Phillip, it's Matt. What I think the current environment shows our consumers are resilient, right? This is not just a hobby for them, it's a lifestyle. And as we've seen in the past, when there's times they get more discretionary income or tax refunds, that does generate increases in demand. So we'll see how that plays out over the next 6 months or so. Operator: Our next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess, Matt, first question for you. You've talked about a lot of the changes at Holley over the last 2-plus years here, certainly making a lot of progress. As we start to think about 2026, where are your priorities for next year? Matthew Stevenson: Joe, I think if you reflect back on our strategic initiatives that we showcase each quarter on the progress there, that is part of our 3-year plan, and that's what we had the teams focused on. So there's a number of key growth areas there. Also, we still think it's pretty early relative to the operational roadmap we have for continued improvements there. So between those strategic initiatives around growth as well as operational improvements, that's where the team is focused. And again, still early innings in a number of areas that we continue to see opportunity. Joseph Altobello: Okay. Maybe a follow-up for Jesse. You mentioned inventories were a little heavier at least than I was looking for. Can you sort of explain a little bit better what drove that? Jesse Weaver: Yes, Joe. So in the quarter, there are a couple of things. One, operationally, we felt like there was a much stronger case for us to actually service our customers better by taking some product that we've been selling on consignment and bringing it into our system. It brings a lot more visibility into where the product is, how much of it we have on hand so we can make products and deliver on time to our customers. So that was about a $2 million to $3 million headwind in and of itself. And then in addition, we also decided to get out of the bonded warehouse, which was a strategy that was used to help mitigate tariffs in the beginning. It worked for that purpose. But as tariffs came down, it also was causing operational challenges. So as we started to bring in those products out of the bonded warehouse or directly from port and the port in particular, became less congested, you see a lot of inventory that came in, in Q3 that more than likely would have shown up in Q2. So it felt like a big change in Q3, but it's just more of some of the things that should have come in, in Q2 as well. Operator: Our next question comes from the line of Brian McNamara with Canaccord Genuity. Brian McNamara: Congrats on the strong results, I might add. So I'm curious, you guys did a 3.3% in Q1, 3.9% in Q2, a 6.4% in Q3, markedly getting better each quarter. Matt, I think like about a year ago, you kind of called your shot and you said we're going to return to growth in Q1. So kudos on that. I'm just curious how this year has played out relative to your expectations internally? Matthew Stevenson: Brian, thanks for the question. I think, Brian, when we look at -- when we set out at the end of last year, our plan for '25, I'd say the team is doing a great job executing. We have -- as we just talked about with Joe, our strategic initiative tracker. That's what the team is locked in on every day and continue to deliver on the critical few initiatives that are underneath that to either drive growth or operational improvement. So I would generally say it's as planned. Brian McNamara: And then with all the work you guys have done behind the scenes, do you think you have all the building blocks in place for this growth to be what I would, dare I call, sustainable from here on out, obviously, acknowledging that from quarter-to-quarter, there'll be unique challenges. Matthew Stevenson: Yes. I mean we spent a lot of time on foundational elements, whether it was on our direct-to-consumer business, continue to enhance relationships with our distributors. And these are the foundational building blocks for the long term. Brian, as you know, we just -- currently, SEMA is going on right now, and I had the opportunity to meet with a number of our great distribution partners and the journey we've been on within the last 2 years and the enhanced collaboration and the ways we're finding to grow together. And so again, all foundational elements that are there for the long term. Brian McNamara: And just last quick one, on SEMA, actually. It feels like you guys have refined your strategy with that event each year since you've been there, Matt. I'm curious how does SEMA today compare to maybe your first go at it in 2023 and obviously, acknowledging there was a high energy there last year given the election results. Matthew Stevenson: Yes. I'd say the energy this year, Brian, was -- it felt even greater. I mean our booth was just absolutely packed. Customer meetings were tremendous. And to your point, like how we've progressed, this is my third SEMA with the company. I would say we continue to execute a plan at the event. From last year, really focusing on our key 4 verticals and somewhat eye-opening to the market the amount of fantastic brands and products we have in our portfolio and showcasing them within our 4 verticals and then just continue to expand that execution, that strategy, engaging with major customers, having set meetings and times to connect and winning product awards and really showcasing the great innovations we have. The team does a great job really refining our strategy and taking that time to engage with customers to drive business. Operator: [Operator Instructions] Our next question comes from the line of Bret Jordan with Jefferies. Bret Jordan: Could you talk about the B2B and sort of what the white space you see there? I mean I think you talked about sort of doing more with some of the big parts retailers, traditional mechanical guys, but sort of good growth there, how do you see the run rate? Matthew Stevenson: Yes, Bret, on a strategic initiative tracker, we call out a number of things there. We think there's still a lot of runway in our existing relationships, of course, with whether it's e-tailers, wholesale distributors, but some of the areas you referenced, national retailers is something we're continuing to engage in strongly. We feel that, that channel is accretive in our omnichannel strategy that in-store impulse purchase being able to provide enthusiast products that they want, being able to just go in and pick up something from one of our brands. We also see continued opportunity in export markets, and you see some of the expansion that we're doing in Mexico and other areas. And we continue to work with OEMs on programs for their aftermarket, not OE production, but their aftermarket performance teams and providing them solutions for enthusiasts. So there are a number of ways we're continuing to drive the B2B growth for the long term. Bret Jordan: And I guess, you called out -- I think in the past, you've talked about the events generally being self-funding but you mentioned that LS Fest East was probably lower traffic. Were the events in the third quarter generally neutral to earnings or was there a headwind in the period? Matthew Stevenson: No, no, Bret. They're positive. I think just -- we get a lot of questions always on attendance and how they're trending, right? And as I mentioned on the prepared remarks, the engagement was great this year but of course, there's always weather, at our largest event, that can impact things. And when you have 40,000-plus people when you get a rainy Friday afternoon and a rainy Friday or Saturday morning, it affects things but no, the profitability was in line as expected. Operator: Our next question comes from the line of Joe Feldman with Telsey Advisory Group. Joseph Feldman: I wanted to ask, go back to the guidance, I think somebody had asked this as well, but something similar. What would happen for you guys or have to happen to get to the high-end of the guide versus the low-end? Like is there a subtle difference or is it you would really need a couple of things to really go right to get to the high-end versus the low-end? Jesse Weaver: Yes. I mean, I think, Joe, to get to the high end, we're coming up on our holidays event and just having a really strong merchandising calendar and participation by our B2B partners with great sellout would really allow us to get to the high-end. I think on the other end, it's obviously that not hitting in conjunction with distribution partners potentially getting even more conservative on what their forecast is for the coming year because that does impact their in stocks that they hold. So there could be some destocking there in that low-end scenario. Joseph Feldman: Got it. Okay. That's helpful. And then I wanted to follow up. I think you guys -- you mentioned working with the B2B and having better sharing of data, and I think data product adoption is how you framed it in the prepared remarks. Can you just share any more color there as what's going on with that, how that's been accepted and what -- how the B2B partners are actually using that data? And it seems like it's working to help, but I'm just curious just to get a little more understanding of it. Matthew Stevenson: Yes, Joe, it's Matt. Happy to answer that. This has been a company-wide initiative for well over a year now. And when we say data, it's product data. So of course, in today's e-commerce world, whether it's going direct to consumer or one of our wholesale partners is selling it to an installer, what have you, it's about the product information they're able to display on -- through their merchandising efforts online. And so that is a very robust set of information that is required. It's photos, it's videos. Of course, it's dimensions in and out of the box, it's features advantage benefits, it's comparisons, compatible with this replaces that kind of thing. And it was something that previously, there wasn't an approach in place to be really proactive on offering the best-in-class product data. And I'd say that our teams have done a tremendous job increasing the quality of our data. We grade the data of every category, of every brand, and we continuously improve that weekly as the product teams continue to enhance the information. So ultimately, it makes the job of our B2B customers easier to merchandise the products to their customers. Operator: Our next question comes from the line of Mike Baker with D.A. Davidson. Michael Baker: Can I ask about just the overall spending environment in the consumer? It sounds like there's great energy at SEMA. So you took share clearly. Any idea or any metrics on the overall market? Is your growth just share gains or have you started to see any kind of recovery in spending in the consumer and all that kind of stuff? Jesse Weaver: It's a great question, Michael. I think as it relates to just the general industry, we -- it's a very difficult industry to get real-time information on. But in our discussions with distribution partners, I feel like out-the-door sales have been pretty strong throughout the year, obviously, on our products, but just consistently across their broader portfolio, they've seen a much better result for this year than they had expected coming into the year but obviously, we've continued to take share. And I think right now, in our guidance, we're assuming these trends continue. Michael Baker: So to that point, and that's my follow-up. When you say the trends continue, are you referring to your share gains or industry trends? And I guess what I'm getting at is for a lot of consumer type of names, we saw really strong sales results through July and August and then something seems to have changed in terms of spending September, October and even into November, for a lot of different macro government reasons. So I'm wondering if you can comment on that and any trend that you're seeing throughout the quarter and early into this year or this quarter? Matthew Stevenson: Yes, Mike, it's Matt. Generally speaking, how our industry has played out this year, the first quarter was pretty soft. And then the overall industry started to pick up through the balance of the year. And I think to Jesse's point, through that whole period, we've been taking share. Now I just sat down with no less than a dozen of our key partners over 2 days. And generally speaking, they're seeing the out-the-door trends be very consistent in demand. And so there are no indications coming from our key partners or, of course, from ourselves that anything has really changed at this point and to which it does in the future, who knows. Operator: Our final question this morning comes from the line of Mike Albanese with The Benchmark Company. Michael Albanese: Nice quarter. When I look at, I guess, what you've taken for price, where your volumes are and your ability to expand margins, it really seems like you've done a nice job at mitigating tariffs and managing supply chain. And I'm just wondering if you could provide some color on what you're seeing across the competitive landscape. And I know it's tough -- Jesse, you mentioned it's tough to get kind of incremental data. And we're talking about a lot of different brands and SKUs here, but I'm wondering essentially how much of the share gain is a result of the kind of current macro dynamics from, I guess, a cost standpoint and whether or not really your competitive positioning has improved as a result of that? Matthew Stevenson: Yes, Mike, I think you're meaning competitive position relative to pricing? Michael Albanese: Correct. Matthew Stevenson: Yes. Really, it's a category by category. There's no broad-based statement that covers it. Our job is to ensure we remain competitive, not only in our value proposition for the consumer, but to also make sure our distributors have healthy margins to be able to market and merchandise our products. But generally speaking, our share gains are -- whether you say outhustling, outperforming, increasing our capabilities, all the above throughout the year on both our D2C and B2B. And as I mentioned, some of the things, whether it's our product data or enhancing our relationships and the way we work with our key partners, those all have been big contributors to our share gains. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Stevenson for any final comments. Matthew Stevenson: Okay. Thank you, Melissa. Slide 17 underscores the compelling investment story behind Holley Performance brands. This market, fueled by automotive enthusiasts goes far beyond a past time. It's a passion and it's a lifestyle for our customers. With an addressable market in the U.S. approaching $40 billion, Holley stands at the forefront, backed by a portfolio of iconic brands with a rich legacy of innovation. As we wrap up on today's discussion, I'd like to reflect on what this quarter signifies for Holley. The third quarter showcased broad-based strength across our operations with solid growth in every division and sustained momentum in both B2B and direct-to-consumer channels. Our disciplined execution, operational enhancements and commitment to innovation continue to deliver tangible results from margin expansion and efficiency gains to deeper engagement with our enthusiast community. We also achieved a key financial milestone this quarter, reducing net leverage below 4x for the first time since 2022 and generating positive free cash flow during what is typically a slower seasonal period. These achievements highlight the impact of our transformation and the dedication of our teams to building a stronger and more resilient Holley. Through our strategic framework, we remain focused on initiatives that matter most, advancing digital capabilities, driving product innovation, strengthening partnerships and laying the foundation for sustainable, profitable growth. Looking ahead, our outlook remains consistent. We are committed to delivering steady organic top line growth, maintaining gross margins above 40% and achieving adjusted EBITDA margins of 20%. Our goal is to generate sustainable free cash flow and continue creating value through strategic acquisitions that complement our portfolio. The combination of a vibrant automotive enthusiast marketplace and Holley's legendary brand family positions us as a unique investment opportunity in a passionate segment. In closing, I want to express my gratitude to our team members for their dedication and execution, to our consumers for their unwavering passion for performance and to our distribution partners, many of whom have stood with us for decades. Together, we're building a stronger, more innovative Holley for the future. I want to thank you for your attendance on our call today and wish you all a great morning. Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Fulgent Genetics Q3 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Lauren Sloane, Investor Relations. Please go ahead, Lauren. Lauren Sloane: Good morning, and welcome to Fulgent's Third Quarter 2025 Financial Results Conference Call. On the call are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing the financial results is available on the Investor Relations section of the company's website, ir.fulgentgenetics.com. A replay of this call will be available shortly after the call concludes on the Investor Relations section of the company's website. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views, expectations and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of events and should listen to management's remarks today with the understanding that actual events, including the company's actual future results, may be materially different than what is described in or implied by these forward-looking statements. Please review the more detailed discussion relating to these forward-looking statements, including the discussions of some of the risk factors that may cause results to differ from those described in the forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-K for the year ended December 31, 2024, and subsequently filed reports, which are available on the company's Investor Relations website. Management's prepared remarks, including discussion of profit, loss, margin, earnings and earnings per share, contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but these measures should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the third quarter 2025 for more information, including the description of how the company calculates non-GAAP income loss, non-GAAP earnings loss per share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating profit and loss and margin and adjusted EBITDA and the reconciliation of these financial measures to income and loss, earnings loss per share and operating margin, the most directly comparable GAAP financial measures. With that, I'd now like to turn it over to Ming. Please go ahead. Ming Hsieh: Thank you, Lauren. Good morning, and thank you for joining our call today. I will start with some comments on the third quarter of 2025 and our 2 business lines. Then Brandon will review our product and go-to-market updates for our laboratory services business. And Paul will conclude with the financials and guidance before we take your questions. We are pleased with our third quarter results and sustained momentum in the business, as we move through the year. Our results are testament to the progress we have made on our strategic objectives in both our laboratory services and therapeutic development business. We have shown both sequential and year-over-year growth and efficiency in laboratory services with our investment in AI and digital pathology solutions, while making strong pipeline progress on our clinical candidates as a result of momentum in our business. We are raising our outlook for the remainder of 2025. Our therapeutic development pipeline is on track and progressing well. Our first clinical candidate, FID-007, is progressing through a Phase II clinical trial in combination with Cetuximab in patients with recurrent or metastatic head and neck squamous cell carcinoma with 39 patients that have been randomized and 36 have received at least 1 dose of study treatment as of cutoff date of September 25, 2025. The preliminary data was presented at the ESMO Congress on October 20, 2025. FID-007 combined with Cetuximab demonstrated meaningful anticancer efficacy at both dose level for the first-line and second-line treatment of R/M HNSCC of 35 patients then evaluable for the efficacy at the time this preliminary data was reviewed. The objective response rate, or ORR for the 75 milligram per square meter arm and 125 milligram per square meter arm, were 44% and 59%, respectively, and 51% overall when both arms are combined. The median progression survival for the 75-milligram arm and 125-milligram arm were 9.2 months and 7.8 months, respectively. The overall PFS was 7.8 months compared to the historical 2.3 months of the standard of care therapies. FID-007 also exhibit manageable safety and tolerability profile, particularly no Grade 3 and above peripheral neuropathy has been reported to date. As of today, we have a total of 43 patients enrolled and expect to complete patient enrollment by end of 2025 with a full data readout in 2026. Our second candidate, FID-022, began a Phase I trial, and the first dose level has been successfully completed, while the second dose level will commence this month. FID-022 is a nanoencapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian and bile duct cancers. I'm encouraged by the continued progress of our clinical pipelines and the potential for both FID-007 and FID-022. These drug candidates address heavily pretreated patients with very few options left. And I hope we were able to provide alternatives to better their lives. Overall, I'm pleased with the progress we have made this year in both our business areas. Our pharma R&D efforts are progressing faster, better and more cost effective than planned. Additionally, our laboratory services is greatly benefited from our investment in AI technology, which makes our services more efficient and more precise as Brandon will discuss shortly. I would like to thank our employees, partners and stakeholders for your hard work and your loyalty in the great quarter of our business. We look forward to further progress in the remainder of 2025. I will now turn over the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory services business. Brandon? Brandon Perthuis: Thanks, Ming. It was again another excellent quarter, delivering nearly $84 million in laboratory services revenue. Breaking down our results by business area, Precision Diagnostics was up $3.4 million or 7.3% sequentially and was up $7.2 million or 16.4% year-over-year. Biopharma was up $1 million or 15.4% sequentially and was up $3.3 million or 83.4% year-over-year. Anatomic Pathology was down $2.1 million or 7.6% sequentially due to timing of collections, however, was up $1.8 million or 7.2% year-over-year. In the last quarter, we introduced an enhanced version of our whole genome sequencing that incorporates RNA analysis to improve diagnostic yield. This new offering has sparked strong interest from both existing and prospective clients. Building on that momentum, we're pleased to announce the launch of our ultrarapid whole genome sequencing service. This solution provides a preliminary report within 48 hours, followed by a comprehensive report within 5 days. The primary focus for this service is the neonatal intensive care unit, or the NICU, where studies have shown that whole genome sequencing can significantly improve patient outcomes and support more efficient health care delivery. The data suggests that implementing rapid genome sequencing as a first-line test in the NICU will change medical management for up to 87% of babies and reduce health care costs up to $15,000 per child. Our second exciting announcement centers around expansion of our Beacon carrier screening service. We've consistently pushed the boundaries to remain at the forefront of genetic screening, having been the first U.S. laboratory to offer a panel with over 700 genes, still the largest of its kind to the best of our knowledge. Now we're taking another major step forward with the launch of Beacon K, which expands our panel to 1,000 genes. This enhancement will further strengthen our ability to detect rare genetic conditions. Beacon has earned a strong reputation as a leading carrier screening solution. Powered by our proprietary platform and advanced informatics, Beacon consistently delivers high analytical detection rates, accurate differentiation of pseudogenes and reliable copy number variant calls. Additionally, our turnaround time remains exceptional, averaging just 8.8 days, roughly twice as fast as many other laboratories. We have mentioned on previous calls the significant investment we have made in digital pathology. This has allowed us to digitize our slides instead of the traditional method of microscopy. There are several advantages to digital pathology, but perhaps the most powerful one is our ability to utilize and develop AI to help make our pathologists faster and better. Until very recently, we were using a third-party image management system, or IMS, but it had limitations. However, we're excited to announce we have developed and launched our own proprietary IMS, which we are calling [ EZOPath ]. EZOPath was created to address the growing demand for custom features necessitated by our high daily case throughput to support all lines of business and to enable the deployment and integration of AI tools to assist our pathologists in their diagnosis. EZOPath provides a case management solution with possible integrations with laboratory information systems, or LISs, provides data storage for digital pathology images and metadata, enables collaboration by pathologists through sharing of annotations and comments and integrates best-in-class AI tools developed in-house and integrated from third parties. As an enterprise IMS, it enables rapid investigation of digital pathology slides and output from AI modules for expedited reporting. We are committed to creating the highest quality and most efficient pathology lab possible, and this is a big step in that direction. With a strengthened product portfolio, outstanding laboratory performance and an expanded sales team, we believe we are well positioned for continued growth, and we're pleased to once again raise our annual guidance. I want to sincerely thank our entire team for their hard work and dedication, and we look forward to finishing 2025 on a strong note. With that, I'll turn the call over to our Chief Financial Officer, Paul Kim. Paul? Paul Kim: Thank you, Brandon. Revenue in the third quarter of 2025 totaled $84.1 million compared to $81.8 million in the second quarter of 2025. Since revenue from COVID-19 testing is expected to continue to be negligible in 2025, we will no longer provide separate metrics on what we have previously referred to as core revenue, which we defined as total revenue, excluding COVID-19 testing. Separately, we have begun to see minimal revenue in our therapeutic development business from our acquisition of AMP in July, primarily related to IP licensing royalties. Gross margin on a non-GAAP basis was 44.3% and on a GAAP basis was 42.2%. Gross margins have improved year-over-year due to streamlined operations and enhanced efficiency as a result of our investments in scaling and centralizing lab operations. Now turning to operating expenses. Non-GAAP operating expenses totaled $40.7 million compared to $43.9 million in the previous quarter. Total GAAP operating expenses were $50.9 million for the third quarter, which decreased when compared to $54.1 million in the prior quarter. The decrease in operating expenses was partially driven by a reduction in advertising and marketing expenses and a favorable reduction in bad debt expense, reflecting improved collections from Precision Diagnostics. We remain committed to R&D spending to support both our laboratory testing services and our clinical studies and the sales and marketing spending to expand the sales team. Non-GAAP operating margin improved sequentially to minus 4.2%. Our GAAP loss in the current quarter was $6.6 million, an improvement from the prior quarter's GAAP loss of $19 million, which included a onetime noncash charge related to a $9.9 million impairment of a prior investment. Adjusted EBITDA for the third quarter was approximately $0.7 million compared to a loss of $3 million in Q2 2025. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization and acquisition-related costs, income for the quarter was approximately $4.5 million or $0.14 per share based on 31.3 million weighted average diluted shares outstanding. In the third quarter, we did not repurchase any shares under our stock repurchase program. Since the inception of the stock repurchase program in March 2022, a total of approximately $110.4 million has been spent with approximately $139.6 million remaining available for future repurchase of our common stock. Turning to the balance sheet. We ended the third quarter with approximately $787.7 million in cash, cash equivalents, restricted cash and marketable securities. The increase in cash from the previous quarter is driven by strong operating cash flows, partially offset by capital expenditures. There were no stock or income tax credits purchased during the third quarter. However, in October, we used $67.9 million for the purchase of income tax credits. As I mentioned earlier, given the minimal impact of COVID-19 testing revenue on our overall performance, we have transitioned to guiding total revenue. Reflecting on our current business momentum, we are revising our full year 2025 revenue outlook upward to $325 million for 2025, representing a growth of 15% year-over-year. We continue to expect non-GAAP gross margins for the full year to exceed 40%, continuing the strong momentum we've experienced in recent quarters. We expect non-GAAP operating margins to improve from minus 15% to minus 10% for the year, driven largely by increased revenue. Our strategy for success centers on the continuing to scale efficiently and driving innovation across our service offerings. We will continue to invest in business expansion, further advancing our laboratory operations and upgrading existing laboratory facilities, while remaining focused on managing our spending. We believe that our foundational technology platform supports a strong long-term margin profile. Using an average share count of 31 million, we expect an improvement to our full year 2025 non-GAAP EPS guidance from a loss of $0.35 per share to a positive $0.30 per share, excluding stock-based compensation, impairment loss, acquisition-related costs and amortization of intangible assets as well as any onetime charges. Reflecting the improvement in our operations, which is offset by the effect of the onetime noncash impairment adjustment, we are now revising our GAAP EPS guidance from a loss of $1.70 per share from $2.10 per share, excluding any future onetime charges using a 31 million average share count. Finally, our cash position remains strong. We focus on efficient capital allocation that allows us to reinvest in our business, fund key initiatives and support future growth. Excluding any future stock repurchases or other expenditures outside the ordinary course, which include M&A, we anticipate ending 2025 with approximately $800 million of cash, cash equivalents, restricted cash and investments in marketable securities. This number further assumes receipt of approximately $106 million in tax refunds prior to the end of 2025, which may be delayed as a result of the current government shutdown. Overall, we see strength in our core business, which has grown organically, and we see good momentum for the balance of 2025. Thank you for joining our call today. Operator, you may now open it up for questions. Operator: [Operator Instructions] Our first question is coming from Lu Li from UBS. Lu Li: First one on the margin. I appreciate the new disclosure on the margin by segment. It seems like the lab is turning positive margin in the quarter. I wonder, Paul, like how do you think about the going forward path in terms of like what will be the ultimate operating margin target that you're looking for? Paul Kim: Thank you for the question, Lu. We were really pleased with what we saw in the gross margins for this quarter. As you remember, we had high margins in Q3, but Q3, we had an impact, a favorable impact to the margins of about $1.6 million, $1.7 million that was due to our capitalization policy. But in this quarter, in the third quarter, even without that, our margins, they came in just as high at 44.3%, actually a little bit higher than what we achieved in Q2. And that's due to the overall efficiencies of the organization, continued automation that we have for the business and streamlining our policies. I'll turn it over to Ming, who can talk about what we see directionally for margins in our business without giving out specific numbers because there are particular technologies that we are beginning to utilize, which might enhance our margins going forward. Ming Hsieh: Yes. Thanks, Paul. And Lu, as you probably hear from Brandon, we started to develop the AI technology in-house, building our capability for the -- through our digitalization of the entire -- almost the entire pathology services. So we will continue to see the improvement in that area. In addition, we will be building a pretty rich database for us to be continue to benefit for us to get into the further margin and reimbursement improvement in that territory. Anything -- Brandon, you want to add? Brandon Perthuis: No, I think it's well said, Ming and Paul. Thank you. Lu Li: Second question on the AP. Brandon, I think you mentioned there are some timing issues in the quarter. I'm wondering if you can give a little bit more color and whether that will be a catch-up in Q4? And then I have a follow-up. Brandon Perthuis: Yes, certainly, thanks for the question. Yes, it was a timing issue. It was mostly related to the collections in the quarter, which did reduce the amount of revenue we could recognize. But already in this quarter, we're beginning to see an improvement in the collections, and we think that that's going to continue to improve in the next couple of quarters. So no material weakness in the business, just a timing issue around collections. Lu Li: Okay. And then on the Precision Diagnostics, you mentioned several new products, the rapid whole genome and then you talk about the expanding of the Beacon panel. I wonder how this like a new menu expansion kind of support the growth going forward. You seems like pretty confident in terms of like growing double digit forward. I wonder how should we think about the 2026? Brandon Perthuis: Well, we are really excited about launching both of those products. I think our R&D investment there was quite efficient. Our timing was quite efficient. We last quarter launched a new improved whole genome sequencing test that included RNA, which is a significant diagnostic yield increase. That's generally sold into pediatrics, development of pediatrician, geneticist. But if you want to help families in the NICU, which require rapid results, we needed a faster product. So the follow-on to our last quarter update is this new rapid -- ultrarapid whole genome sequencing test. So this is more or less the first time for us to launch a product directly targeted at the NICU. We believe our turnaround time, some of the features around the genome in terms of its variant calling ability, puts us in a strong position to penetrate that market. As we mentioned on the call, I mean, this is becoming a standard of care in the NICU for many patients. It's a favorable margin profile in terms of billing institutionally for the test. So we'll see how much it contributes to 2026. But at the end of the day, it's going to be a powerful product for clinicians to use in the NICU, and I'm excited the team was able to launch it so quickly. And it does dovetail right into what we've been talking about expanding our sales team. We have invested significantly in expanding the pediatric sales team. So this puts one more powerful tool in their bag to sell when they're visiting children's hospitals and academic medical centers. And regarding Beacon, we continue to push the envelope there. We believe, especially in the reproductive setting, there is a need to test for more. There's a desire to test for more conditions. I mean these conditions become rarer as we add more, but collectively, they're not rare. So we're going from 700 genes, which we've been offering now for about a year, to 1,000 genes, which should make us, as far as we know, the largest panel on the market. Our Beacon portfolio has performed incredibly well. I mentioned our turnaround time of 8.8, 9 days. That's exceptional. I mean we're dealing with patients where turnaround time is critically important, whether they're going through fertility treatments, whether they're already pregnant, there's a lot of anxiety there. So to be able to give results that quickly does give us a significant advantage in the marketplace. Operator: The next question is coming from David Westenberg from Piper Sandler. David Westenberg: Actually, I'm going to continue with some of those questions. So Brandon, with the KNOVA product, are you finding that physicians prefer to order kind of the bundle of tests versus just a single NIPT test or carrier microdeletions all in one? Is that favoring you? And can you give us a reminder on how those are reimbursed again if they're reimbursed kind of in a bundle, if they're reimbursed separately? Brandon Perthuis: Yes. Thanks for the question, David. I mean, certainly, in the OB/GYN and MFM market, NIPT and carrier screening is often ordered bundled together, not always, but very frequently. So I think we've established a really good brand for Beacon, our carrier screening product in the marketplace. I think we've become sort of the go-to laboratory for carrier screening, our turnaround time, our quality, the number of genes, the customization. We've really fired on all cylinders as it relates to carrier screening. And then not too long ago, we decided to launch KNOVA, a novel NIPT test. And the strategy there is to sell those together. But they are 2 independent tests, right? Testing for completely different things. You asked, is it bundled billing? No. I mean it's a separate orderable test. So we get an order for KNOVA, we bill for KNOVA. We get an order for Beacon, we bill for Beacon, not bundled together from a billing perspective, but clinically, they're very often ordered together. David Westenberg: Perfect. And then just continued reimbursement updates. I mean, I think that ACOG update on expanded carrier screening is taking a lot longer than I think the industry expected. If there's any update there or if insurance companies are just kind of seeing the value of expanded carrier screening already and maybe proactively reimbursing ahead of that. And same question for kind of microdeletions, which is another one where we kind of thought the George syndrome is already going to be covered by now. Brandon Perthuis: Yes. Good question. I mean, look, not everything hinges on that ACOG statement. There's a lot of other efforts going on behind the scenes. Actually, a lot of the companies are all working together, actually, the part of a coalition, to expand access to some of these tests. So certainly, the ACOG -- a new ACOG guideline would be beneficial to the industry. But we are seeing payers get ahead of that. And I think some of these other grassroot efforts that are happening, working directly with the payers to show them the value proposition, to show how it impacts clinical care. Some of these payers are getting ahead of that guideline. I think the guideline will just push it one step further. So we're continuing to see increased reimbursement for many of our tests, not just reproductive health. And again, I think it's really a result of working directly with the payers and showing them that clinical proposition. And hopefully, before too terribly long, we might get some positive news from ACOG to take it to the next level. David Westenberg: Got it. And then my next -- my last question is a combination for Ming Hsieh and Paul. It looks like you had some good data on FID-107 in Phase II. Are you going to have additional updates in Phase II before moving on to Phase III? What are the key milestones to look out for? And then, Paul, if you can maybe explain the additional expenses that would come for moving from Phase II to Phase III, what kind of increases in expenses you would expect? Ming Hsieh: All right. Thank you, David, for the questions. We expect to finish the enrollment by end of 2025. By the ASCO, which is in May of 2026, we would expect to do an oral presentation for the data we have, which we feel is very exciting. By that time, for all the patients enrolled in the database will be at least had 1 or 2 scans already. So that will further enhance the data we presented at ESMO in September this year. So this will give us a strong confidence to move the FID-007 into the Phase III clinical trial because we see a significant progression-free comparison with the standard of care. So in terms of what is the Phase III cost in terms of the moving forward, I think it depends on the final -- the statistician come out number and our Phase III design, we are in the process now. We estimate it's around 300 patients to be enrolled. So from that point of view, the clinical cost of Phase III is roughly around $60 million. Paul Kim: And then just to give you a full picture on the spending. So for 2025, we anticipated the cash spend for the therapeutics development would be about $25 million for the balance of the year. We believe that, that spending is going to be a little bit less than that for this year. I think the great news for the company, whether it be the therapeutics development or the laboratory services is the amount of science and the progress that we have seen so far for the therapeutic development. With spending a little bit less than what we have anticipated is something that makes us really pleased because it goes back to the efficiency of our spending. And then if you take a look at the laboratory services business, we've raised our guidance twice this year. All in the meanwhile, the cash forecast and our cash target, as you probably saw in the press release, has been raised to $800 million. So efficiency in running the operations, managing our cash and getting output for our business, whether it be increased revenues for the laboratory services or the science and the data that we're seeing the therapeutics development, we're very pleased with. Ming Hsieh: Yes. Dave, for the ESMO data, we published in September -- October this year, which the data cutoff on this in September is available online. You should see it's a pretty impressive data in terms of how -- about the efficacy of FID-007. So we are very pleased and very much encouraged. There is similar -- the transactions in the area. The market is a big, multibillion dollars market is addressable by our products. So we are very encouraged, and we believe that our investment will have a great return. In addition, this is not one drug. This is a platform performance. We have been using the same delivery platform. We had the second drug, FID-022. And that one in the Phase I for the dosing escalation exercise, it is going well, and we are also very much looking forward to provide the additional data by mid next year. Operator: Next question today is coming from Andrew Cooper from Raymond James. Andrew Cooper: Maybe just first, I want to dive in on the Anatomic Pathology collections dynamic. We're not necessarily seeing that in the receivables. So just if you could unpack a little bit more sort of what's going on there and what gives you the confidence that it is just collections timing, if there's any volume stats or anything like that, that you could share to help us get a little bit better understanding, that would be great. Brandon Perthuis: Andrew, it's Brandon. Thanks for the question. No, it really was a timing issue. So I mean, at a high level, we made a change in our billing software. It takes a little bit of time to implement the new software. Software has been implemented. Things are going well. We're seeing collections begin to improve. So it was just around changing a billing software. Paul Kim: And then in terms of the receivables, as you're very familiar with, Precision Diagnostics is the biggest part of our business, and we had very strong collections during the quarter for that area of the business. Andrew Cooper: Okay. Great. That's helpful. And is there any -- just so we're kind of prepared for it if it does come again, are the software changes in place kind of across Precision Diagnostics as well? Is there any kind of potential disruption in any other segment as we move forward, knowing that it may just be timing, but at least to keep us on the lookout? Brandon Perthuis: Mostly related to AP. Andrew Cooper: Okay. That is helpful. And then Pharma Services had a nice quarter. I just want to kind of dive in a little bit there on the strength. Was it -- knowing this can be big and lumpy, is this a single program and a timing dynamic that is better in the quarter? And obviously, had you raised the guide for the year? Or is this a little bit more kind of broad-based finding some traction? Just would love some understanding of what's letting you succeed there and sort of where the success is coming from. Brandon Perthuis: Yes. Thanks for the question. Look, I think it's mostly related to our capabilities expansion. I think we've mentioned before that pharma services at one point was pretty much just NGS. And that limited our market size there. There was a lot of RFPs that were being presented to us, that required additional technology that we didn't offer at the time. So we had a smaller addressable market when we were just an NGS shop. But since then, we've launched a lot of new tests in our Biopharma Services division, and that's allowed us to expand that addressable market and just blocking and tackling, allowing us to respond to more RFPs. So the business is -- it's still a bit lumpy. I mean this is just the nature of these wins. But the pipeline looks good. Again, our capabilities are strong. I think the feedback we're getting from our biopharma partners is incredibly strong. They do value the test that we're providing and the service we're providing. So it's an area we're going to continue to invest in. And we'll continue to see some lumpiness. But overall, we're quite pleased with the capabilities and the progress of that business. Andrew Cooper: Okay. Helpful. And then another good quarter, Precision Diagnostics. You were up $3.5 million or so sequentially, I think, like $7 million year-over-year. Can you just ring-fence for us kind of the growth contributions you're getting there? How much of that is Beacon versus KNOVA versus other parts of the portfolio to help at least kind of rank order or give some flavor for the traction there? Brandon Perthuis: Yes. I mean Beacon continues to be a really important test for the company, and it's continued to grow. We're winning new customers. We're moving into new markets. So really pleased with the progress of Beacon. And hopefully, launching Beacon K takes it to the next level and certainly keeping our turnaround times where they are has just been hugely important for the company. KNOVA is not yet a meaningful contributor to revenue. We're still trying to break into that OB/GYN marketplace. A lot of the Beacon business historically has been from the fertility side of things, REIs and fertility clinics. So Beacon continues to be quite important. We are seeing great momentum in our exomes and genomes as well. Our oncology business is doing well, especially on the heme side. So I think overall, I mean, you look at all the different sort of divisions of the company, they're all doing well, all firing on all cylinders, and we see great momentum. Operator: Thank you. We reached the end of our question-and-answer session. And that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Welcome to the Evolent Earnings Conference Call for the Third Quarter ended September 30, 2025. As a reminder, this conference call is being recorded. Your host for the call today from Evolent are Seth Blackley, Chief Executive Officer; and John Johnson, Chief Financial Officer. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section titled Investor Relations. This conference call will contain forward-looking statements under the U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the Investor Relations website, ir.evolent.com and the Form 8-K filed by the company with the SEC earlier today. In addition to reconciliations, we provide details on the numbers and operating metrics for the quarter in both our press release and supplemental investor presentation. And now, I will turn the call over to Evolent's CEO, Seth Blackley. Please go ahead. Seth Blackley: Good evening, and thanks for joining the call. On the call this evening, I'll take you through our results across the 3 areas of shareholder value creation. John will then provide details on the numbers, and I'll close with some additional thoughts before we take your questions. We're pleased to report financial results for Q3 that exceeded expectations on both the top and bottom line. These results, we believe, demonstrate that Evolent's products are resonating in what continues to be a very dynamic time in the industry. Let's start with updates on our 3 areas of shareholder value creation of one, organic growth; two, margins; and three, capital allocation. Starting with organic growth. Q3 revenue of $479.5 million was at the top of our guidance range. And we expect our revenue for the full year to be between $1.87 billion and $1.88 billion. We're announcing 2 new revenue arrangements today, one in the Performance suite and onein the technology and services suite. First, we have signed a contract with one of the largest Blue Cross plans in the country to launch our Performance suite for oncology across more than 650,000 MA and commercially fully insured members. At typical capitation rates, we expect this to contribute north of $500 million in revenue annually. This new partnership leverages our enhanced performance suite framework and includes retroactive adjustments for prevalence, case mix and the like as well as bidirectional risk corridors that significantly limit our downside while increasing value sharing to our partner, ensuring that our economics are closely tied to the value we're creating and mitigating Evolent's exposure to volatility that's outside of our control. We're honored to add this plan as a major new first-time partner for Evolent and look forward to doing excellent job supporting their members and accessing the very best oncology care while also balancing affordability for members in the plan. While the final implementation schedules may shift slightly in either direction, we are currently expecting a May 1, 2026 go live and therefore, expect the contract to contribute approximately $300 million in 2026 revenue. Finally, it's important to note the revenue estimates I just discussed are just for the fully insured commercial and Medicare Advantage lives. The commercial ASO and Medicaid membership at this plan would represent additional growth opportunities over time. And our second revenue arrangement we've announced is a large provider-sponsored health plan in the Southwest and they have signed a contract to deploy our oncology condition management, technology and services solution across their membership adding to their existing musculoskeletal solution. With these additional announcements, we have signed contracts for 2026 go-lives that will add more than $550 million in new 2026 revenue and annualized contract value of over $750 million. These new signings take total revenue under contract for 2026 to approximately $2.5 billion. Well of course, finalize our revenue outlook for 2026 in February once we have final membership and go-live dates. But this forecast of $2.5 billion in revenue takes into account our current expectations for revenue decreases in conjunction with membership reductions in the exchanges, Medicare Advantage and Medicaid. Additionally, we believe the expected contract launch timing in 2026 will position the company for strong bottom line growth in 2027 and even after today's announcement of more than $500 million in annual contract value, our probability weighted pipeline exceeds $650 million annually and continues to grow. On margin expansion, our Q3 adjusted EBITDA of $39 million was in the upper half of our expected range and represents 23% growth year-over-year. John will talk more about the drivers of our adjusted EBITDA performance and our outlook for this year. With today's announcement, we anticipate over 90% of our Performance Suite revenue in 2026 will be covered by our enhanced protections which update our pricing for disease prevalence, mix and other factors and include risk corridors that limit our downside, enhancing our ability to drive sustainable margin growth in the future. We continue to work towards our long-term goal to auto approve over 80% of our baseline authorization volume, delivering on faster authorizations at a lower cost. During the quarter, we began rolling out our artificial intelligence review or Copilot within auth intelligence into our musculoskeletal workflows, and we're beginning to realize the AI efficiency improvements we expected. On the capital allocation front, the sale of our primary care business, Evolent Care Partners is on track to close later this year. We plan to use the proceeds from that sale to pay down approximately $100 million of our senior term loan, lowering our cash interest burden by about $10 million annually. With the retirement of our 2025 convertible notes, we have no significant liabilities until the end of 2029 and we reiterate our commitment to use free cash generation from the business to delever. We believe our growth and the continued strength of our pipeline is driven by the unique value we deliver to all of our core stakeholders, health plans, providers and members. I want to provide an update now on our product development efforts as we continue to innovate. Our health plan partners turned to Evolent to address excessive specialty care costs, particularly in oncology, where we believe we provide a critical service in this environment, which is delivering savings while seeking to improve the patient and physician experience. As evidenced by our accelerating pipeline and new contract signings, we believe the current environment presents an opportunity to increase the penetration of our specialty care model at a time when demand for our offerings has never been higher. For example, in oncology, we believe we touch approximately 9% of all oncology cases in the United States today, about 8% in our technology and services model and only 1% in our Performance Suite model. As evidenced by today's announcements, we are seeing the differentiation relative to our competitors. We expect our enhanced Performance Suite model to grow over the coming years. We believe this market opportunity will provide our customers with significant value and importantly, provide Evolent with a strong and sustainable source of growth in the coming years. We also believe the enhanced protections in our modified contracts will provide a path to driving strong and disciplined adjusted EBITDA growth in the years to come. To give you a sense for the longer-term opportunity with the oncology Performance Suite, increasing our oncology risk penetration to 15% of the market represents an addressable growth opportunity of greater than $15 billion annually over time. On the provider front, we're excited to announce a strategic partnership with American Oncology Network, which strengthens our provider alignment model under our Oncology Care Partners brand. The model seeks to enable high-quality, more affordable and connecting cancer care, all without relying on utilization management, instead relying on EMR integration to drive decision-making at the point of care. The model should significantly lower the burden on oncologists, enabling them to focus on what matters most of caring for their patients on their cancer journey. Part of the partnership, physicians and patients will have access to Evolent's comprehensive cancer navigation program. The American Oncology Network is one of the nation's fastest-growing network of community oncologists and shares our dedication to innovation in cancer care. Finally, we're excited by the continued progress of our comprehensive cancer care navigation program. By combining Evolent's expertise in oncology services and care management with the Careology mobile application. This program has delivered exciting results this year that now extend into reducing inpatient costs, whereas our traditional Evolent oncology model focuses on outpatient costs and drug costs. For example, our navigation model is now live in multiple markets and has shown decreases of up to 40% in inpatient and emergency department utilization and match case studies. The program also has patient satisfaction scores exceeding 90%. Before I hand it over to John, let me make some quick comments on the policy environment and our outlook for 2026 and beyond. Across the last 24 months, we have seen 2 dynamics of work. One, we have been taking share, particularly in oncology, further penetrating the top health plans, winning important new logos while continuing to renew existing customers and updating our performance suite contracts demonstrating the long-term durability of our model. And two, membership in our core government-sponsored market has been going through a significant shift, shrinking in number and growing in acuity. We expect both of these trends will continue in 2026. Recall that our previous expectation for 7% to 9% membership growth in MA for 2026 was offsetting an expected contraction of approximately 20% in the exchange market for 2026. CMS' most recent forecast from the end of September now expects overall MA membership to contract by about 3%. In the exchanges, there remains a wide range of potential outcomes depending on how and when the federal government has reopened, with health plans over the last couple of weeks forecasting exchange membership declines of as little as 15% and to as much as 65%. While we expect to grow our customer footprint and revenue meaningfully next year and while we're on track to achieve our expected efficiency targets for 2025, our 2026 adjusted EBITDA outlook is more uncertain than usual for this point in the year, given the wide range of outcomes on our customers' membership in Medicaid, exchange and Medicare, based in particular, on the changes from the One Big Beautiful Bill. For example, if exchange membership declines are towards the higher end of that forecasted range and our customers' Medicare Advantage membership shrinks, it's unlikely we'll be able to deliver meaningful adjusted EBITDA growth in 2026, above our pro forma 25 baseline. If robust subsidies are reinstated as part of reopening the government, this headwind may be reduced. Likewise, the details of membership declines will matter. For example, while the MA market in aggregate may shrink by 3%, it's possible that our MA customers may gain market share. Regardless of membership dynamics, it's important to note that based on new contracts signed to date, we will exit 2026 with more than $750 million in newly launched annualized Performance Suite revenue. Consistent with our past commentary, we are expecting minimal adjusted EBITDA contribution from these new launches in 2026, but would expect them to generate adjusted EBITDA contribution of $75 million or more at target mature margins. These new contracts as well as others we expect to sign in the future quarters should provide a significant earnings tailwind in the years to come. We intend to use this moment of health plan P&L pressure to cement Evolent's position as a leading specialty solution. The pain felt by our customers, both on membership and utilization is creating a very significant growth opportunity for Evolent. We now have signed 13 new contracts in 2025, and we have contracts in place that should drive more than 30% top line growth in 2026, and we also anticipate continued strong growth into 2027 and 2028. It is our belief that capitalizing on this period of industry disruption with disciplined growth will create significant long-term value for all of our stakeholders. With that, let me turn it over to John to go through the numbers. John Johnson: Thanks, Seth. Q3 revenue of $480 million represented 8% sequential growth versus the second quarter, driven by new launches across both the Performance Suite and the technology and services suite. Sequential growth in our per member per month fees in both the Performance Suite and tech and services was driven principally by product mix with the Q3 launches at a higher-than-average fee as we continue to demonstrate pricing resilience in a dynamic end market. With these launches, we are currently tracking towards the upper end of our full year revenue guidance, and we have narrowed that range accordingly. Adjusted EBITDA of $39 million was modestly ahead of our expectations and represented growth from our technology and services business and the early success of our AI operational efficiency projects, offset by initial reserve building for our new Performance Suite launches. Our Specialty Performance Suite Care margin, which is the difference between our capitated revenue and claims expense was approximately 7%, consistent with our performance year-to-date. Normalized oncology trend continues to be just under 11% year-over-year. Note that during September and into October, we saw an increase in medical utilization in our exchange book, primarily in cardiology, consistent with industry-wide expectations of a benefit rush ahead of significant premium increases in 2026. Given this expectation, we have opted to maintain our conservative reserving posture consistent with our behavior during the first half of the year, and we have narrowed our adjusted EBITDA outlook accordingly. Note that we are not seeing this trend variability in Medicaid or Medicare, where cost trends remain stable versus our first half results. Turning to the balance sheet. We ended the quarter with $116.7 million of cash and equivalents and $47.5 million of revolver availability. Cash change versus our Q2 ending balance was driven by $15 million in cash flow from operations, offset by software development costs of $9 million and $40 million in net cash used in the August transaction, refinancing our 2025 convertible notes and buying back common stock. Cash from operations of $15 million was lower than expected, driven by timing of cash receipts, particularly from the Medicare shared savings program, which was paid in October instead of September. Our net debt of $910 million reflects the exchange of our $175 million in Series A preferred stock into second lien debt. Recall that this exchange included no changes in economic terms to Evolent, other than the interest now being tax deductible. Between cash generation and the divestiture of Evolent Care Partners, we expect to end the year with net debt of approximately $805 million to $840 million, which would represent a net leverage ratio of approximately 5.5x at the midpoint of our 2025 adjusted EBITDA guidance. With the retirement of our 2025 convertible notes, we have no maturities until the end of 2029, but delevering remains our primary capital allocation priority. As we near the end of the year, we are narrowing our guidance ranges for 2025 revenue and adjusted EBITDA to be between $1.87 billion and $1.88 billion and $144 million to $154 million, respectively. These ranges presume a 12/31 close for our ECP divestiture and would be slightly lower if the transaction closes earlier. The corresponding quarterly ranges are $462 million to $472 million in revenue and $30 million to $40 million in adjusted EBITDA. We are not assuming any new launches in our revenue outlook. The primary variable is changes in our customers enrolled membership. And as I mentioned earlier, this adjusted EBITDA range presumes a further decline in exchange margins from what we experienced in Q3. While this outlook is conservative, we believe that is the appropriate posture given the industry-wide commentary on this segment. With that, I'll turn the call back over to Seth. Seth Blackley: Thank you, John. I want to close by commenting on our CFO transition announced this afternoon. First, I want to thank John for his incredible contributions to Evolent as our CFO over the last 6 years. I look forward to continue working with him as he takes on the Chief Strategy Officer role for the company. The role will include supporting our rapid oncology growth in the time ahead and our work to drive our target oncology trend down in addition to the more traditional strategy functions. I also want to welcome Mario Ramos to Evolent. Mario was previously CFO of CVS Caremark, a division of CVS Health, in addition to holding other CFO roles at CVS. Most recently, Mario was CFO of WellBe Senior Medical, a risk-bearing value-based care provider. Based on his track record and reputation in the industry, I'm highly confident Mario will be an incredible addition to the team. Mario will join Evolent on November 17 and assume the CFO role on January 1. In addition, as our growth accelerates and AI becomes a more important factor in the operations of our business, we're making a number of other important organizational investments and adjustments that we noted in our press release. In closing, I remain incredibly confident in Evolent's future. We believe we have developed the leading specialty platform in the industry. I believe the exceptional renewal rates of our current customers, along with the validation of new customer contract signings under our enhanced Performance Suite model demonstrate the value and durability of our solution. While the industry is undergoing significant changes, Evolent is taking market share with a new disciplined contract structure, and I believe we are becoming a more critical part of a system that desperately needs higher value, higher satisfaction and lower cost solutions, particularly in high-cost areas like oncology. We have the right team in place to take advantage of the opportunity ahead and drive value for our customers, employees and our shareholders. With that, we will take your questions. Operator: [Operator Instructions] And the first question will be from Kevin Caliendo from UBS. Kevin Caliendo: I want to talk a little bit about the new contract wins. Obviously a huge number. I appreciate you giving us that it's not going to really contribute much next year. And I believe you said potentially $75 million when they hit peak margins. How should -- can you maybe break this down a little bit? Is 10% sort of the new -- the way we should be thinking about new business in terms of peak margins going forward? Is there something about the mix of these contracts that affects that? Just trying to understand sort of -- because the new contracts and the restructuring of your contracts going forward is a big question mark. And this is obviously a huge amount of new business that's won. And I'm just trying to think as we think longer term, is this how we should be thinking about new business? Or is there something unique about the mix of these contracts that get you to sort of 10%-ish peak margin? Seth Blackley: Yes. Great question, Kevin. So this is Seth. Let me make a couple of points. Number one, yes, this -- all of these contracts that are in that $750 million that we talked about are under the enhanced Performance Suite. That's the only way we're setting up new contracts going forward that has prevalence and case mix adjustments, but also has a narrower corridor model attached to it. So that's the contract structure. I think the second thing that I want to highlight, and I'll get to your question is between Aetna and this contract, and what we're seeing in the pipeline, I think we feel really good about our ability to use this contract structure as the standard going forward. It's also the standard that we have implemented backwards into all of our existing contracts or almost all of them at this point. So that's how you should think about it going forward. I think 10% is a reasonable mature margin to think about, yes. That is lower than historically we used to talk about, and that's intentional. The bell curve is narrower. So we have taken downside from our exposure, and we've also given a little bit back to our partners. And so I think you should think of the business, I think it's a reasonable mature margin target to your point. I think you should also think about lower volatility, more predictability. And that's the model that we believe in going forward. Does it leave some net present value, if you will, on the table? Perhaps it does, but I think more predictability, discipline with these contracts is the right trade-off to be making. Operator: And the next question will be from Daniel Grosslight from Citi. Daniel Grosslight: Congrats on a strong quarter. I'd like to focus on the puts and takes around 2026 EBITDA. Seth, it sounds like the big variable here is just what happens on the exchanges, but I was hoping maybe you could help quantify that impact of it maybe on the high end and low end? And then maybe on top of that, if you can layer on any additional investments you're making in 2026 other than what you've announced this year? And if you're still expecting to see that, I think it was a $20 million improvement in EBITDA from AI. I just want to make sure that you're still expecting to realize that next year. Seth Blackley: Sure. So I'll start, and then I think I'll pass it to John to add a little bit of color. So the big factors that set up '26 are number one, growth. We feel very good there. Number two is you asked about it, but our cost structure and the efficiencies baked into that. We feel good about that, and we're achieving the results that we want. And the third big one will be trend, right? And particularly in oncology, and we commented on that today, too. We feel good about where we are. It feels like our forecasts have been right and we feel like we're still set up in a good way. And the fourth one is membership. To your point, yes, that is the big one that's open. I think it's too early to tell with the width of the ranges that we're talking about. And it's also a little bit hard to give you an algorithm for, okay, plug in, this percent membership decrease, I give you that EBITDA change. I think that a lot of it depends on our cost structure. So the more membership comes down, the more we have to look at our cost structure, there's variable costs and there's fixed overhead. And we're going to have to look at fixed overhead, if membership comes down by a certain percentage, right? So it's hard to give you an algorithm is the short answer. I think the way we framed it in the script is probably the best we can do with the width of the ranges that are out there, which is -- could be tough to get meaningful growth or we have good path to EBITDA growth, depending on what happens with membership. Operator: The next question will be from John Stansel from JPMorgan. John Stansel: I wanted to dig in a little bit more on the MA growth assumptions for enrollment next year. I appreciate the commentary about CMS forecast and the idea that enrollment could decline by low single digits. But I think some of your large customers have taken different strategies, in particular, one of your largest customers is potentially positioned themselves for share gains. So I guess, can you talk about your different outcomes you think within MA enrollment and what that means for '26 and how you're thinking about your large payer customers performing into next year? John Johnson: Yes. It's a good observation, John. And I think that, well, we don't have a crystal ball on this, of course. We do think that if one or more of our current partners ends up as meaningful share gainers for MA membership next year, that would be a nice tailwind for us, in particular, in the technology and services suite. Operator: And the next question will be from Charles Rhyee from TD Cowen. Lucas Romanski: This is Lucas on for Charles. In terms of thinking about the HIC subsidies and whether they expire, can you help us understand, obviously, you're talking about a membership impact right now, but can you help us understand maybe the acuity shift that could come along with that and maybe compare it to the Medicaid redetermination acuity shift that you saw over the past 18 months and help us out with that piece. John Johnson: Yes, for sure. So just to put some numbers around it, right, revenue from the exchanges this year is around $360 million, about half in the Performance Suite, half in tech and service. So that's the top line in terms of the total capitation that we're talking about here. The second thing that I'd say there, Lucas, is recall that our contracts have these protections and automatic adjusters for changes in the population, prevalence, disease mix, et cetera, that go a long way towards protecting us against wild acuity shifts. And the last thing that I'd note is because this is such a -- such a topic, right, and a known item going into next year. We have very active discussions with our payer partners in the exchanges for next year around ensuring rate adequacy based on the population that they end up with next year. So we have a high degree of confidence in our pricing for '26 as it relates to our expected acuity shift. Operator: The next question is from Jailendra Singh with Truist Securities. Eduardo Ron: This is Eduardo Ron on for Jailendra. Just on the oncology trends, which appear to be still better than the 11% that you guys guided for the year. And can you perhaps give some color on how that's played out from Q1 and now through Q3? Has that trend improved as the year progressed? Has it gotten worse in any way? Just if you could flesh that out, that would be great. John Johnson: For sure, Eduardo, we're seeing it about flat across the year. With the -- want to tweak that over the last couple of months, we have seen a bit of that benefit rush in the exchanges. Most of that has been in cardiology, but we've seen a little bit of it in both. But in Medicaid and in Medicare Advantage, oncology trend across the year has been relatively stable. Operator: The next question is from Jeff Garro from Stephens. Jeffrey Garro: Maybe go back to the pipeline and great to hear the positive commentary there. I was hoping you could add to it in terms of the pacing of decisions and relatedly potential timing of go-lives, what's determining the pacing of remaining decisions? And as those prospects or existing clients make decisions, are we now looking at 2027 go-lives? Or are wins still possible that could translate to midyear 2026 go-lives? Seth Blackley: Sure, Jeff. Helpful. So look, I think that what I would say on the pipeline is it's generally about the same as it's always been. It's not sped up or slowed down. I think the overall demand is really significant, as I mentioned, and I think that's going to continue. Could we still have some things that go-live in 2026 that are new? Yes, we could. For sure. And so -- and we've got a lot in the pipeline that could convert over the coming months even. So I think the' '26 outlook is still open partly based on opportunities for additional revenue as well. And again, I'd just say the biggest factor, I think we're feeling right now, Jeff, is just really significant demand because of the pain that folks feel in the market trying to manage and balance great care, whether it's oncology or anything else with affordability and we're getting a lot of phone calls to get support on that issue. Operator: And our next question will be from Jessica Tassan from Piper Sandler. Jessica Tassan: I guess just maybe first, can you elaborate a little bit on the adversity that you're seeing in the exchanges? I guess, just because I don't necessarily think about oncology as being subject to induced utilization, but what are you seeing there? Is it just acuity mix into the end of the year because of like marketplace integrity efforts? And then just secondarily, I appreciate you guys addressing the '26 EBITDA guide. But can you maybe just give us a sense of what are the items we should be thinking about in terms of bridging from 2025 to '26, maybe starting with ECP and then going through the AI efficiencies, et cetera. John Johnson: Yes. So on the first one, Jess, the benefits, rush is really in cardiology, which as you point out, is a little bit more discretionary in terms of timing that is oncology. So that's really where we're seeing that uptick that we noted into the end of Q3 and into Q4 here. I'd just note on that one before I talk about '26, as I said in the script, we have assumed in our guide a provision for that trend accelerating. We haven't seen, but that seems like the right posture for us right now in the exchange line of business. So then talking about '26, let's just hit a couple of numbers. On the ECP divestiture, we expect that to be about $10 million of EBITDA associated with that divestiture. And so the -- think of the pro forma EBITDA this year as $10 million less than where we land as your launching point for next year, assuming we have it for the whole year. The second piece, you asked about the AI initiatives. I think $20 million is still our expectation for year-on-year improvement there. Of course, that's a unit cost number. So to the extent that there are significant shifts in membership, that number could move around a little bit. But we're quite pleased with the progress that we've made on the -- towards that $20 million number. The third thing that I would note is just on the Performance Suite margin maturation. Again, excited about what we've been able to drive this year. I feel confident about our pricing going into next year and ability to continue to drive value there. And the last question is really membership, as we noted earlier. Operator: The next question is from David Larsen with BTIG. David Larsen: With regards to the potential extension for the subsidies, I mean, what odds would you put that at what's happening? Since you're in Washington, I imagine you're pretty close to the hill. I mean, do you think there's a greater than 50% chance of subsidies being extended? Just any thoughts there would be helpful. Seth Blackley: David. So, I think it's a pretty reasonable chance. I want to put a number on it that subsidies are extended, whether it's for a year or 2 years, that kind of thing. I think the bigger question at [indiscernible] is really given how late in the year it is and given the specific mix of plans, how much does that really change some of the numbers on a given population. So I think it's a very complex thing to put numbers on right now, both because you got the federal government question that you asked, and then you have the downstream question of, okay, it's pretty late in the year, how does that then affect open enrollment and had plans already filed? What they are pricing around and the like. And so I think the odds of the extension are good, David, that translating that even if I had a very specific number into, okay, I know this is going to do that to membership. That second piece is quite difficult. And I think that's part of the reason for the broader ranges that you're hearing from the different payers in the market. Operator: And our next question will be from Matthew Shea with Needham. Matthew Shea: I wanted to talk much on the product development. It seems like there's a lot of excitement there. Maybe with the oncology navigation solution, it sounds like continuing to roll this out, I guess, first, have you scaled this beyond that initial 300,000 members? Or is that still the right way to think about this at this point? And then last 2 quarters, you've alluded to the Navigation Solutions potential to allow you to create risk-based offerings for Part A oncology spend. Would love to get an update on where you are in terms of a formal development of an offering there and whether we should view the partnership with American Oncology Network as sort of a stepping stone on that journey. Seth Blackley: Yes. So in terms of rollout, we were still in the two major markets. I think we are pretty close to adding a number of additional markets right now. And I think you'll have that happen live in 2026. If you think about the benefits of doing the work, to your point, most of it's on Part A. We mentioned some of the matched case studies around the significant reductions in ED and hospital utilization. So will we be beginning to take some management accountability on for Part A as we head into next year? Yes, we likely will. And that is a positive, obviously, for our partners because I think they are looking for answers everywhere they can find them and more integrated is better than not. So it is accelerating. I think is the right way to think about our navigation work. It's going to be included in more and more of our efforts. I think the American Oncology network partnership is related but a little bit different. So those oncologists across 20 states will have access to the navigation product that we just talked about, but there's a lot more to that partnership that goes beyond navigation. The bigger things, right, are completely gold carding and turning off utilization management and inserting the intellectual property of our oncology programs into the EMR at the point of care. And those fit really well with the navigation product. There are 2 parts to a coin, if you will, 2 sides to a coin, and they're both valuable and they're both part of the same dynamic, which is everything we're doing is trying to make care better for patients, which navigation does and point-of-care decision-making does and make them more affordable. And both of those things that we just talked about make care more affordable. So all of our product development efforts should have those two things in true north, better care for patients and easier to access for providers and more affordable. Operator: And the next question is from Matthew Gillmor with KeyBanc. Matthew Gillmor: I want to follow up on the American Oncology partnership. So just curious, sort of as you roll out, that doesn't sound like it's revenue-generating today, but how do you envision that sort of generating revenue for Evolent over time? Is that through the payers or through this relationship with the providers? And then has there been any early feedback on that gold card program from some of the big payers? Seth Blackley: Yes, great question. So on your first point, it really, to your point, is not about revenue primarily. The work with that partner and other oncology groups like it over time, is really about improving the quality, the experience and reducing the cost. And so if we're in a risk-bearing situation, having that in place in those markets where we have the enhanced performance suite in place, we think we can drive better outcomes. And you can make patients happier and provide better care for them. So that's going to be the primary way to choose. Might it also be something that payers love to see and therefore, pull us into a new market and it becomes sort of revenue generating as a knock-on effect. I think the answer is probably yes to that. But to your point, that's not the primary approach to it. And what we're really focused on is the ability to drive the quality and cost in the right direction. Operator: And ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Seth Blackley for any closing remarks. Seth Blackley: Great. As I close the call, I just want to thank John again as he moves on to his new role, but really also thank the 4,500 people at Evolent who wake up every day and run at our mission to support our patients, but also our shareholders. So thanks for the time tonight. We look forward to catching up offline. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Docebo Q3 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Docebo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike. Michael McCarthy: Thank you. Earlier this morning, Docebo issued its Q3 2025 results. The press release, which included a link to management's prepared remarks and our quarterly investor slide deck, were all posted to our Investor Relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Docebo would like to remind listeners that certain information discussed may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on risks, uncertainties and assumptions relating to forward-looking statements, please refer to Docebo's public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I'd like to turn the call over to Docebo's CEO, Alessio Artuffo; and our CFO, Brandon Farber. Operator, we're now able to take questions. Operator: Our first question comes from George Sutton from Craig-Hallum. George Sutton: Nice results. So it all comes down to ARR. So I wondered if we could start there. It was up $2.5 million, sequentially. Can you just unpack the components? Alessio Artuffo: As you are suggesting, we are quite pleased with the results this quarter. The way we think about it is our business actually grew 14% year-over-year by excluding the Dayforce business. And I understand that we haven't disclosed this in the past. But I would add to that, that this is the second sequential quarter in which we've seen this growth happening, again, excluding Dayforce. And in a minute, we'll tee up why this matters. What I'm really pleased by is the fundamentals and the execution that led to this result, a trend that I continue to see in the future. First, we've seen our mid-market business exceeding performance and expectations. This has happened due to the changes and evolution brought in by our new leadership team, and changes that we had performed at leadership level in the quarters in the past. We're starting to reap the benefits of those improvements, not only in terms of people, but also framework, processes and improved pipeline processes. Secondly, we've seen, frankly, against seasonality -- and EMEA performance also exceeding expectations, something that has pleased us very much with the key logos, very material ones signed in EMEA during the quarter. And finally, not to be forgotten, our core business retention continues to improve. We also think this is a very important component and a part of the storytell. Notwithstanding all of the above, our turn with our -- with Dayforce accelerated faster than expected, and the results are just the reflection of that. George Sutton: Perfect. Just one other thing on FedRAMP. Obviously, impressive to see the wins pretty early. I'm curious if that's earlier than you had expected, or on track. And then we are sitting here in the U.S. with the government that's not effectively open. I'm just curious how that impacts the opportunity. Alessio Artuffo: Great. So we are very pleased to be achieving already 2 new federal customers shortly after our May dated FedRAMP listing. We believe that's an impressive outcome considering that originally, our thesis was to start winning federal business in fiscal 2026, and more backdated in the second half, because that is more aligned with our federal purchases. Not only we have expanded an account with the Department of Energy, which we were very pleased about, but also, we've been working closely with our partner, Deloitte, to secure the business of the Air Force Cyber Academy. In addition to that, outside of federal, which I understand is the headline, given the complexity of doing deals in federal in such a short time frame, we have continued to execute well also on the state and local side. And that trend is expected to continue. As it pertains to government shutdown, actually, we've been building pipeline at a very impressive pace, both in federal and SLED. Fortunately, if you will, the government shutdown did not affect the seasonal buying cycle that occurred with the deals that we disclosed. And I would say quarter 4 historically, for federal deals, is a very slow quarter because budgets get spent in quarter 3, our quarter 3. And in quarter 4, organizations, the federal organizations take a pause typically from purchases reigniting in our fiscal year 2026, by which time we expect the shutdowns have been addressed. I would also add and tee up by saying our progress in SLEDs is tied to our progress in federal. Why? Because we're seeing organizations in the state and local demand more and more frequently a barrier of interest called state RAM, which we do address via FedRAMP certification. So to tee it up, our investment in FedRAMP is playing a dual role here. Not only it's allowing us to increase TAM, but it's allowing us to win more in the SLED market, creating a great competitive differentiator for us for the future. Operator: Our next question comes from Kenneth Wong from Oppenheimer. Hoi-Fung Wong: Alessio, I wanted to maybe dive into the FedRAMP SLED dynamic a little more. As you think about the guidance that you guys put out there for 4Q, I realize it's a kind of seasonally low quarter. But any heightened conservatism in terms of what's coming in from the pipeline on the public sector side, just given that there is that shutdown? Alessio Artuffo: Like I said, I wouldn't say that we have seen a direct correlation between the pipeline outcomes and government shutdown. On our side, we're very, very focused on diversifying where we execute across state, local, and education. It's a big market. We're seeing more response and more, if you will, interest coming from civilian organizations. And the other thing I can say is that our technology favoring the use of Docebo, for both internal use cases but also external use cases, opens up to a new opportunity that in the market of government has been stark in terms of offering. So I believe that our continued pipeline execution is really the reflection of good timing, good execution, and great product market fit. Brandon Farber: Brandon here, I just want to add and great to have you on the call. If you think about it, we started down the government route of building the business from the ground zero, roughly 2 years ago. And part of that was building relationships with all various federal departments. And while we were building and looking to achieve FedRAMP authorization, we're able to demo and show our platform and have interest from various different federal departments. So while we see the cutdown temporarily impacting the ability to generate new pipeline, we are very confident in the relationships we've built over the past 2 years, and that will enable us to start winning material contracts in Q3 of 2026. Hoi-Fung Wong: Perfect. Then maybe we would love to get an update on the enterprise side. It looks like both customer counts and kind of ARR coming from large -- $100,000 customers is pretty strong. Would just love to get a sense of kind of how the pipeline was shaping up this quarter. What did sales cycles look like? Any extensions there as we head into the fourth quarter? And any thoughts on whether or not you might see some sort of a budget flush from customers going into Q4? Alessio Artuffo: Yes. So a few things on enterprise. Enterprise is a very critical area for us, and we continue to increase the customers over $100,000 sequentially, which is a strong sign of execution in our enterprise segment, but also in our mid-market segment that is able to sign customers with multiple use cases and multiple modules, and very healthy ACV. Additionally, on enterprise, I would say the following. In general, we continue to see deal elongation in the market. This is continuing to happen. But you're right, historically, quarter 4 is the strongest quarter within the enterprise segment for us, and we continue to expect that going into this quarter. A couple of notes that I would make on some enterprise wins notable in this quarter. I was very impressed with the ability to sign a multinational like Veolia. This kind of tees up not only the EMEA business, but also the capability of multi-use case -- and this is an organization with more than 200,000 employees headquartered in France -- and additionally, I would say our ability to expand upon Amazon, which is a customer of ours that we've had for a while. This is our third department that we're signing in the quarter is very significant. So both on the new logo side and expansion side, we're very, very happy about the results and expect a strong quarter 4. I would say important in the enterprise story is the system integrator story. We have invested heavily in partnership programs and system integrator programs to support that enterprise motion. And the large majority of the deals that we're doing in enterprise have a system integrator attached to it. And so that's the result of years of work. Operator: Our next question comes from Ryan MacDonald from Needham & Company. Ryan MacDonald: Congrats on a great quarter. Alessio, I very much appreciate that, obviously, the enterprise is really the driving force around growth moving forward. But can we get a bit more color on sort of the OEM wind down, the Dayforce wind down? Obviously, you mentioned it sort of occurred a bit faster than you expected in the quarter. But as we think about fourth quarter and into next year, can you just help us get a bit of a better understanding on the trajectory there and what opportunities you might have to sort of compete more directly within that base of customers? Brandon Farber: Ryan, it's Brandon. I'll take that question. So just taking a step back and just looking back, as a reminder, Dayforce started OEM and white labeling Docebo back in 2019. And they were very successful selling Docebo as an LMS, and got as big as roughly 9% to 10% of our total ARR at a specific point in time. Back in early 2024, Docebo acquired eloomi, which we all know. At that specific point in time, they were an LMS provider in Europe focused mainly on the SMB market. Subsequent to the acquisition, Docebo initiated legal action and was quickly resolved with Dayforce. Really, the goal of that lawsuit was 3 outcomes: number one, protecting our IP; number two, supporting the contributor of our revenue base; and number three, preserving our day-to-day relationship with Dayforce. How we're looking at it on a go-forward basis, we continue to expect economic benefits to flow to Docebo, and the contract to wind down over extended period of time. To provide a little bit more color, we anticipate Dayforce to represent approximately, 3.5% to 4.5% of our total revenues in 2026, 1% to 2% of our total revenues in 2027, and become immaterial thereafter. Just to leave on a positive note, it is important to note in the current quarter and since 2024, we've continued to grow. We've continued to diversify our revenue base away from Dayforce, and we're pleased with the ARR growth we had this quarter, excluding Dayforce of 14%. Ryan MacDonald: Maybe my second question, I wanted to talk on AI. As we've sort of spoken with companies and a number of companies rolling out AI strategies, it feels like there's sort of three buckets in which organizations are trying to sort of monetize AI efforts today. It first seems to be in improved customer retention and sort of, renewal rates. The second tends to be in sort of, building in higher annual price increases as you deliver more value with AI. And then the third tends to be sort of, separate SKUs or modules that are AI-specific modules that you can start to charge for. I'm just curious, as you think about the three buckets where you're seeing the benefits from AI. And at least in the shareholder letter, it seems like with these AI credits rolling out, it seems like you're getting a head start on that third bucket going into next year. So would love a little bit more color on that as well. Alessio Artuffo: Great breakdown of the 3, say, areas of return of AI. We very much agree with those 3 areas. I would say that having started with AI several years ago, our focus has certainly been more on the creating value and infusing AI in the product everywhere we can more lately. Originally, when we approached AI years ago, we were creating features that were supported by AI, mostly to provide a better customer experience, i.e., getting to the outcome faster. But at that time, monetization strategies were not a priority. As we have matured and are maturing every day at a really rapid pace, our posture on AI, I can say that your category #2 and category #3 are the ones that we think of very much. You are correct in saying that we've introduced recently an AI credit-based system that aimed at managing through this credit-based system, our AI pricing. The way it would work is for modules like AI Virtual Coach and AI Video Presenter, a consumption model whereby our customers using these modules consume credits that run against the packages they would buy upfront. We don't have a long history of doing this. We've recently started this, but we -- our thesis is to continue to roll in AI capabilities against this model to make it more meaningful from a monetization standpoint in the future. But then we also believe that continuing to provide AI capabilities will give us an edge against the competition, which will allow us and help us defend a premium of our product against the competition as a result. Finally, I would say retention is -- remains an evergreen goal that we have. So we infuse AI features everywhere. Every single product manager in the company is required to think AI first as they build new products and revise existing features, so that our customers have a better experience with the product. Operator: Our next question comes from Robert Young, from Canaccord Genuity. Robert Young: You said in the prepared remarks that you've seen the second consecutive quarter of improved retention. I assume that's with the OEM piece aside. So I was wondering if you could dig deeper into that. If you could update us on where churn is, where the elements of churn are, if that's improving? And then where you think that's going to go in '26? Brandon Farber: Rob, it's Brandon. As you know, we only disclose NRR on an annual basis, so we won't go into specific numbers. But you are right. We did see 2 consecutive quarters in a row of retention improvements, whether you look at it from a gross retention or net retention. This is actually very consistent with what we have been saying for the past 2 quarters. We knew in Q1, we had a large renewal base that would bring it down and we'd only go up from there. One thing that is important to mention is that we did lap the large Thomson Reuters downgrade that happened in Q3 of last year of roughly $2 million. So obviously, lapping that did result in improvement. And to be completely transparent, we do expect that metric to go down next quarter because of the AWS downgrade. So a couple of things that I'd say is we have a renewed focus on retention. We are putting together account mapping for every at-risk customer, and making sure we're proactive and not reactive. And we feel really good about the programs we have in place to continue strong retention metrics in the future. Robert Young: You noted the AWS Skill Builder roll-off. How is that handover progressing? Is there a potential for a subcontract, a support contract in 2026? Or is that going to disengage completely, as you expect? Brandon Farber: Rob, we expect that to completely disengage, December 31. Operator: Our next question comes from Josh Baer from Morgan Stanley. Josh Baer: Congrats on reaching 20% EBITDA margin early. That's something that you guys have been talking about for a long time. I wanted to just follow up with a couple more on the OEM. Just curious what that percentage was last quarter? Do you have that? Brandon Farber: Sorry, maybe if I could just rephrase, are you asking for what ARR growth was, excluding Dayforce? Josh Baer: No. The percentage of ARR, so 6.2% this quarter. Just wondering what it was last quarter. Brandon Farber: Instead of giving you that exact metric, what I can give you is what our ARR, excluding Dayforce was last quarter, which was roughly 13.9%. Josh Baer: For Q2 also? Brandon Farber: Correct. Josh Baer: I guess I'm just wondering why it was like a greater wind down than expected? Was it Dayforce-led? Was it customer-led? Any context there? And then I did want to just follow up, like is it a lot of smaller customers noticed like there was a big jump again in average contract value. So some really nice acceleration there. Wondering if it's related. I know you also had success more broadly in enterprise. But in part, I want to get a better sense of like does this average contract value continue accelerating? Or should we expect that to slow down? And then when we do get the total customer count at the end of the year, like should we expect that to move lower due to this Dayforce? Brandon Farber: Yes. A lot of what you just said is bag on. So our ACV this quarter did grow as a result of the Dayforce wind down. If you think about the customers that typically get attracted to an HRS system plus an LMS, they tend to be a customer who use it for 1 to 2 use cases, which is onboarding and compliance. And those average tickets tend to be materially lower than a customer that would sign directly with Docebo, for multiple different use cases. So you should expect and you should model that our ACV with Dayforce is materially lower than a customer that signs directly with Docebo. Regarding customer accounts, you should expect that our customer count overall will be down, and that is a result of the wind down of Dayforce. Operator: Our next question comes from Yifu Lie from Cantor Fitzgerald. Yi Lee: Congrats on the strong 3Q print and a busy week of earnings. So to start with you, Alessio, I want to go over the AI product vision. We understand from Inspire, Alessio, your model is to build a product that delivers value to customers first, and they will eventually pay Docebo and you can monetize it, right? So looking at the new product lineup, whether it be Harmony Search, support AI offering, Virtual Coaching, Copilot, et cetera. So which of these products, Alessio, would you say is closer to monetization potential? On the second part of this question, Alessio, in the end of your prepared remarks, you talked about redefining the future of learning. And I understand you like to solicit continuous feedback from your customers. What are the key things you've learned from your customer and stakeholders that you want to apply to your product road map for the end of this year and 2026? And I also have a follow-up with Brandon after this. Alessio Artuffo: Lovely question. Let's get started. start on the AI and product. First, let me share that you are correct. Our vision around our Harmony ecosystem is very ambitious, and we have executed. So far, Harmony Search from its recent launch has already powered about 0.5 million search with 0.5 million queries, which is a very positive result against our expectations. This is not only stopping with search. Search was just the beginning of a journey where we want to get Harmony to become the assistant of our customers. Harmony, in fact, was now evolved into a Copilot logic. The goal is to improve the productivity and the self-servicing of capabilities in the platform. So you can go in Docebo and ask Harmony to perform tasks for you and help you identify how to get things done in the product, and Harmony will either point you to it or do it for you. This is just the beginning of a journey towards full platform automation, which is a longer-term vision that we have that we're going to pursue. In terms of Creator, which you mentioned, I think your question was around which capability do I think will contribute the most to monetization. Creator is the engine behind the experience creation in Docebo, which includes, as part of it, our AI Virtual Coach, the ability to create simulations, and to simulate any scenario from customer service leadership and sales enablement, something that we have evolved this past month by releasing a new version of Creator, which -- sorry, of Virtual Coach, that initially was addressing only the sales enabling use case. Now that module is well rounded up and allows an organization to map simulation scenarios against any custom role play scenario they want to implement. So we do expect Creator and Virtual Coach to be great contributors to our monetization strategy in the future. No, I was just going to wrap up by saying our road map reflects our belief that a platform from a differentiated standpoint, you asked about the customers and what we are hearing. We are hearing customers saying they want more ability to create personalized experiences. They want to do less leaking and to be able to create content at a more rapid pace in automated way. That's what we're executing with Harmony and with Creator. Yi Lee: Alessio, I want to follow up on the -- obviously, you guys made on the customer wins, especially I want to focus on the industrial one, the 200,000 seat, right? Obviously, you're leaning more towards the system integrator channels similar to other Tier 1 SaaS software companies. I just wanted to get your sense on like what types of partnerships are you engaging? I know Deloitte is a big one, right? What's working and what needs to work on? Then I'll just ask a financial question as well, Brandon. On the financial side, I'm just looking at the KPIs for new logo ACV, 71k is flat year-over-year, but up 8% quarter-over-quarter. But in terms of the story, it seems like you guys are going upper enterprise, right? So why is that metric flat year-over-year? That's it for me. Brandon Farber: I'll kick it off on the last part of that question. So how we look at ACV is given the fact that we're seeing extremely strong success in mid-market, and this is 2 quarters in a row where we've seen that strength, and we're seeing leading indicators that that strength will continue into Q4. That is impacting obviously, the ACV, as we have larger concentration of customer accounts coming in at the mid-market. When you think about the enterprise space, you tend to have a lower number of customer wins, but at a larger ACV. So during the quarter, we actually did have really strong performance of units that had very healthy ACVs, upwards of, let's call it, $500,000 ACV. And seasonally, we do expect Q4 to be strong enterprise quarter, and we do expect that ACV to go up in Q4 as well. Alessio Artuffo: On the first part of the question, you asked about how we view the market of system integrators, and you mentioned the big logo that we mentioned earlier. I would say a few things. In the past calls, we've outlined how we made such great strides in partnering with the Accenture and Deloitte type of system integrators. That work continues, and we continue to advance our relationships with them and really formally progress our status as partner type within those organizations, which in turn, will only give us more penetration in their go-to-market efforts. But also remember, it's not only a matter of pipeline creation, it's also the ability for them to support us in complex implementations, which has an incredible amount of value with large enterprises. I would add a different type of color in this call by saying that not only we've been working with these very large system integrators, but also regionally, internationally, we've identified a number of system integrators that are leaders in their respective markets. And so when you think about wins like that, the State Administration School of Latvia, we would have not been able to do that with a critical regional partner that helped us become the de facto platform for the entire public sector of the country of Latvia. And so as we continue to expand with these regional and more focused system integrators, we expect deals like these to become more and more frequent. Operator: Our next question is from Erin Kyle from CIBC. Erin Kyle: I just had a question on how we should be thinking about the margin profile here into 2026, as you continue to expand the federal pipeline and opportunity here. Do you expect to see an increased spend in sales and marketing, or the 20% margin in Q4? I guess my question is, how sustainable is that you think going forward? Brandon Farber: The way we're thinking about EBITDA margin, and it is important to note, we do have a bit of seasonality in EBITDA where we do expect Q3 and Q4 to always be stronger than Q1 and Q2, given Q2, we have our big Inspire event in Q1, we tend to have seasonally higher payroll costs. How we're thinking about EBITDA going forward, we do think we're fairly staffed from a sales and marketing perspective. We've invested and spent money in government over the past 2 years, and we've staffed that team up for success. We do have pipeline targets, coverage ratios that once it exceeds those ratios, we will certainly accelerate hiring. But for now, the government team is fully staffed. How we're thinking about EBITDA margins going forward, we do post in our investor deck every quarter goals from a spend level. And one number to call out is we're at 20% EBITDA today. Our G&A as a percentage of revenue is roughly 15%, and our long-term or midterm goal is 9% to 11%. So if you think about incremental 5% leverage in G&A alone, that gets you to 25% margin over a mid-to long-term basis. And that's without sacrificing any investments we have to make in R&D and sales and marketing. Erin Kyle: Maybe I can just ask one more just on the professional services revenue in the quarter was a bit higher than we had expected. Is that related to the strength in the mid-market? And if that's the case, should we expect that to trend higher in Q4 and going forward as well as you see that mid-market strength continue? Brandon Farber: Yes, it's a great question. So what we're seeing is that the type of customers in mid-market that tend to be attracted to Docebo, are customers that have complex onboarding needs and complex use cases. And with complex use cases tend to lead to more hands-on onboarding experience. What I would say is that while we're pleased with the professional revenue growth, it's not a line item we're focused on. We're really focused on growing high-margin accretive subscription revenue, and we're very comfortable with handing off professional services revenues for our partners, such as Deloitte and Accenture. Operator: Our next question comes from Suthan Sukumar from Stifel. Suthan Sukumar: For my first question, I wanted to touch on the Amazon expansion. I thought that was a positive read on sort of, the state of that relationship. Can you speak a little bit about -- aside from the AWS contract, what use cases you are involved with Amazon, and how you expect that relationship to evolve going forward? Alessio Artuffo: Sure. So first, let me underscore the fact I'm very pleased with the fact that notwithstanding Amazon divesting from us on the Skills Builders initiative, we continue to attract the business of other Amazon companies who continue to entrust us with our products and services. I think that's a testament also to the great work that we've done over the years with Amazon Skills Builder. Because if we had done so, you would presume that the reference calls that would happen in order to sign with Docebo, would bring these Amazon companies to make different decisions. So I think that's a little bit of also in the retrospective to clear up any doubt remaining. I would say on the current win, we did sign Amazon Health, which is the health care division of Amazon. It's a very important win for us because not only it adds another Amazon logo to our customer base, but also it's a perfect fit for our products and services. They are going to be using Docebo for both customer experience, doing customer and partner education, effectively supporting health care professionals and technology partners and service teams. And then on the employee side, they're going to be using Docebo for sales enablement, onboarding, leadership development, professional development, and compliance. What we know is that organizations that use Docebo for more than 4, 5 use cases have the best metrics in terms of unit economics and retention. And so we love what we can bring in companies that effectively become so. And on the competition side, you guys usually ask that I want to know, unsurprisingly, we did overcome the other competitors, both on the mid-market and I would say, legacy enterprise side. Brandon Farber: One thing I'd add is that this new use case with Amazon, they were not interested in a short-term relationship with us. They did sign for 5-year contract, which just shows the strength of Docebo's relationship with Amazon. Suthan Sukumar: Great. My second question, I just wanted to kind of touch on the growth profile. You guys are -- ARR is now down 10% year-over-year. But when you exclude Dayforce, 14%, I think that does speak to the strong underlying growth momentum in the business. Can you remind us the impact with the AWS contract roll-off would be to ARR? And more broadly, what would need to happen for growth to continue reaccelerating from here? I'm just going to keep in mind that you guys have a new CRO in the seat. Just curious what sort of changes and priorities are playing out here to support that growth reacceleration. Brandon Farber: I'll start off and pass it off to Alessio. So the AWS impact consistent with last quarter is approximately $4 million hit to ARR, which will come out December 31. Alessio Artuffo: So on the question of reacceleration -- look, I think you were bang on in your observation. And I would underscore that our CRO and CMO, have been in seat for a relatively short time frame. In the past 90 days alone, though, I have seen them making a significant impact that Kyle and Mark, who hopefully are listening to us today. I'm going to say good things about their work. I've been very impressed with the level of sophistication that we've been able to already inject in our revenue architecture. There are a lot of practical details that are being improved from forecasting methodology to customer success methodology. We are investing significantly in optimizing our spend on the marketing side, becoming leaders in this AI referral traffic generation, which is a big aspect, and marketing -- digital marketing is changing a lot in the kind of post every single SEO era. So their execution has been start, and I'm seeing already the beginning of a trajectory that will continue in the years to come. In terms of reacceleration is achieved through a few things that we're pursuing. I would highlight four areas that we are particularly focused on. The first one is an evergreen, as I say, always improving our retention metrics. And that is not just improving our retention, but also improving our net dollar retention by strengthening our expansion engine. We're very focused on this, and we're seeing positive momentum in the pipeline in the business. The second one that I would mention is performance in the mid-market. As we mentioned, we are executing really well as a result of a mix of things, our people, and processes. And we expect this performance to continue in the quarters to come. The third one that I would mention is, again, government. We've only seen the beginning of a journey that started in May with federal, and will continue strong into 2026, alongside our continued execution in flat. And finally, we have been working on strengthening our enterprise momentum and pipeline. We're starting to see the results of that. We expect good signals in quarter 4, but we believe 2026 will be the year of enterprise at Docebo. Operator: Our next question comes from Richard Tse from National Bank Capital Markets. Richard Tse: I just want to go back to this AI product portfolio. Can you help us understand your assumptions around how your attach rates are going to scale with those products? And with that, how the revenue profile will lift alongside that? Brandon Farber: Richard, I'm going to wait to answer that question for Inspire, where we'll have an investor update and talk a little bit more about how we're envisioning AI credits to impact our overall business. The one thing that I would say is that we will have ARR that will lag a little bit in linearity with our typical nice ratable revenue as we'll recognize ARR credits as it's consumed. So the biggest impact is if we sign a new customer with -- that has an AI credit bundle, they won't start consuming until after onboarding. But we definitely see AI credits as a very strong way to lift our NRR, and have expansion within our existing customer base. Richard Tse: I guess the other question is around partnerships. You've been spending a lot of time talking today about SI partnerships. I think a few years ago at your conference, you showcased Microsoft from a technology partnership standpoint. So when you sort of look at those 2 types of partnerships, what's your sort of perspective on each in terms of driving lifetime value? I was under the impression that sort of the integration with Microsoft tends to make it stickier and potential to expand those offerings. And if that's the case, are you pursuing those type of partnerships as well in addition to these SIs? Alessio Artuffo: Our technology partnerships are an important part of our partnership thesis. On the Microsoft side, I believe you may be referring to our module called Microsoft Teams, which is a module that allows customers that use Teams, to connect Docebo to it. It's a module that we're seeing having success in organizations that are Microsoft add. In terms of our overall technology partnerships, what we're favoring and what we're leading with are capabilities that our customers can use to extend the value of the Docebo platform. To give you an example, we have integrated with Docebo tightly technologies like S'ABLE for Virtual Labs, or Honorlock for Proctoring. I would say our partnership focus remains more on the go-to-market side. And as far as the technology side, we will continue to invest to some extent with the integrations with the core platforms like Teams, Slack and others. Operator: We have no further questions. I would like to turn the call back over to Alessio Artuffo, for closing remarks. Alessio Artuffo: Thank you very much for attending and for helping us tell a story of another exciting quarter at Docebo. We look forward to seeing you at the end of February, for our Q4 results. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to Applied Optoelectronics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. I will now turn the call over to Lindsay Savarese, Investor Relations for Applied Optoelectronics. Ms. Savarese, you may begin. Lindsay Savarese: Thank you. I'm Lindsay Savarese, Investor Relations for Applied Optoelectronics. I'm pleased to welcome you to AOI's Third Quarter 2025 Financial Results Conference Call. After the market closed today, AOI issued a press release announcing its third quarter 2025 financial results and provided its outlook for the fourth quarter of 2025. The release is also available on the company's website at ao-inc.com. This call is being recorded and webcast live. A link to the recording can be found on the Investor Relations section of the AOI website and will be archived for 1 year. Joining us on today's call is Dr. Thompson Lin, AOI's Founder, Chairman and CEO; and Dr. Stefan Murry, AOI's Chief Financial Officer and Chief Strategy Officer. Thompson will give an overview of AOI's Q3 results, and Stefan will provide financial details and the outlook for the fourth quarter of 2025. A question-and-answer session will follow our prepared remarks. Before we begin, I would like to remind you to review AOI's safe harbor statement. On today's call, management will make forward-looking statements. These forward-looking statements involve risks and uncertainties as well as assumptions and current expectations, which could cause the company's actual results, levels of activity, performance or achievements of the company or its industry to differ materially from those expressed or implied in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believe, forecast, anticipate, estimates, suggests, intends, predicts, expects, plans, may, should, could, would, will, potential or think or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes. The company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control. Forward-looking statements also include statements regarding management's beliefs and expectations related to the expansion of the reach of its products into new markets and customer responses to its innovations as well as statements regarding the company's outlook for the fourth quarter of 2025. Except as required by law, AOI assumes no obligation to update these forward-looking statements for any reason after the date of this earnings call to conform these statements to actual results or to changes in the company's expectations. More information about other risks that may impact the company's business are set forth in the Risk Factors section of AOI's reports on file with the SEC, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. Also, all financial results and other financial measures discussed today are on a non-GAAP basis unless specifically noted otherwise. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation between our GAAP and non-GAAP measures as well as a discussion of why we present non-GAAP financial measures are included in the company's earnings press release that is available on AOI's website. Before moving to the financial results, I'd like to note that the date of AOI's fourth quarter and full year 2025 earnings call is currently scheduled for February 26, 2026. Now I would like to turn the call over to Dr. Thompson Lin, AOI's Founder, Chairman and CEO. Thompson? Chih-Hsiang Lin: Thank you, Lindsay, and thank you for joining our call today. We successfully deliver revenue, gross margin and non-GAAP loss per share in line with our expectations. In fact we recorded the highest quarterly revenue in our history, driven by strong demand in CATV market which also achieved record revenue in the third quarter. The strength we saw in our CATV business more than offset our datacenter revenue is trending a touch with our expectations, largely due to the timing of certain shipment at quarter end. In [indiscernible] we were approximately $6.6 million in shipping our of 400G transceiver to a large hyperscale customer, who was not able to return into revenue during the quarter due to various shipping and receiving delays and which we have took in Q4. Despite this delay, our financial results clearly highlight the range of having diversified revenue stream as a result of a revenue on a combined basis increased 15% sequentially and 82% year-over-year. Number three, we continue to make profits on customer colocation on our 800G. As we mentioned last quarter, we believe we are near the final stage of qualifications with several customers. We expect qualifications in the near-term based on conversations that we are having with our customers, and we continue to believe that we will produce meaningful shipment of AOI product in the fourth quarter. Total third quarter would be the revenue of $118.6 million which was in line with that kind of a range of $115 million to $127 million. We recorded non-GAAP gross margin of 31%. This was in line with our guidance range of 29.5% to 31%. And on net loss per share of $0.09 compared in line with our guided range or a loss of $0.10 to a loss of $0.13. Total revenue for our datacenter of $43.9 million increased 7% year-over-year, but was down sequentially. Revenue for our other products includes 32% year-over-year, while revenue for our 400G product was down 65% year-over-year or $7.1 million due to the timing of certain shipment this quarter end that I just mentioned. Total revenue in Q3 in our CATV segment was a record $70.6 million with more than triple year-over-year and was up 26% sequentially from a strong Q2. This increase is due to the continued ramp in orders for our 1.8GHz amplifier product for both existing as well as new customers. With that, I will turn the call over to Stefan to review the details of our Q3 performance and outlook for Q4. Stefan? Stefan Murry: Thank you, Thompson. As Thompson mentioned, we successfully delivered revenue, gross margin and a non-GAAP loss per share in line with our expectations. In fact, we recorded the highest quarterly revenue in our history, driven by strong demand in the CATV market, which also achieved record revenue in the third quarter. The strength that we saw in our CATV business more than offset our data center revenue, which came in a touch below our expectations, largely due to the timing of certain shipments at quarter end. In particular, we had approximately $6.6 million in shipments of 400G transceivers to a large hyperscale customer, which was not able to be turned into revenue during the quarter due to various shipping and receiving delays and which we have booked in Q4. Despite this delay, our financial results clearly highlight the advantage of having diversified revenue streams. As a result, our total revenue on a combined basis increased 15% sequentially and 82% year-over-year. In Q3, we delivered revenue of $118.6 million, which was in line with our guidance range of $115 million to $127 million. We recorded non-GAAP gross margin of 31%, which was in line with our guidance range of 29.5% to 31%. Our non-GAAP loss per share of $0.09 was also in line with our guidance range of a loss of $0.10 to a loss of $0.03. We continue to make progress on customer qualifications on our 800G products. As we mentioned last quarter, we believe we are near the final stages of qualification with several customers. We expect qualification in the near term based on conversations that we are having with our customers, and we continue to believe that we will produce meaningful shipments of 800G products in the fourth quarter. For the third quarter in a row, we did record immaterial revenue for our 800G products related to deliveries for customer qualification activity. As we have mentioned before, our schedule on ramping up our production is largely constrained by our ability to build and qualify production capacity. On that front, we are pleased to report that we made good progress on getting our production ready during the third quarter and remain nearly on track to achieve the targets that we laid out at OFC. As a reminder, we expect this will culminate later this year with what we believe will be the largest domestic production capacity for 800G or 1.6 terabit transceivers, approximately 35,000 transceivers per month or roughly 35% of our overall capacity for these advanced optical transceivers. Notably, we will be able to accommodate this expansion in our current Texas facility footprint. Further, by mid-2026, we continue to expect to be able to produce over 200,000 pieces per month with the majority produced in Texas. As I just mentioned, we made solid headway towards these targets for next year. As you may have seen, we announced last week that we signed an agreement to lease an additional building in Sugar Land, Texas. We will begin construction on this new facility later this year and are confident in our ability to scale our production towards the middle to end of next year to achieve our 2026 targets. It's also important to note that AOI has had an in-house laser manufacturing capability for many years, and we have been expanding and improving this capability recently. While we have heard talks about laser shortages, having a laser production capability in-house gives us an advantage. And to date, we have not experienced a shortage of lasers that has affected our ability to deliver products according to our customers' requests. We've spent years developing our automated manufacturing capabilities, which gives us an advantage in the ability to do manufacturing virtually anywhere in the world that we would like to and makes building out another facility in a cost-effective way in Texas possible. The message from our customers is consistent. Many of them have a strong preference for production in North America. And so that's what we have been and are currently focused on. When we talk about adding capacity, the lead time for us to add new equipment and add machinery to our production process is typically less than the lead time it would take to hire and train the types of skilled operators that are needed to do the manual processes that are used by most of our competitors. Just to reiterate, we currently have 3 manufacturing sites, one here in Sugar Land, Texas, where our headquarters is and which will soon involve 2 facilities, 1 in Ningbo, China and 2 in Taipei, Taiwan with an additional one under construction. As you may have heard me say at OFC, we expect to increase the total production of 800G and 1.6 terabit products by 8.5x by the end of the year, and we are on track and dedicated to achieving this goal. During the third quarter, direct tariffs had a $1.1 million impact on our income statement. As it relates to tariffs, also, as I mentioned on our prior couple of earnings calls, while we do utilize some imported components in our transceivers, many key components like our laser chips are already manufactured in the U.S. Importantly, in our 800G and 1.6 terabit transceiver designs, less than 10% of the value of the components used is currently sourced from China, and we have a pathway as we scale production to further reducing this China content, ultimately to near 0. We are also in discussion with several key suppliers about onshoring their production to the U.S. to support a robust domestic supply chain. Turning to our third quarter results. Our total revenue was $118.6 million, which increased 82% year-over-year and increased 15% sequentially off a strong Q2 and was in line with our guidance range of $115 million to $127 million. During the third quarter, 60% of revenue was from CATV products, 37% was from data center products, with the remaining 3% from FTTH, telecom and other. In our datacenter business, Q3 revenue came in at $43.9 million, which was up 7% year-over-year and was down 2% sequentially. Sales of our 100G products increased 32% year-over-year, while sales for our 400G products decreased 65% year-over-year or $7.1 million, which was primarily driven by the timing of certain shipments at quarter end that I previously discussed. In the third quarter, 83% of datacenter revenue was from 100G products, 9% was from 200G and 400G transceiver products and 7% was from 10G and 40G transceiver products. Looking ahead to Q4, we expect a substantial sequential increase in our data center revenue, driven by growth in 400G revenue as well as layering in some increased 800G revenue. In our CATV business, we saw exceptionally strong demand in Q3. CATV revenue in the third quarter was a record $70.6 million, which more than tripled year-over-year and was up 26% sequentially from a strong Q2. This increase is due to the continued ramp in orders for our 1.8 gigahertz amplifier products. Similar to last quarter, we shipped a significant quantity of 1.8 gigahertz amplifiers to Charter in the quarter and demand continues to be robust. On our last earnings call, we had discussed how in addition to Charter, we had 6 other MSO customers who had already begun to order and deploy our 1.8 gigahertz products or are in various stages of qualification of these products. We were pleased to see continued momentum with these new customers and are excited to see the broad-based appeal of our amplifiers and QuantumLink software. During the quarter, we announced the addition of 4 new software modules to our QuantumLink HFC remote management solution which offers our customers actionable intelligence to optimize network performance, reduce operational costs and improve the broadband experience. The new suite of software modules are add-ons to our existing QuantumLink Central, providing telemetry, adding unified visibility, predictive diagnostics and automated controls to our remote amplifier management platform. Most software features will be available this quarter. The feedback we are hearing from our customers is very positive. In September, we attended the Society of Cable Telecommunications Engineering Expo. We had great interactions with customers and potential customers during the expo. And as I just mentioned, feedback from our customers continues to be very positive with many noting that our amplifiers are groundbreaking in terms of performance, ease of setup and control and monitoring capabilities. As cable operators prepare for substantial upgrades to their infrastructure to meet increased spectrum and bandwidth demand, it's clear that the deployment of next-generation amplifiers and related equipment has become essential. Looking ahead to Q4, we expect strength in our CATV business to continue, although we expect revenue in this business to moderate to between $50 million and $55 million next quarter, following this quarter's exceptionally strong results. Now turning to our Telecom segment. Revenue from our Telecom products of $3.7 million was up 34% year-over-year and 93% sequentially. As we have said before, we expect telecom sales to fluctuate from quarter-to-quarter. For the third quarter, our top 10 customers represented 97% of revenue, up from 96% in Q3 of last year. We had 2 greater than 10% customers, one in the CATV market, which contributed 66% of total revenue and one in the data center market, which contributed 24% of total revenue. In Q3, we generated non-GAAP gross margin of 31%, which was in line with our guidance range of 29.5% to 31%, and was up from 25% in Q3 2024 and compared to 30.4% in Q2 2025. The year-over-year increase in our gross margin was driven primarily by our favorable product mix. Looking ahead, we expect continued gradual improvement in gross margin although we expect that the revenue mix in data center in the next few quarters will be a slight headwind. We remain committed to our long-term goal of returning our non-GAAP gross margin to around 40%. The progress we have made so far demonstrates that we're on the right track, and we continue to believe that this goal is achievable. The revenue figures presented above are net of a contra revenue amount due to the accounting for warrants provided to customers. As a reminder, this amounts to approximately 2.5% of revenue derived from certain customers to whom AOI has provided warrants in exchange for future revenue. In Q3, the amount of this contra revenue was immaterial at about $50,000. Total non-GAAP operating expenses in the third quarter were $47.1 million or 40% of revenue, which compared to $27.9 million or 43% of revenue in Q3 of the prior year. While operating expenses increased this quarter and were a bit higher than our forecast, this rise was largely driven by increased shipping costs related to increased business activity in our CATV business this quarter. Looking ahead, we expect non-GAAP operating expenses to be in the range of $48 million to $50 million per quarter. Non-GAAP operating loss in the third quarter was $10.3 million compared to an operating loss of $11.7 million in Q3 of the prior year. GAAP net loss for Q3 was $17.9 million or a loss of $0.28 per basic share compared with a GAAP net loss of $17.8 million or a loss of $0.42 per basic share in Q3 of 2024. On a non-GAAP basis, net loss for Q3 was $5.4 million or $0.09 per share, which was in line with our guidance range of a loss of $5.9 million to a loss of $2 million or non-GAAP income per share in the range of a loss of $0.10 to a loss of $0.03. This compares to a non-GAAP net loss of $8.8 million or $0.21 per share in Q3 of the prior year. The basic shares outstanding used for computing the earnings per share in Q3 were $63.3 million. Turning now to the balance sheet. We ended the third quarter with $150.7 million in total cash, cash equivalents, short-term investments and restricted cash. This compares with $87.2 million at the end of the second quarter of 2025. We ended the third quarter with total debt, excluding convertible debt of $62 million compared to $54.3 million at the end of last quarter. As I mentioned on our prior earnings call, earlier this year, we announced a revolving loan facility with BOK Financial of $35 million, which we intend to use to meet some of our working capital needs going forward. As of September 30, we had $170.2 million in inventory, which compared to $138.9 million at the end of Q2. This increase in inventory is almost entirely due to purchases of raw materials to be used in production of our products over the next several months. During the quarter, we initiated a new ATM program. We completed this program during the quarter, raising $147 million net of commissions and fees, which we intend to use mainly for new equipment and machinery for production and research and development use, including the earlier mentioned production expansion in Texas. We made a total of $49.9 million in capital investments in the third quarter, which was mainly used for manufacturing capacity expansion for our 400G and 800G transceiver products. On our last few earnings calls, we have discussed our plans to make sizable CapEx investments over the next several quarters as we prepare for increased 400G, 800G and 1.6 terabit datacenter production in 2025. To date, this year, we have made a total of $124.9 million in capital investments and we are tracking at or above our CapEx projections we gave earlier this year of $120 million to $150 million in total CapEx. We have noted on our prior couple of earnings calls that these costs could be impacted from tariffs, but that given the evolving nature, it is difficult to predict what type of impact or by how much. In Q3, the direct tariff impact on capital equipment was $1.9 million or roughly 4%, but tariff rates and equipment import mix may cause future results to vary materially. We source equipment from all over the world, including both from domestic and international locations. We have and will continue to do our best to minimize any impacts. It's clear that U.S.-based production is a priority for our customers, and we remain fully committed to expanding our capacity to meet that demand. Moving now to our Q4 outlook. We expect Q4 revenue to be between $125 million and $140 million, accounting for a sequential decrease in CATV revenue as well as a more substantial sequential increase in our datacenter revenue. We expect non-GAAP gross margin to be in the range of 29% to 31%. Non-GAAP net income is expected to be in the range of a loss of $9 million to a loss of $2.8 million and non-GAAP earnings per share between a loss of $0.13 per share and a loss of $0.04 per share using a weighted average basic share count of approximately 70.3 million shares. With that, I will turn it back over to the operator for the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from Simon Leopold of Raymond James. Simon Leopold: I'm going to ask two and start with the cable TV side. So clearly, a strong blowout number here this quarter. So the moderation makes sense. And I guess where I'd like to go is to understand how you're thinking about the broader outlook for CATV in that I recall last quarter, we talked about the potential to do over $300 million in 2026. If we sort of run rate out what you're doing, you're certainly on that trajectory. But I want to assess this given the lumpy nature of cable TV. Stefan Murry: Yes, thanks for bringing that up. So yes, I mean, we do think $300 million plus in cable TV revenue is still achievable next year. As you pointed out, we're kind of approaching a run rate there in this quarter. What I think is significant to point out, though, and we pointed this out on the last earnings call as well, that a lot of that growth is going to come from new products that we've announced, and we discussed in our prepared remarks a few minutes ago about the great success that we had at the Society of Cable Telecommunications Engineering Show, showcasing some of our new products, including the software products that we highlighted. So yes, I think the $300 million plus mark is achievable next year. However, it's not likely to come just from the amplifier products, although again, we expect strong results in the amplifiers, but the additional revenue that we expect to see from those other products should get us up to that $300 million mark. Chih-Hsiang Lin: This is Thompson. As we said in the script, we expect the cable TV revenue in Q4 will be reduced to maybe $50 million to $55 million. So that means the datacenter growth should be a lot, okay? Since the revenue increased by about 10% compared to Q3. So revenue will increase by $25 million to $40 million in Q4. Because of... Simon Leopold: Thanks. And then... Chih-Hsiang Lin: Yes, sorry. Go ahead. Simon Leopold: Yes. No. So that's why I wanted to follow up on the data center, particularly around your comment about 400 and 800 gig being up, given 800 gig is teeny right now, I'd like to unpack that a little bit because I don't think you've announced certifications, qualifications on 800 gig yet. It sounds like that's somewhat imminent but I don't want to over interpret. So maybe just drill down specifically to how you think about 800 gig in that 4Q? And then, of course, how should we think about the timing of when to start thinking about 1.6T? I understand that's not in 4Q, but should we be thinking about that for next year? Stefan Murry: Yes. So 800 gig, we do expect meaningful shipments in the fourth quarter, as we said in our prepared remarks. Now the growth in Q4 is largely going to come from 400 gig, but we do expect meaningful revenue from 800 gig in this quarter. And as you pointed out, that would require product qualification to be pretty imminent, which is what we believe. With respect to 1.6 terabits, yes, we do think that we'll see revenue from 1.6 terabit later next year, but it's not going to be a factor in Q4, as you pointed on, and probably not in the first half of next year. Chih-Hsiang Lin: AOI CATV single mode especially [indiscernible]. The AOI CATV single mode transceiver in Q4 will not be around, I would say, maybe $4 million to $8 million. Most of the growth is from 400G single mode transceiver. The 1.6T single mode transceiver we have right now, I would say, around 4 customer. So we are working very hard. I would deliver the sample either by end of this year early next year. The volume manufacture will be more like I would say, June, July next year for 1.6T. And we have several, I would say 4,5 different products for 1.6T single mode transceiver and we will announced pretty soon in short term. Stefan Murry: Also, Simon, I just want to reiterate something that we've mentioned repeatedly and talked about a little bit on the call. But just for clarity, the factory that we're building both here as well as the increased capacity that we've been adding in Taiwan is capable of manufacturing both 800G and 1.6 terabit on the same production line. The only difference really is in the final testing in terms of the type of equipment that we need. Operator: The next question comes from George Notter of Wolfe Research. George Notter: I was just curious if you could tell us more about the shipping and receiving delay at the end of the quarter. I'm just wondering what that was. And can you confirm that it was a single customer? Was it multiple customers? Any insights there would be great. And I've got a follow-up, too. Stefan Murry: Sure. It was a single customer, a single hyperscale customer, which is a relatively new customer addition for us. And as a result of that, some of the shipments at the end of the quarter -- I can't go into too many details because it's obviously nondisclosure agreements and such. But let's just say that not all the systems that were -- all the inventory management systems and all that have been properly configured at that point to be able to receive those goods in time for us to book them as revenue in the third quarter. So we resolved that in the first few days of the fourth quarter and have booked that revenue since then. So it wasn't anything that we expect to recur or anything like that. It was just kind of unique to this, I would say, sort of start-up business, if you will, with this particular large hyperscale customer. George Notter: Got it. Okay. I'm sorry. So the products were delivered to the customer, but it sounds like ownership couldn't transition because it hadn't been through their inventory management system. Is that the right view? Stefan Murry: Yes, basically. I mean there's a system integrator that's involved, again, without going into too many details, but it essentially comes down to just a timing issue with the computer systems on all sides that need to be synced up. George Notter: Okay. Got it. And then can you give us an update on the capital spend? I mean you said you're tracking ahead of the $120 million to $150 million for the year. What does that look like now when you layer in Q4? And then how about 2026? Do you have an initial view on what CapEx would look like next year? Stefan Murry: Yes. So we don't have -- a lot of the Q4 guidance comes down to sort of timing on when we're going to receive a lot of the equipment. So we're still looking at that. It's probably going to be ahead of that $150 million top end that we said before, but it's unclear at this point exactly how much of that equipment will really be able to be delivered in this quarter. So we'll get back to you on that. Similarly, for 2026, we're still working on the CapEx plans for 2026. So I would expect it to be above what we're seeing in 2025, but I don't have a precise number yet on that. We're still going through this time. Operator: [Operator Instructions] And our next question comes from Michael Genovese of Rosenblatt Securities. Michael Genovese: I guess for 400G with that customer becoming a run rate business. And if I'm not mistaken, I was thinking about 100,000 units per month. So maybe you could update on that. But is that the right way to think about it? And is it getting there in the fourth quarter? And then we should think about that customer being at the same level of 400G per quarter all year in 2026. Am I thinking about that the right way? Stefan Murry: So it is approaching -- I mean, it is on track to becoming sort of a run rate business, as you mentioned, that is -- when I hear the term run rate business, so I'm assuming you mean is sort of capacity limited, right? That is we can -- we'll be selling a relatively consistent amount every quarter based on our capacity. So it's on -- it is moving in that direction. We will not be fully at capacity in Q4, not to mention the fact that we're continuing to add some capacity, especially in Taiwan, like we talked about earlier. So it won't reach its maximum potential in Q4 by any means, but it will be a meaningful contributor to revenue. As Thompson mentioned earlier, if you think about the guidance that we gave, right, cable TV has an implied decline of, let's just say, $15 million roughly, give or take, while the overall revenue is going to be up roughly $15 million, again, give or take, within the ranges that we specified. And so the rest of that growth is going to come from datacenter. And most of that is going to come from 400G as we discuss earlier. A little bit of 800G, but not a lot. Most of it is going to come from 400G. Chih-Hsiang Lin: Basically it is limited our capacity. So right now, for 400G single mode transceiver in Q4, we can maybe close to 60,000 per month. Then Q2, I think our target go to 110,000 to 120,000 per month. So it depends on our capacity. That is why we spend our CapEx. We spend the CapEx in Taiwan and U.S. The other is, for sure, very important, is the laser capacity. It's very important as you know, it's a shorter laser. Good news, we have laser capacity. That's why AOI right now is doing 3-inch, we'll go to 4-inch next year. At the same time our targets go to maybe -- not to mention the other laser our 25G, 50G high power CW laser for the single photonics, we are talking about our target by December next year is at least more than 2 million per month. That's where we spend all the CapEx, [indiscernible] wafer, all kind of stuff. And for sure, we are working on 6-inch wafer, but it will be more like a two-year project. But I think 4-inch probably is ongoing and it's pretty smooth. Michael Genovese: Okay. Great. And then it sounds like you've got pretty high confidence of an 800G qualification coming soon if you're putting some in the fourth quarter guidance. So I just want to double click on that confidence. But then also if we just back up 3 months ago, is this process going the way you expected? I know matter of a couple of weeks on either side of no big deal, but did you think you have it by now? Or is this kind of going the way you thought it would go? Chih-Hsiang Lin: I think we should get order pretty soon. We will send several batch for qualification for DIL and [ 2xFR4 ]. So we believe we should get some volume order in maybe, I would say, 3, 4 weeks or even sooner. Let me say that we have delivered thousands of samples, okay? That’s just four batches of samples, okay, to several customers. So finally, they get into volume, but really not so big volume because the big volume is talking maybe 150,000 per month or even 250,000 a month. But now we are talking about maybe 10,000, 20,000. So it's not -- It's volume away from, quite away from. That's why I say end of December we should have 100,000 per month. By end of June next year we have 20,000 per month. We spend money is based on customer commitment, okay? It's not based on our wish list, let me say that, okay? And don't forget especially in U.S. [indiscernible] space, the capacity, the equipment, it's a lot of money. We spend that money based on customer very strong commitment The reorder, the fourth volume order, we should receive pretty soon, within a few weeks. Stefan Murry: I might directly answer your question about relative to expectations. I think we said that we expected the qualifications to be coming in, in the late Q3 or early Q4. And so we're still in that range, but I would consider what we expected and we're basically still on track for that schedule. Michael Genovese: Okay. If I can ask another, what should 100G be doing in '26 versus '25? And just when you compare the ASP of 100G to 800G are we at an 8x multiple? Or is it even higher than that for the ASP of 800 versus 100? Stefan Murry: It's not an 8x multiple. It's less than that. With respect to what 800G -- or sorry, what 100G will do next year, I think it's going to be pretty consistent. I don't see a big falloff for sure. It could even go up a little bit. There continue to be new deployments of 100G. So -- but I think the best scenario that I would model in is sort of a flat 100G business next year. Michael Genovese: Okay. If I could just ask one more. How are you guys feeling about the -- with the CapEx plans and the expansion plans, you've gone to the market a few times this year. Are you at a good place for your spending next year? Or do you think you're going to have to do more fundraising? Stefan Murry: I think we're going to continue to raise the capital that we need to fund the CapEx. I mean our plans continue to expand. What we're hearing from our customers is more and more bullish in terms of the volume that they need and particularly the volume that they'd like to have out of U.S.-based factories, which we don't have yet. I mean we just announced the lease a week or 2 ago of the new facility, which still has yet to be built out. So that's basically a 2026 event. So we're going to continue to add capacity as we see that demand coming from our customers, and it's very strong right now. Chih-Hsiang Lin: But let me just report on one. We have some discussion with 1 or 2 major customers especially for the U.S. capacity. I think maybe customers will invest AOI maybe $200 million under discussion. Number two, we are working very close with Texas State for some fund raising, some support, including the U.S. government [indiscernible]. So I think maybe we can get some good money from both Texas and the U.S. government. But number three, don't forget next year, we should be profitable quite a lot. I would say no surprise, our net profit should be more than $150 million next year or even higher. So some of the expansion can be paid by our profit. Operator: The next question comes from Ryan Koontz of Needham & Co. Ryan Koontz: On the follow-up on the transceiver products here and it sounds like you guys are doing well in silicon photonics. I wanted to ask your view on kind of the macro of SiPho versus EML versus VCSELs and what you're hearing from your customers about their interest as the data rates move up here to 800 to 1.6? Stefan Murry: Well, I would say, first of all, what we're hearing from our customers may just be a function of where they view us in terms of our technological capabilities and what they need. So that is to say, I'm not saying that, for example, when I tell you that our customers like SiPho, they like our SiPho solution for sure. That's not to imply that they're going to switch all their products over to SiPho. They have other vendors that are working with EMLs, for example. So -- but all that being said, I think broadly speaking, I think SiPho is seen as a technology that has more scalability in terms of its ability to go to higher data rates in the future. I think we're at the early stages of implementing silicon photonics in terms of volume manufacturing and all that. So it's going to take some time for them to become sort of comfortable and let that technology ramp up, but it certainly has more legs in terms of higher data rate than EMLS do. Chih-Hsiang Lin: Especially you need less laser for SiPho. Right now you know there's a very serious problem shortage of lasers, especially for EML, okay? Not to mention 200G even 100G EML. So for example the 800G DIL, if you use EML, you need, I would say, 8 EML. If you’ are using silicon photonics, you only need two high-power CW lasers. That is a very good reason to use SiPho, you know? Yep. Because you can get enough EML. What you can do, you got all the order, you got everything, but no laser. You can make no way you can make in the 800G or 1.6T transceiver. Ryan Koontz: Great. And maybe shifting gears to cable. How are you feeling about share there at your larger customers? Do you feel like the uptick in demand here for cable is this share gain? Is this higher deployment rates? Any view on how you feel about share versus customer spend? Stefan Murry: I would say it's share gain primarily. We the customers' plans continue to evolve. But as I mentioned, we've had some very, very successful interaction with our major customers, including the larger MSOs like we talked about with Charter and others, but also with a number of smaller operators. The Society of Cable Telecommunications Engineers show that we were at was really very, very positive for us. So I think we're taking slacks that could have potentially gone somewhere else and gaining that share. Chih-Hsiang Lin: So besides Charter, we have 6 other customers, and we sized order from 2 of them. So total, we have 7 customers right now for cable TV, 1.8 gigahertz, okay, not including 1.2 gigahertz. But next year, we're talking about another 10. So that means by end of next year total we have 17 customers in cable TV in North America, Latin, Australia, even Asia. So not only 1 customer. I need to emphasize that. Ryan Koontz: Great. And when you talked about the new products coming in cable, are you referring to nodes or the software products for the amps that you mentioned earlier? Chih-Hsiang Lin: Both. Both. Yes. Don't forget software is pretty good. That's very important. QuantumLink and Quantum Bridge customers really like a lot of problem of the customer. They solve a lot of issues. They can take a lot of operating expense, and that's why they like it. That's why AOI would say, become the #1 supplier in cable TV. It's only hardware, but integration of hardware and software and the management system. Operator: [Operator Instructions] Our next question will come from Tim Savageaux of Northland Capital Markets. Timothy Savageaux: A couple of questions, but I want to start with what we've been hearing pretty much all week here is about a pretty dramatic kind of step function increase and really across a lot of the different areas in AI optical, including inside the datacenter for modules. Focused on 1.6 to some degree, but pretty broad-based seeing. My first question is, are you seeing that in terms of your conversations with customers about overall levels of transceiver demand, just I don't know, in the last 4 to 6 weeks. Stefan Murry: Just look at our -- I'm sorry, I cut you off there. I didn't hear the first part of your question. Timothy Savageaux: No, all good. Go ahead. Sorry. Stefan Murry: Yes. So yes, I mean, we're seeing very strong increase in demand. If you look at our guidance, again, just kind of go back to the segment guidance that we gave, it implies a dramatic ramp in data center revenue in the fourth quarter. And we didn't give annual guidance for next year, but we certainly believe that's the beginning of a sustained ramp. So I think we're exactly in sync with what you described. We're seeing that ramp first at 800 gig. But as we talked about later next year, we expect 1.6 to be a strong contributor as well. Does that answer your question, Tim? Timothy Savageaux: Yes. And I wanted to follow up on your capacity targets exiting the year I think at 100,000 units a month. And Thompson had mentioned before commitments from customers, I guess. And I want to kind of dig into that a little bit more, which is would you be in a position to ship that full -- given there's -- we're running out a year a little bit here, but would you be in a position to ship that full capacity in the first quarter? And do you have either orders on hand, commitments, however you want to describe it to kind of cover those type of volumes starting in Q1 next year? Chih-Hsiang Lin: I would say more like Q2. Don't forget the Chinese New Year and the major cycle time is 1.5 months. So we got all equipment ready, we are doing the pilot right now, both in Taiwan and U.S. And so even if the customer gives us order because of major cycle time, I would say you're going to see maybe 90,000 to 100,000 pieces per month of revenue, more like Q2. And to answer your first question, right now customers give us crazy number, okay? Just AOI share, not total demand. A total more than 300,000 of 800G plus 1.6T single mode transceiver, just AOI share. So for sure, we spend money until we got the commitment. So yes, it's true. Right now, all the hyperscale datacenter customers are really serious. It’s not bubble, let me say that. It’s not a bubble. It’s a real demand, okay? For all of them. Stefan Murry: Tim, I just wanted to touch on one thing that your question asked earlier. I want to make sure we're on the same page. So you mentioned the capacity of 100,000 per month. That is our 800 gig or 1.6 terabit, but again, 800 gig primarily this year capacity. In addition to that, we also have capacity for 400 gig. Those are not shared, right? So the 400-gig capacity, as Thompson mentioned, should be 120,000 pieces or more early next year. And we do have customer commitments that would cover that. Operator: At this time, we have no further questions, and I will turn the call back over to Dr. Thompson Lin for closing remarks. Chih-Hsiang Lin: Again, thank you for joining us today. As always, we want to extend a thank you to our investors, customers and employees for your continued support. We continue to believe the fundamental driver of long-term demand for our business remain robust, and we are unique position to drive value from these opportunities. We look forward to welcome some of you to our Texas factory tour next week and seeing many of you at the upcoming investor conference. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the LFL Group Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Jonathan Ross, Investor Relations for LFL Group. Please go ahead. Jonathan Ross: Thank you. Good day, everyone. And welcome to LFL Group's third quarter 2025 conference call and webcast. LFL's Q3 2025 financial results were released yesterday. The press release, financial statements and management's discussion and analysis are available on SEDAR+ and on our website at lflgroup.ca. Joining me on the call today are Mike Walsh, President and Chief Executive Officer; and Victor Diab, Chief Financial Officer. Today's discussion includes forward-looking statements. These statements are based on management's current assumptions and beliefs and are subject to risks, uncertainties and other factors that could cause actual results to differ materially. We encourage listeners to refer to the risk factors outlined in our management's discussion and analysis and annual information form, which provide additional detail on the risks and uncertainties that could affect future results. This call also includes non-IFRS financial measures. Definitions, reconciliations and related disclosures for these measures can be found in the management's discussion and analysis and press release issued yesterday. Forward-looking statements made during this call are current as of today and LFL Group disclaims any intention or obligation to update or revise them, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted. With that, I'll now turn the call over to Mike Walsh to discuss our third quarter results. Michael Walsh: Good morning, everyone, and thank you for joining us. This is our first quarterly call, and we appreciate you being here. We're looking forward to using this format to provide more regular insight into our performance, our strategy and how we're thinking about the business going forward. So let's get right into the quarter. We delivered strong top line performance in the third quarter with system-wide and same-store sales up 3.7% and 3.9%, respectively. I am particularly pleased with our continued performance given the broader backdrop. Consumer discretionary spending remains pressured and the retail environment continues to be highly promotional. Canadians are looking for value from retailers they trust and our strategy is built to outperform when value matters most, and we're seeing that play out in the numbers. Even more importantly, we continue to translate our top line momentum into profitability growth. Adjusted diluted earnings per share grew 20.4% year-over-year, reflecting not just sales strength, but disciplined execution across sourcing, category management, promotional optimization and cost control. Underpinning our third quarter performance is the consistency of our execution and the strength of our platform. Our scale enables us to negotiate directly with suppliers and secure advantaged pricing. Our banners are trusted by Canadians coast-to-coast. And our integrated logistics network, including one of the largest final mile delivery systems in the country, gives us a level of service differentiation that's difficult for others to replicate. These are durable strengths that position us to win across cycles and help us continue to take share. Furniture was once again the standout category in Q3, supported by our focused assortment strategy. We've narrowed the range, gone deeper in our best sellers and leaned into categories where we can offer real value. This laser focus on solidifying our leadership in this most important category continues to deliver results. Furniture is our largest and highest margin category and in the current environment represented the most effective opportunity to gain share. Our performance in furniture is a result of the deliberate and disciplined execution of our strategy, prioritizing areas of our business with the greatest near-term opportunity, while continuing to advance our broader categories. While industry-wide traffic headwinds have continued, we maintained our focus on maximizing every customer interaction. Both average transaction value and conversion rate strengthened during the quarter. In our stores, we're seeing more purposeful visits translate directly into purchase activity. Our omnichannel infrastructure is instrumental here. We're strategically utilizing our digital ecosystem, not only as a revenue channel, but as a qualification funnel that delivers customers with clear purchase intent. Once in the stores, our highly trained sales associates and attractive financing offers work together to drive a stronger average transaction size and higher total ticket profitability. Our overall appliance business was also strong in the quarter led by the commercial channel, as has been the case for the past several quarters. We continue to deliver on projects booked over the past couple of years. And while we're mindful that builder pipelines are slowing across the board as we approach 2026, our team is laser-focused on continuing to gain traction in the replacement market, especially with property managers. That's a segment we believe can be a more meaningful contributor over time. And our warranty and insurance businesses remain a key part of our value proposition. These are profitable, capital-light businesses that support the core and extend our relationship with the customer. We also continue to see strong attachment rates and growth in these business lines and we believe there's more opportunity to grow these platforms, both inside and outside the LFL ecosystem. From a capital allocation standpoint, our priorities remain consistent. We're focused on maintaining a strong balance sheet and reinvesting in the business where we see attractive returns. We remain attuned to potential acquisition opportunities that could enhance the long-term value of the company and we continue to grow our regular dividend over time. Our retail store count remained consistent from last quarter at 300 stores, including 201 corporate stores and 99 franchise stores. As we continue to optimize our footprint, it's worth reiterating that our strategy is not about maximizing store count. Our stores are designed to be destinations with larger catchment areas and a focus on delivering a full-service experience that drives meaningful returns. We evaluate every investment through the lens of a 4-wall profitability and long-term value creation. That discipline is reflected in how we approach new locations, renovations and reopenings. It's also why we're comfortable growing selectively rather than chasing unit expansion for its own sake. Now looking ahead to the fourth quarter and into early 2026, we expect consumer confidence and discretionary spending to remain selective. Consumers are being careful with their dollars, but they are spending. The environment remains dynamic. Similar to last year, the Canada Post disruption is creating near-term headwinds during a very important promotional period. While this does affect all retailers that rely on flyer distribution, we remain competitively well positioned. We faced a similar situation late in the fourth quarter of 2024. And while the disruption began earlier this year, we're drawing on last year's experience to adjust quickly. That said, if the strike continues through year-end, we do expect some impact to key promotional events in the quarter. Before I hand it over to Victor, I truly want to thank our associates across banners and regions from our warehouses to our sales floors to our drivers on the road and the customer service folks manning the phone lines. Their execution in the quarter was outstanding. Victor will take you through the financial details and provide some additional context on the quarter. I'll come back with a few closing thoughts before we open it up for questions. Victor, over to you. Victor Diab: Thanks, Mike, and good morning, everyone. As Mike mentioned, we delivered strong top line growth in Q3 with system-wide sales up 3.7%, revenue up 4.1% and same-store sales up 3.9%. From a category standpoint, furniture was a key contributor. We also saw continued strength in appliances, led by our commercial channel, which added to growth this quarter. That strength was driven by the delivery of previously booked projects, particularly in multiunit residential as we continue to fulfill orders tied to developments moving through to completion, despite a softer new construction market. We expect revenue from developers, in particular, to begin moderating as we move into 2026 and we're certainly seeing that across the market. Our team is actively working to increase our share of the replacement business where we're seeing good traction with property managers. But it will take time for that portion of the business to catch up with the new build market, which is lumpier, but can be meaningful as we have seen this year as builders finish up projects. Gross profit margin expanded by 79 basis points year-over-year to 44.6%. This improvement reflects both the impact of higher-margin furniture sales and our continued focus on strengthening sourcing and vendor relationships. We've deepened relationships with our top vendors and increased purchasing penetration through our First Ocean subsidiary, driving improved cost efficiencies and supply consistency. At the same time, disciplined promotional activity and optimized pricing strategies have supported margin performance across categories. As we move into the end of the year and early 2026, gross margin will continue to be influenced by category mix, promotional intensity and our ongoing sourcing work. We're always looking for opportunities to drive improvement, but we also take a balanced and dynamic approach. We'll make the investments necessary to drive traffic and market share when it makes sense to do so. That's just part of how we manage the business. SG&A rate was 35.51% of revenue, an improvement of 14 basis points year-over-year. This improvement was driven by lower retail financing fees due to declining interest rates. This helped offset expected increases in advertising costs due to event timing shifts as well as higher occupancy expenses from the Edmonton D.C. lease commencement and other facility renewals. Adjusted diluted EPS came in at $0.65, up 20.4% compared to last year. We're also pleased with where inventory levels sit today. Freight disruptions that impacted the start of the year are now behind us and our written-to-delivered sales relationship has normalized with a focus on going deeper on certain SKUs, enabling us to improve written-to-delivered timelines. We're in a healthy in-stock position heading into the back half of the year with good availability across key categories, and no material constraints on flow. From a capital allocation standpoint, I'll build on Mike's comments. Our approach remains disciplined and consistent. We prioritize reinvestment in the business where we see attractive returns, maintain a strong balance sheet and return capital to shareholders over time, primarily through growth in our regular dividend. Annual maintenance CapEx is running in the range of approximately $35 million to $40 million annually, which supports our ability to continue generating strong free cash flow. On the balance sheet, we ended the quarter with $549.6 million in unrestricted liquidity, including cash, marketable securities and our undrawn revolver. That level of flexibility is a strategic asset in this environment. It enables us to stay agile, pursue opportunities as they arise and continue investing in the business without compromising our financial strength. Given our 100-plus year track record of navigating cycles and making the right long-term investments, we're comfortable maintaining the financial flexibility. We will continue to be opportunistic in our approach to buybacks, taking advantage of volatility where it aligns with our long-term strategy. We did not repurchase any shares under our existing NCIB during the quarter. Overall, we remain confident in our ability to deliver consistent financial performance in the context of the market and versus the industry. Our scale, disciplined sourcing and promotional strategies and solid balance sheet provide the foundation to continue driving profitable growth and shareholder value over the long-term. Before handing it back to Mike, I'd like to briefly address the previously announced initiatives to create a real estate investment trust. This remains an important strategic priority for us. The timing will be driven by market conditions and regulatory approvals, and we'll share additional updates when appropriate. That's the only update we can provide on today's call. With that, I'll turn it back to Mike for closing remarks before we open the line for questions. Michael Walsh: Thanks, Victor. To wrap up, we're really pleased with how the business performed for the first 9 months of the year. Over that period, we have delivered total system-wide sales growth of 3.5% and adjusted diluted EPS growth of 28.7% in a dynamic consumer and industry environment. What's just as important is how we're delivering that performance. We're seeing stronger conversion in our stores, more consistency in execution across banners and better alignment between what customers want and what we're delivering. That's the outcome of deliberate long-term choices, not quick wins, and it's showing in both our results and how resilient the business has become. We're not immune to the macro, but we are well positioned to navigate it and continue delivering value for our customers and our shareholders. Thanks again for joining us today. With that, I'll pass it back to the operator for questions. Operator: [Operator Instructions] Your first question comes from the line of Nevan Yochim with BMO Capital Markets. Nevan Yochim: Congratulations on a solid quarter and your first conference call. Hoping we could start on the top line here. Are you able to provide an update on quarter-to-date trends? Have you seen the Q3 momentum continue, as well as any detail on your positioning as we move into the important sales and holiday season? Michael Walsh: Thanks very much, Nevan. It's great to talk to you and you're the first person asking us a question on the live webcast. So congratulations. Just a little bit on the third quarter. So the consumer still remains very price conscious Value continues to be a key focus area for us and that's how we think we're winning. The Canadian consumer is still looking for a retailer that they know and trust and is going to be around for after sales service. The trend from the second and third quarter, we're seeing a lot of traffic going to our website and traffic being more like flattish going into the stores. So more qualified customers coming into our stores, allowing our sales associates to spend more time selling the value-added services. We're seeing the attach rates for warranty insurance products are also improving. And so we feel like we're well positioned going into the fourth quarter. There's still some macro headwinds. You've got the coastal strike affected last year starting around November 15th. This year started near the end of September. So we're feeling good about that. It kind of levels the playing field with all retailers but we learned a lot going through the fourth quarter of last year that we're applying this year. Nevan Yochim: And maybe just a little bit more on that Canada Post strike. Are you able to parse out what the impact was last year, maybe just a magnitude? And then, how does that flow through the P&L? Is that solely a revenue impact or are there margin pressures there as well? Michael Walsh: Great question. I don't think there's margin impact to it. But it's definitely very difficult to quantify what the impact is because last year we were having challenges with inventory position as well. So how much of it was a flyer impact, how much of it was the inventory impact. So really difficult to tell. And then as you pivot going to more ,of a digital way, how much of that did you get a pickup on. So really difficult to quantify the impact of the flyers. But for sure, there is an impact to all retailers, especially when you're a high-low retailer and the consumer is looking for the flyer. It definitely impacts the traffic that's coming to your stores. Nevan Yochim: Got it. Maybe just one more for me, maybe for Victor. It's nice to see the SG&A leverage again this quarter. You called out lower POS financing fees. As we've seen the Bank of Canada cut rates as recent as just 1 week ago, does that imply you expect this tailwind to continue into the second half of next year? Victor Diab: Great question. Yes, every time the Bank of Canada cuts rates, there's a bit of a delay in terms of when it translates to our numbers, but we'll get a bit more leverage off of that next year. Obviously, most of the cuts happened over the last year and we've benefited from that this year, and we'll see a little bit more of that next year if rates continue to be cut. Operator: Your next question comes from the line of Martin Landry with Stifel. Martin Landry: It's super helpful. I know it's a little bit more work on your end, but for us, it's very much appreciated. My first question, I'd like to understand a little bit how the quarter has evolved. There‘re some retailers that have talked about a strong July and August and a slower September. I was wondering if you've seen any of that dynamic? Michael Walsh: I would say we were very happy with the quarter as a whole. I think July and August were super strong. September was a little bit weaker, whether that's due to the postal strike, but definitely, we saw some weakness in September. Martin Landry: And that weakness, is it -- have you seen differences per regions? Has it been Canada-wide or more located in the Central Canada where the manufacturing base is? Michael Walsh: Yes. I'd say that the trend continues. Ontario has been softer. And again, the flyer distribution in Ontario is really soft and BC has been soft. Martin Landry: Okay. And then maybe lastly, my last question. I know you mentioned that -- in your opening remarks that the story is not about store openings. But I was just wondering, do you have any plans to increase your network across your banners in the next 12 months? Michael Walsh: I would say we don't have anything pending, Martin, but we do have a focus for Leon's in BC. The challenge has been inventory of retail sites. And to be honest with you, it's the leasing cost in BC. There's just no inventory. The Brick continues to focus on the East Coast, but we don't have anything pending. We've got the one store in Welland that we're building. We're probably going to open that in the spring of 2027. Victor Diab: And Martin, just to build on Mike's comments. We've seen a lot of good success with a couple of the new renovations with The Brick opening up in Richmond, we released the release in Kelowna, and we're seeing a lot of good success with some of those renovations. So we're keeping a close eye on that and it's something that we'll look to do more of. Michael Walsh: I think the last thing on that is we're really excited because we opened up a store within a store in Richmond, BC with Appliance Canada taking up about 10,000 to 12,000 square feet of Leon store, and we're seeing some good success there. And because Appliance Canada is generally in Ontario, they've got a lot of commercial customers in the East and West. And so we're going to do that as a bit of a test and it may be something that we can do on a broader scale. Martin Landry: Okay. That's helpful. And just to be clear, how many renovations have you done year-to-date? Victor Diab: I would say we've done about 3 major renos year-to-date. Operator: Your next question comes from the line of Jim Byrne with Acumen. Jim Byrne: Just maybe on gross margin side. I appreciate the color, Victor. Margins were up about [ 80 ] basis points this quarter and kind of averaged about [ 80 ] so far this year, up over last year. Is that a number that you would kind of expect to continue for the fourth quarter and kind of foreseeable future? Or are there moving parts there that might put some pressure on those margins in the coming quarters? Victor Diab: Jim, thanks for the question for sure. We're very happy with the margin performance year-to-date. A function of 2 things, really very strong furniture mix, that being our highest margin category. When you sell more furniture, you're also selling more furniture warranties, which tends to be accretive to margin as well. And the teams have done a really good job on the rate front from focusing assortment, getting us better leverage with our suppliers, flowing goods, slightly lower freight rates year-over-year. So there's a lot to that. We don't really comment on a quarter-to-quarter basis. We tend to be very disciplined historically around managing within a certain range. So that's a focus for us. We think we're going to end the year strong overall holistically. There may be puts and takes in terms of investing some margin back into certain categories. But over the full year, we expect to hold on to some of those gains for sure. And going into next year, again, it's about continuing to edge our margin rate forward. But there will be -- it's never going to be a linear -- just a straight line, there will be ebbs and flows in terms of when we choose to invest that back into the categories. Jim Byrne: Okay. That's great. Maybe if you could give any updates on kind of the warehouse initiatives and some of the optimization that you've been working on? Michael Walsh: We're still continuing to test and tune and learn. As we spoke about in the previous quarter, we migrated the Mississauga warehouse to surrounding stores and we're still measuring the KPIs on that from customer experience to the time between written-to-delivered. So still going down that path and analyzing that and we may end up doing another test in the first or second quarter of '26. So stay tuned. But definitely, it's not going to be a short-term project. It's going to be something that's more long-term figuring out how many warehouse stores do we still need to keep and what that looks like. So stay tuned on that. Jim Byrne: Okay. And then maybe just, Victor, you kind of mentioned the maintenance cap at $35 million. It looks like you're kind of tracking towards that for this year. It doesn't sound like next year will be much different given the lack of new stores, et cetera. Is that fair to say for 2026? Victor Diab: I think that's fair from like the core CapEx target in line around $35 million to $40 million. I think any strategic initiatives that we do end up moving forward with may be over and above, but we'll keep you posted on that. But I think that's a good target to have in mind for now. Operator: Your next question comes from the line of Ahmed Abdullha with National Bank Capital Markets. Ahmed Abdullah: Q4 seems like an easier comp given the inventory dynamic that took place last year. Are you better prepared from an inventory standpoint to drive sequentially improving growth in 4Q? Victor Diab: Ahmed, I appreciate the question. Thanks. A couple of things that we planned going into Q4, and we thought about, obviously. One , being in a much stronger inventory position, which we are and the teams have done a really good job there, and it's paying off for us. And two, we were hopeful that 1 year later, the Canada Post challenges would be behind us, right? So that unfortunately has kind of been a storyline early into the quarter. Now we will comp being -- having a Canada Post strike later in the quarter but that's certainly going to be an impact there as well. So I think there's different puts and takes. That being said, we feel really well positioned to continue competing for value in the space, but there's a couple of considerations there for you in Q4. Ahmed Abdullah: Okay. That's fair. And just -- I know you've mentioned the customer traffic and basket sizes and conversion rates have improved, but I would like just you to touch a bit more on that. Can you give us some sort of magnitude of how much of this quarter's results was driven by perhaps pricing versus volume or, any more specific color around these factors would be appreciated? Victor Diab: Yes. I think you would have seen sort of our furniture performance was really strong in the quarter. I think that's just really driven off of volume and just being really well positioned for value. I think we've got scale advantages there and we've done a really good job around focusing our assortment and being sharp on pricing and promo optimization. So I just think it's more around our go-to-market strategy. To Mike's point, in-store traffic is softer, but we're seeing really good traffic to and engagement on our websites that are ultimately leading more qualified shoppers into our stores and allowing our folks to drive higher closing ratios. And then, of course, the ancillary businesses along with that, like I mentioned, you're selling more furniture, you're selling more furniture warranty and our attachment rates are going up inside our stores. So it's a function of a bunch of different factors. It's not really on price. We're very focused on being sharp on price and being sharp on our promo strategy, Ahmed. But that's the extent of what I could provide there. Ahmed Abdullah: Okay. That's fair. And one last one for me. Your comments of growth rates like moderating in 2026. Are you still budgeting some revenue growth or more of a flat to down next year? Victor Diab: Yes. Like I think -- it's a interesting question, Ahmed. Like as you think about 2026, right, we never go into a year thinking we're not going to grow. Our mindset is always to grow. But we do think about it more along the lines of a 3 to 5-year horizon, have we sustainably grown the business from a top line and bottom line perspective over that period. And that's what we go -- that's our primary goal is to continue to win share. We still feel really well positioned to compete for value. That being said, a couple of considerations as you think about 2026. We mentioned our commercial business has been on a tremendous run. That's going to normalize a little bit just given the challenges with the development community. So that's something that we're being mindful of. And obviously, at this stage, we're probably going to comp some pretty strong furniture numbers as well. So it's another consideration. But do we believe going into the year we can drive growth? That's always our mindset. But of course, we have to be realistic around some of the considerations I just mentioned. Operator: Your next question comes from the line of Ty Collin with CIBC. Ty Collin: Great to hear from you guys in this format. So just for my first question, can you kind of speak to the different competitive dynamics within your key product categories? It seems like, obviously, mattress and electronics were more promotional, but maybe furniture a bit less so. Can you just help us understand what's going on there? And is the promotional activity being driven by any specific subset of competitors worth noting? Victor Diab: Yes. I mean it's a great question. Look, like we -- over the last couple of years, we've had a really strong focus on the furniture category and being able to position ourselves for value, right? And then -- and we've been seeing really good traction there. I think as it relates to the other categories, we have to be balanced in our approach. So in some cases, it is highly promotional, for example, in retail appliances across the board. More people are doing buy more, save more and things of that nature. That's always been done. It's just being done at a greater magnitude in terms of our observations. And then, as it relates to mattress, the mattress category, again, very promotional, more promotional than we've seen in the past, and you've got a lot more online players as well in that category. So we're being selective in terms of, in some cases, whether we want to participate in being more highly promotional. In some cases we're choosing not to, to protect margin. And just given how our overall business is performing, we're kind of -- we're satisfied not doing that. And in some other cases, we've identified opportunities where we can better position ourselves moving forward. So I think it's a combination of those things, Ty. Michael Walsh: Yes. And I think just to build on that, because there's no other comp we can really look at in Canada, we think we're winning share in the furniture space, although it's a very fragmented -- the competitors are very fragmented. But definitely, we feel like we're winning share there. Ty Collin: Okay. Got it. Yes. I appreciate that color. And then shifting to the commercial business. So yes, I appreciate that you're trying to diversify that business into the replacement channel. But as you alluded to, condo completions really are kind of expected to fall off a cliff after 2026, should probably be a headwind for you guys, which you mentioned. But I guess I'm just wondering, at what point do you think you might be able to sort of fully offset the lower new build business with replacement business? Or should we kind of expect the commercial business to ultimately take a step back after next year? Michael Walsh: Yes, there'll be softening, especially in the Toronto market as it relates to condo, but we still do a lot of housing. We do things other than just condo. And I think we started the thing about 12 months ago migrating to more of the property manager, and we're seeing success at both MidNorthern as well as Appliance Canada. And that's the other reason why we did the store within a store of Appliance Canada. They've got customers in Ontario that are also out West and in the East. And we're feeling pretty strong that they can build on the commercial business as well. So not sure if I can answer the question on timing, but definitely, we started this some time ago. And we think it will be soft in '26 and '27 and then building back up in '28. But definitely, we've been exploring options about how to compensate for any shortfall in the commercial business. Ty Collin: Okay. Got it. And maybe if I could just sneak in one more and kind of press you guys a little bit on capital allocation. So, I mean, the net cash balance does continue to climb up. I know you've talked about the need to hold on to some of that for maybe potential real estate-related investments and just to remain opportunistic. But given that the time line on some of those more opportunistic investments are ultimately unclear. I mean, at what point would you get more comfortable looking at stepping up, returning some of that capital to shareholders either through a special dividend or buyback activity? Victor Diab: No, I appreciate the question. And yes, you kind of hit it on the nail, right? So we really like our cash and liquidity position right now. It is, by design, building up this year to help us navigate any volatility in the market, but also to be opportunistic. And when we say opportunistic, like we're actively exploring what that could mean for us. So we typically go through our capital allocation funnel around, obviously, first and foremost, investing in our core business, evaluating strategic opportunities, whether that relates to the core of our business or potential M&A opportunities. And then we go down the funnel around returning capital to shareholders. In Q2, we increased our dividend by 20%. And we have these conversations with -- as a management team and with our Board all the time. And when we built that -- look, we're sitting on too much liquidity and there isn't something imminent. We're not afraid to return capital to shareholders. We've been very consistent with that strategy over many years. So it's just continuing to go through that decision process. At this stage, we feel good about where we are, but we'll keep you posted otherwise. Operator: Your next question comes from the line of Ryland Conrad with RBC. Ryland Conrad: Congrats on the first conference call. So maybe just continuing that conversation on M&A with the balance sheet in a really healthy spot. Can you maybe just provide an update on the criteria you're looking for and target? Michael Walsh: Yes. I would say that we've been reviewing any M&A opportunity for some time. I think our criteria that we look at is, we look at a company that has strong management team, runway for growth, and then lastly, being able to dovetail part of our ecosystem, meaning warranty and insurance into that business. So that's kind of the criteria we're running with. And again, we're very opportunistic. So we're not just going to do something for the sake of doing it. We're going to do it because it's in the best interest of growing our business. Ryland Conrad: Okay. Great. And then just on the Canada Post strikes, given they're on more of a rotating schedule this year, I believe, are the impacts that you're seeing on flyer distribution, I guess, less meaningful compared to last year? Victor Diab: I -- Yes -- Not -- I would say it's very tough to kind of say because it's just as impactful in terms of being able to get our flyers out. We have to -- when this strike hits, we have to think about alternative routes, right? So whether it's a full strike or a rotating strike, we have to think about, okay, what are different ways we can either get the flyer out or reallocate some of our marketing funds. So, it's a similar impact this year versus last year in terms of just our ability to get the flyer out. Last year, there was a lot of noise just given the core of the holiday season, our inventory position at that point in time. But like we commented last year, we definitely saw traffic to our stores moderate over that period of time and pockets within our network and regions be more impacted than others depending on our ability to get flyers out. Now we're obviously not just sitting on our hands and the teams are working really hard to try and reallocate those marketing funds. It's just -- it's not going to be as high of an ROI relative to the flyer channel, because each channel has its kind of own unique ROI. So if you put an extra dollar in TV, for example, it's not going to do as much for you as $1 in a flyer just given there's diminishing returns with each of the channels. So that's the dynamic that we're competing with. Ryland Conrad: Okay. Very helpful. And then I guess just last for me. Can you talk a bit to your insurance business and just how conversion rates have been trending following the expansion into new categories earlier this year? Victor Diab: Yes. I mean if you -- our insurance business has done really well this year. I think if you look at our year-to-date growth for the insurance business, it's up double-digits. We feel really good about our attachment rates in stores, and frankly, just the traction we've gained growing that business outside of our own ecosystem. The team continues to work really hard to increase penetration of products with some of our existing partners. For example, you'll start off on a typical -- putting insurance on a typical loan product, then you'll talk to some of our partners around putting an insurance product on a mortgage, et cetera, et cetera. So we're deepening some of those relationships with some of our partners and we continue to explore new partnerships. So we feel really good about the attachment in store and what we've seen this year and our ability to grow it outside our network. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and welcome to Cherry Hill Mortgage Investment Corporation's Third Quarter 2025 Conference Call. [indiscernible] I would now like to turn the call over to Garrett Edson of ICR. Please go ahead. Garrett Edson: We'd like to thank you for joining us today for Cherry Hill Mortgage Investment Corporation's Third Quarter 2025 Conference Call. In advance of this call, we issued a press release that was distributed earlier this afternoon. That press release and our third quarter 2025 investor presentation have been posted to the Investor Relations section of our website at www.chmireit.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to interest income, financial guidance, IRRs, future expected cash flows as well as prepayment and recapture rates, delinquencies and non-GAAP financial measures such as earnings available for distribution or EAD and comprehensive income. Forward-looking statements represent management's current estimates, and Cherry Hill assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions contained in the financial presentations available on the company's website. Today's conference call is hosted by Jay Lown, President and CEO; Julian Evans, the Chief Investment Officer; and Apeksha Patel, the Chief Financial Officer. Now I will turn the call over to Jay. Jeffrey Lown: Thanks, Garrett, and welcome to our third quarter 2025 earnings call. The third quarter saw a continued reduction in overall macro volatility as we moved into the fall with tariff concerns mostly fading into the background and investors accepting the new normal. As the quarter progressed, it became clear that the Fed would proceed with rate cuts given economic indicators, and they did exactly that in both September and last week. Rates were mostly contained quarter-over-quarter with the 10-year yield ending marginally lower at 4.15%. Specific to Cherry Hill, portfolio components such as mortgages, swaps, futures and MSRs performed well in the quarter, though lower coupon mortgages outperformed higher coupons due to lower rates and investors' growing demand for duration. With the Fed in easing mode, leading to higher prepayment speed expectations for high coupon mortgages, we shifted our RMBS portfolio in the quarter to benefit from the lower interest rate environment and stand positioned to benefit from lower funding costs and improved portfolio performance. Our MSR portfolio has a weighted average note rate of 3.5%, well below current mortgage rates and continues to perform well. For the third quarter, we generated GAAP net income applicable to common stockholders of $0.05 per diluted share. Book value per common share finished the quarter at $3.36 compared to $3.34 on June 30. On an NAV basis, which includes preferred stock and prior to any ATM capital raised in the quarter, NAV was up approximately $1.1 million or 0.5% relative to June 30. Financial leverage at the end of the quarter remained consistent at 5.3x as we continue to stay prudently levered. We ended the quarter with $55 million of unrestricted cash, maintaining a solid liquidity profile. In September, our Board of Directors made the strategic decision to adjust our dividend to $0.10 per share. We believe the realignment is more sustainable and in line with the company's earnings power. As we mentioned on our last call, we entered into a strategic partnership and investment with Real Genius LLC, a Florida-based digital mortgage technology company earlier this year. As a reminder, Real Genius has developed a proprietary direct-to-consumer platform, offering an efficient fully online mortgage experience, including instant prequalification, automated document process and real-time loan tracking, all of which is supported by their custom-built point-of-sale system. We are seeing positive momentum from that partnership as Real Genius' growth trajectory and stabilization progresses in line with our expectations. With 30-year mortgage rates hovering around 6%, we are optimistic that the reduction in mortgage rates may facilitate an acceleration in Real Genius' growth as more homebuyers and homeowners look to purchase homes or refinance. Looking ahead, we will continue to seek out investment opportunities we believe would be accretive to our business. We are monitoring the economic environment closely and are focused on thoughtfully growing the company while maintaining strong liquidity and prudent leverage. With that, I'll turn the call over to Julian, who will cover more details regarding our investment portfolio and its performance over the third quarter. Julian Evans: Thank you, Jay. Mortgage spread tightening drove performance in the third quarter. Reduced tariff rhetoric, a few announced preliminary tariff deals as well as declining rate volatility and the assumption that the Fed would initiate and continue easing monetary policy based upon weaker employment data helped to define mortgage performance over the quarter. As the market grew more comfortable with the potential Fed easing, mortgage spreads ground tighter. And as dollar prices rose, the expectations for faster prepayment speeds grew for higher coupon mortgages, limiting their performance. Higher coupon dollar prices became capped as interest rates moved lower and spreads tightened. As a result, investors' desire for lower coupon mortgages and duration needs became apparent. Investors were chasing the par coupon mortgage as interest rates moved lower. Throughout the quarter, we adjusted our portfolio positioning to benefit from ongoing spread tightening and declining interest rates. At quarter end, our MSR portfolio had a UPB of $16.2 billion and a market value of approximately $219 million. The MSR and related net assets represented approximately 41% of our equity capital and approximately 22% of our investable assets, excluding cash at quarter end. Meanwhile, our RMBS portfolio accounted for approximately 39% of our equity capital. As a percentage of investable assets, the RMBS portfolio represented approximately 78%, excluding cash at quarter end. Our MSR portfolio's net CPR averaged approximately 5.9% for the third quarter, pretty much comparable with the previous quarter. The portfolio's recapture rate remained de minimis as the incentive to refinance continues to be minimal for this portfolio given the portfolio's loan rate. We continue to expect a low recapture rate and a relatively low net CPR in the near term given our MSR portfolio's characteristics. Like the MSR, the RMBS portfolio prepayment speeds held steady at 6.1% CPR for the 3-month period ended September. We do expect agency prepayment speeds to increase with current mortgage rates ranging between 5.75% and 6.25%, especially for higher coupon mortgages. Our portfolio is not comprised of a large portion of higher coupon specified pools. Most of the higher coupon positioning is represented by TBA positioning. The larger spec pool positioning starts at the 5.5% coupon where the underlying collateral typically has a 650 loan rate, which will be impacted by the recent lower mortgage rates. The initial impact should be limited as the mortgage universe is only approximately 19% refinanceable at the current mortgage rate levels. But as the Fed continues to ease monetary policy, we are monitoring a mortgage rate of 5.5%. At 5.5% mortgage rate, the refinanceable universe increases to approximately 30%. As of September 30, the RMBS portfolio inclusive of TBAs stood at approximately $782 million compared to $756 million at the previous quarter end as we modestly shifted our RMBS positioning towards lower middle of the coupon stack mortgages versus higher coupon mortgages. For the third quarter, our RMBS net interest spread was approximately 2.87%, higher than the previous quarter as increased asset purchases more than offset higher interest expenses. Overall, our hedge strategy remains largely intact. We will continue to use a combination of swaps, TBA securities and treasury futures to hedge the portfolio. During the quarter, the hedge portfolio changed marginally because more positioning changes were made to the RMBS portfolio. As we close out the year, we will continue to proactively manage our portfolio and adjust our overall capital structure to add value for shareholders through improved performance and earnings. I will now turn the call over to Apeksha for a third quarter financial discussion. Apeksha Patel: Thank you, Julian. GAAP net income applicable to common stockholders for the third quarter was $2 million or $0.05 per weighted average diluted share outstanding during the quarter, while comprehensive income attributable to common stockholders, which includes the mark-to-market of our available-for-sale RMBS, was $4.5 million or $0.12 per weighted average diluted share. Our earnings available for distribution or EAD attributable to common stockholders were $3.3 million or $0.09 per share. Our book value per common share as of September 30, 2025, was $3.36 compared to book value of $3.34 as of June 30, 2025. We used a variety of derivative instruments to mitigate the effects of increases in interest rates on a portion of our future repurchase borrowings. At the end of the third quarter, we held interest rate swaps, TBAs and treasury futures, all of which had a combined notional amount of approximately $435 million. You can see more details regarding our hedging strategy in our 10-Q as well as our third quarter presentation. For GAAP purposes, we have not elected to apply hedge accounting for our interest rate derivatives. And as a result, we record the change in estimated fair value as a component of the net gain or loss on interest rate derivatives. Operating expenses were $3.8 million for the quarter. On September 15, 2025, our Board of Directors declared a dividend of $0.10 per common share for the third quarter of 2025, which was paid in cash on October 31, 2025. We also declared a dividend of $0.5125 per share on our 8.2% Series A cumulative redeemable preferred stock and a dividend of $0.6523 on our 8.25% Series B fixed to floating rate cumulative redeemable preferred stock, both of which were paid on October 15, 2025. At this time, we will open up the call for questions. Operator? Operator: And our first question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Just one quick question for me. Regarding the Real Genius acquisition -- or partnership, sorry, was that more opportunistic? Or could we see more partnerships like that in the future? Jeffrey Lown: So I'm not really prepared to forecast, but to the extent that we see things that are interesting that are accretive, sure, we'll look at them. This was a long time in the making for this investment. And broadly speaking, we're really happy with how it's progressing. But to the extent that we find opportunities that fit within the skill set of people here, we'll absolutely look at them. Operator: Our next question comes from Mikhail Goberman with Citizens. Mikhail Goberman: If I could pick your brain about just your thoughts on expenses going forward. I'm looking at G&A plus comp. It looks like it was about a 12.5% sequential rise. Is there a sort of run rate that you guys are targeting going forward? Is there a seasonality to that combined number? Apeksha Patel: Mikhail, it's Apeksha Yes, their G&A and comp and benefits were both up this quarter, and that is mostly due to changes in personnel that we had during the second quarter and the third quarter of the year as well as professional fees that related to those changes. Going forward, we do anticipate those costs going down, especially with having a new in-house GC now. As of this point, though, it's difficult for us to quantify exactly what that would be, but we are anticipating them going down. Mikhail Goberman: Great. And the sequential rise in servicing costs, what was driving that there? Jeffrey Lown: That was essentially part of the deboarding fee that got reimbursed in Q2. So it's not a typical ongoing expense. And that was something that in Q2 lowered the expense. Q3, we didn't have it, of course, because we didn't have the deboarding again. And so you saw that quarter-over-quarter change, but Q3 is more similar to our ongoing run rate. Mikhail Goberman: Great. And if I can get one more in there. I think you know what it's going to be. Any update on the current book value? Jeffrey Lown: The usual. I turn it over to Apeksha. Apeksha Patel: We're seeing our October 31 book value per share up about 1.2% from September 30. And obviously, that's before any fourth quarter dividend accrual as the Board has not yet met to approve it. Operator: I'm showing no further questions. At this time, I'd like to turn the call back over to Jay Lown for closing remarks. Jeffrey Lown: Thank you. Thanks for attending our third quarter 2025 earnings call, and we look forward to updating you on our year-end results in the first quarter of 2026. Have a good evening. Operator: This does conclude the call. You may now disconnect. Good day.