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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 Atmus Filtration Technologies' Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead. Todd Chirillo: Thank you, Eric. Good morning, everyone, and welcome to the Atmus Filtration Technologies' Third Quarter 2025 Earnings Call. On the call today, we have Steph Disher, Chief Executive Officer; and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com. Now I'll turn the call over to Steph. Stephanie Disher: Thank you, Todd, and good morning, everyone. On the call today, I will provide an update on our third quarter results, our progress executing on our 4-pillar growth strategy and the outlook for the remainder of 2025. Jack will then provide further details on our financial results. During the third quarter, we completed our full operational separation from our former parent, Cummins. The separation has been a multiyear journey and marks a significant milestone for our company. I want to recognize this outstanding accomplishment, which is the result of the collective effort of all Atmusonians. We are now focused on unlocking the growth potential of Atmus. Completing the separation enables us to redeploy resources, time and energy to focus on growth. We have a clear vision and strategy and a highly capable organization who are energized to realize our full potential. Now let's turn to our capital allocation strategy. We continue to deploy capital to create long-term shareholder value. We further accelerated our share repurchase program in the third quarter, repurchasing $30 million of stock, bringing our year-to-date total to $61 million. Since the announcement of our share repurchase program last year, we have repurchased a total of $81 million of stock. We also increased our quarterly dividend by 10% last quarter, reinforcing our commitment to consistent long-term capital return to shareholders. We remain committed to investing for organic growth and executing our inorganic industrial filtration strategy. We will continue to keep you updated on our M&A activity. The framing of M&A investment choices continues to be guided by our strategy, long-term value creation and the balance of growth and shareholder returns. We expect share repurchases to remain an important component of our capital allocation strategy and anticipate our full year repurchases will be in a range of approximately 1.5% to 3% of our current market capitalization. I would like to now take a moment to share some insights on the strong culture we are building at Atmus. We have established what we call the Atmus Way. The Atmus Way incorporates our purpose, our values and our strategy. It also includes what we call mindset shifts, which reflects specific areas where we want to intentionally shift the culture of our company. One example I would like to share today is our commitment to safety. We set a vision to be the safest company. In October, we achieved 2 years without a serious injury in our business. This is a result of disciplined focus on risk reduction and the engagement of employees at all levels of our organization. This is just one example of the Atmus culture in action. It reflects what we stand for and it demonstrates what we can do when we set a bold vision and work together to bring change. Let's now turn to our 4-pillar growth strategy and the progress we have made during the third quarter. Our first pillar is to grow share in first-fit. As a fully independent company, we are expanding our first-fit customer reach to leading regional OEMs across a broad range of applications with dedicated sales and technical resources. We are winning with these customers by providing our industry-leading filtration products that deliver superior protection for our customers' equipment. Additionally, we continue to win with the winners by growing our long-term partnerships with global OEMs. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are expanding our market presence in independent and retail channels with new distributors. This allows us to provide broader channel coverage of our industry-leading Fleetguard products and deliver to our customers when and where they need the product. We are also partnered with leading global OEMs who are expanding their own aftermarket businesses and growing market share. We work collaboratively with these industry leaders, allowing us to expand our business while simultaneously fueling growth for our partners. Furthermore, we are growing our brand awareness with our We Protect campaign launched earlier this year. This campaign highlights who Atmus is and the dedicated employees committed to creating a better future for our customers, communities and planet. Our third pillar is focused on transforming our supply chain. As a fully operationally independent company, we have completely transitioned to the global Atmus distribution network. This allows us to directly control our customer experience. Additionally, our network is designed to optimize and grow our aftermarket business. We continue to increase the on-shelf availability of products to ensure we have the right products for our customers when and where they need them. Our fourth pillar is to expand into industrial filtration markets. Our strategy is unchanged and remains focused on growth into industrial filtration, primarily through inorganic acquisitions. We are broadly looking at 3 verticals: industrial air; industrial liquids, excluding water; and industrial water. We have seen increased activity in the M&A markets, and we continue to review a robust pipeline of opportunities for inorganic expansion. We remain focused on executing a disciplined approach to develop opportunities which deliver long-term shareholder value. Now let's discuss our third quarter financial results. Our team delivered another strong quarter. Sales were $448 million compared to $404 million during the same period last year, an increase of 10.9%. Significant outperformance drove higher sales despite continued challenging conditions in most of our global markets. We also benefited from increased pricing and favorable foreign exchange. Adjusted EBITDA was $92 million or 20.4% compared to $79 million or 19.6% in the prior period. Adjusted earnings per share was $0.69 in the third quarter of 2025, and adjusted free cash flow was $72 million. Now let's turn to our market outlook for 2025. Starting with market guidance for aftermarket. We expect freight activity to generally continue at current levels and be flattish year-over-year. Our team has done a great job executing our growth strategy, especially in the face of elongated challenges in global markets. We are increasing our expected outperformance and now project share gains to add 3% of revenue growth. Overall pricing is expected to provide approximately 3% revenue growth. Pricing is inclusive of both base pricing actions to offset certain input costs and tariff pricing. This reflects known tariffs as of November 1 and assumes the USMCA exemption for our products will continue. The U.S. dollar continues to weaken from the strength we saw early in the year. We anticipate the full year impact of a strong U.S. dollar to be an approximate 0.5% revenue headwind. Let's now turn to our first-fit markets. In the U.S., the industry was recently provided with some guidance on Section 232 tariffs for medium and heavy-duty trucks. We will continue to monitor ongoing developments and adapt accordingly. We are still awaiting clarity on the upcoming 2027 emissions requirements. This continues to drive uncertainty in the market. Our expectations for both the heavy and medium-duty markets in the U.S. is to be down 20% to 25%. We expect demand for trucks in India to grow, which could be further bolstered by government infrastructure spending. In China, the markets we serve have continued to grow through the third quarter. Our exposure in China is weighted towards first-fit on-highway applications, and we remain cautious in our outlook. Overall, we have raised our expectations for total company revenue to be in a range of $1.72 billion to $1.745 billion, an increase of 3% to 4.5% compared to the prior year. Our team continues to quickly adapt to challenging market conditions to deliver strong operational performance. We expect this performance to continue, and we are raising our expectations for adjusted EBITDA margin to be in a range of 19.5% to 20%. Lastly, adjusted EPS is expected to be in a range of $2.50 to $2.65. Now I will turn the call over to Jack, who will discuss our financial results in more detail. Jack Kienzler: Thank you, Steph, and good morning, everyone. Our team delivered another quarter of strong financial performance despite continuing uncertain market conditions. Sales were $448 million compared to $404 million during the same period last year, an increase of 10.9%. The increase in sales was primarily driven by higher volumes of 6%, pricing of 4% and favorable foreign exchange of 1%. Gross margin for the third quarter was $129 million compared to $111 million in the third quarter of 2024. The increase was primarily due to the benefits of higher pricing and volumes, partially offset by higher logistics costs. Selling, administrative and research expenses for the third quarter were $56 million, flat to the same period in the prior year. Joint venture income was $8 million in the third quarter, in line with our 2024 performance. This resulted in adjusted EBITDA in the third quarter of $92 million or 20.4% compared to $79 million or 19.6% in the prior period. Adjusted EBITDA for the quarter excludes $4 million of onetime stand-alone costs. Adjusted earnings per share was $0.69 in the third quarter of 2025 compared to $0.61 last year. Adjusted free cash flow was $72 million this quarter compared to $65 million in the prior year. Free cash flow has been adjusted by $3 million for capital expenditures related to our separation from Cummins. As Steph mentioned earlier in the call, we have completed our separation activities from Cummins in the third quarter. We do not anticipate incurring any additional onetime costs associated with separation activities in the fourth quarter. The effective tax rate for the third quarter of 2025 was 23.6% compared to 18.4% last year. The higher effective tax rate was driven by both the change in the mix of earnings amongst tax jurisdictions along with changes in recently enacted U.S. tax legislation. Now let's turn to our balance sheet and the operational flexibility it provides us to execute on our growth and capital allocation strategy. We ended the quarter with $218 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $618 million of available liquidity. Our strong liquidity provides us with operational flexibility in the current dynamic market to effectively manage our business and execute on our growth opportunities. Our cash position and continued strong performance in 2025 has resulted in a net debt to adjusted EBITDA ratio of 1.0x for the trailing 12 months ended September 30. In closing, I want to thank the global Atmus team for their continued dedication and flexibility to deliver another strong performance in the quarter. Now we will take your questions. Operator: [Operator Instructions] Your first question comes from the line of Rob Mason with Baird. Robert Mason: Nice work on the third quarter for sure. I wanted to see if you could dig in just a little bit deeper. It was stronger than your typical seasonality might suggest. And there was the thought maybe there was some pull forward coming out of the second quarter, whether you think that was actually the case. And then you took the share gain perspective or number up for the full year. I'm just curious how those are layering in. Is there any lumpiness around the share gains that may have come through in the third quarter? Stephanie Disher: Rob, thanks for the comments. Firstly, a strong quarter, really pleased with the overall performance. And if I just start to break down really the top line is where it's all happening. So I'll talk about that in terms of our revenue performance. As Jack spoke to volumes of 6%, pricing of 4% and foreign exchange of 1%. Pricing was around where we expected, probably slightly better, but volume is where I'll spend my time. So if I break down that 6% performance for you, broadly, I would put it into what we would call share gains of 8% and market headwinds of around 2%. The market, obviously, we saw first-fit sharply decline, particularly in North America. And we saw actually an impact of about down 27% sequentially in heavy-duty and medium-duty truck markets. And we continue to see flattish conditions in aftermarket. So all told, that's sort of adding up to a 2% headwind. So if I then take the share gains and try to give you some visibility into what's happening there, we have changed -- revised our full year guidance upwards from 2% in share gain to 3%, really driven by our conviction and the outstanding performance of the team to deliver better than what we intended on our growth strategy. And that's arising from things like additional content in first-fit applications, increases in share in the aftermarket, particularly in North America. So all told, that's about 3% sort of share gains. The big thing I want to point out in the third quarter that is a dimension of timing, as I would describe it, and a major driver of volume growth is related to the Stellantis Model Year '25 Ram product, which was launched earlier this year. We have -- we are on that product, both on the engine and we support the aftermarket. And during the quarter, we saw additional stocking for that new product launch on both the first-fit through our sales to Cummins and in the aftermarket delivery with Stellantis. And so we do not expect that to repeat in future quarters. Obviously, we'll continue to support that product, but the stocking up for the product launch was what we saw higher than expected in the third quarter. Robert Mason: I see. That's helpful, Steph. Maybe I'll just keep the line of questioning around the share gains. You also talked about winning some programs, it sounds like on regional OEMs on the first-fit side. Could you provide a little color in terms of those are contributing yet? And do those -- are those buys to on-highway or off-highway? Stephanie Disher: Yes, it's a great question. And I always try to think about how can I give you some color around this while obviously maintaining the commercial sensitivity. We have been very deliberate in our growth focus to build our business development capability. We've been doing that for several years now is the way I would describe it. We've built the sales force, the business development team. We've increased our bid rate. And we had identified these regional players as really a target for us that we had not pursued previously. And it's broad-based. I would say it's both across on-highway and off-highway. And I'd think about that equally right now. And we're starting to see the benefits of that. We're winning the business. We're getting the confirmation of those wins, and we're starting to see those benefits come through in our results. And I expect that to continue as part of our growth strategy within our core business. Operator: Your next question comes from the line of Joe O'Dea with Wells Fargo. Joseph O'Dea: Just a clarification on the details you gave around the volume growth. Just any sizing of the impact that Stellantis had within the quarter that you don't expect to repeat? And then just bigger picture as you think about aftermarket and sort of end market pacing kind of flattish in aftermarket, for how much longer do you think something like that can persist just as we think about wear on parts and some of the replacement that presumably is being pushed out here? Stephanie Disher: Thanks for the questions. Let me just start with your question on Stellantis. Look, difficult to quantify this specifically. And I think how I would have you think about it is there's certainly -- the 3% I talk about in share gains in the quarter are really attributable to clear wins that we can identify, that we can see them coming through, slight outperformance, as I described, and therefore, gives us confidence to really put that share gain into the -- increase that share gain from 2% to 3% in our full year guide. As it relates to the timing of the new product development, there's a win for us in that product development. There's content increase and then there's timing, right? So we -- in the public domain, I think we've seen that it's in the third quarter year-over-year, it was a 44% increase in that Ram volumes in the quarter. And so it was a significant increase for this product. And we think our full year guide -- we believe our full year guide really reflects how we see the year is going to go with the 3% market share reflected. On the aftermarket side, if I -- yes, on the aftermarket side, if I just take that question, I think we've been talking about 3 years of freight recession now. And we even have been asking ourselves is are the freight indicators still the right indicators for our business, given that length of time, right? And so I think that's a difficult set of questions. The outlook at the moment from the industry and those that we're talking to really suggest that we can't see that turning inside the first half of 2026 yet. There's no real signs that suggest that it has turned, if you like. So we expect it to persist through quarter 4 and at this stage, to stay at those levels through the first half of '26 is how we're thinking about it right now. Joseph O'Dea: And then I just wanted to touch on the full operational control and having sort of reached that transition now and how you're thinking about the nearest-term opportunities that presents for you? Stephanie Disher: Yes. We spoke about this in our opening remarks. And I'm most excited about this allowing us to focus our full organizational resources, energy and effort towards growth. When you undertake a separation of the size and scale that we have, I think there's over 300 projects. We've been doing it for 3 years now, 7 distribution centers, over 280, I think it is IT projects. That just takes a lot of organizational bandwidth. And so to have that completed for us to be standing on our own platform, really controlling our own destiny in terms of being able to use the processes and systems to enable our growth strategy is very exciting, And so I -- really, it is focused around our growth strategy and accelerating our progress on that, which is what -- and I talked about the 4-pillar growth strategy, which is what I'm most excited about. Jack might just talk to the separation specifically, where we're at on that and bring some more color to that piece. Jack Kienzler: Yes. Thanks, Steph, and thanks, Joe, for the question. First off, I would just say really proud of the entire Atmus team for their unwavering commitment to bring the separation to a close. As Steph highlighted, multiple projects, a multiyear journey from beginning to end. And the team really delivered, which I think further underpins the reliability we've been able to establish across many fronts as a business. As we noted, the TSAs have concluded effective end of the third quarter. And therefore, we no longer intend to add back separation costs in Q4 and beyond. The one thing I would highlight is that we are still incurring some elevated costs driven by hyper care, if you will, primarily in the IT space until we reach full stabilization. We expect those to be incurred here in the fourth quarter. And that, in part, is leading to some of our margin outlook as we think about the implied Q4 guide here. Again, highlighting some of those inefficiencies to help you understand why that may be showing up as a little bit of a pullback in the fourth quarter, still feel really strongly about the full year outlook here, both across the top line and the bottom line in really challenging market conditions. And again, I can't thank the team enough for what they've been able to deliver. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Excellent quarter. My first question is with Section 232, the tariff-related regulations now out for trucks, did you take any intra-quarter pricing? And if so, how should we think about the rollover effect of that over the next few quarters? And then in that case, are you also still planning to do a typical beginning of the year price increase that you usually do? Stephanie Disher: Thanks, Tami. So we do have some clarity from Section 232, but I would say there's still a lot of unknowns that we're waiting for. And we still expect that will take some time to be able to fully understand the implications and to be able to calculate it, frankly. And so that's just the first thing I would highlight. Right now, we are anticipating that our USMCA exemption still applies in the context of Section 232. And then there are a number of other mechanisms playing out that we will continue to work through to understand as clarity comes and work in partnership with our customers. We've said from the outset that our intent on tariffs is to be price/cost neutral, and we'll do that through a variety of mechanisms. Obviously, we'll look to avail ourselves of every possible reduction that we can make, exemptions or resourcing product or foreign -- we put a foreign trade zone into our distribution center in the U.S. this quarter, for example. So we're certainly availing ourselves of all of those. And in our guide this year, full year pricing is set at 3%. So we think that guide fully includes the pricing for the year. Not issuing guidance for 2026 at this point, but we would expect that we would continue with the pricing actions in January and so forth that we've seen in the past as our practice. But it continues to be an evolving landscape with tariffs, and our team have really done a tremendous job in partnership with our customers to navigate that landscape. Tami Zakaria: Understood. That's very helpful. And my second question is, there's been a lot of encouraging comments and data points in the industry around the acceleration in capacity expansion for large engines to provide backup power to data centers. How are you positioning yourself to capitalize on that besides, of course, your exposure through your large customer, Cummins? Are you actively working to win share with some of those other players that have announced capacity expansions for large engines in the U.S. and also Europe. So any comments on that? Stephanie Disher: Yes, absolutely. Certainly a very favorable trend in data centers that we do expect to continue for several years here, and that's how we're thinking about it to start with. We have a very strong position and partnership with Cummins. Our filters are on those gen sets. And so we certainly have the opportunity to continue to grow as our partners grow. And we are targeting new business development, as I talked about in both aftermarket and first-fit applications with customers that we haven't operated with so much in the past, right? And so we're investing to grow with those new customers. In terms of -- I just would highlight in terms of the aftermarket, we don't see a significant aftermarket benefit related to those gen sets. They are usually installed for backup power, and so it doesn't quite have the same profile as some of our other applications. But certainly, we are seeking to partner with new customers and continue to support our existing customers that will benefit from that growth. Operator: Your next question comes from the line of Andrew Obin with Bank of America. David Ridley-Lane: Yes. This is David Ridley-Lane on for Andrew. I'll ask a bit of an interesting one for you here. First Brands declared bankruptcy in late September. They own the FRAM and the Luber-finer brands filtration subsidiaries there. If this is a disorderly process, could Atmus be a beneficiary? And are you already sort of reaching out to maybe the retailers about taking over some space on the shelves? Stephanie Disher: Thanks for the question, David. Certainly, we are aware of that. And look, broadly speaking, I would say we're absolutely looking to expand our aftermarket coverage. That's how I'd have you think about that. We're doing it through a number of channels, and we're being really successful. We are winning and gaining share. So the first path that we see an opportunity to do that is with our existing partners. And we are growing with our existing partners as they grow their share in OEMs, for example. And then we are intentionally increasing our coverage through new aftermarket channels, both through independent and through retail channels. And so that will give us greater access and coverage across aftermarket. We see the opportunity really in expanding our coverage to be able to avail ourselves of getting our product to more customers. And that would be the way that we would potentially be the beneficiary of gaining greater share from some of the examples and the changes in the marketplace that you just described. David Ridley-Lane: Got it. And then maybe one for Jack. Look, a lot of the tariffs were announced kind of suddenly. You had, I'm sure, 6 months of fun. As you look over the next 6 months, is all of these levers that you're pulling, supply chain optimization, et cetera, could you be saving a couple of million dollars or more from those efforts next 6 months relative to the last 6 months. Jack Kienzler: Yes. I think -- first of all, David, thanks for the question. I think, as you know, it's certainly been a big resource strain on ourselves and likely many of our peers in broader industries to navigate what is an ever-changing environment. And so I think everyone is looking for some clarity to ease the ability to plan for the future. Look, I would just kind of harken back to what Steph said before, which is our principle as we deal with this broader environment, and that is to, first and foremost, to remain price/cost neutral. We are trying to do that in a way which mitigates the impacts for our customers in every way that we can, things like availing ourselves of exemptions, looking at our broader supply chain to identify ways to mitigate costs and therefore, mitigate the need to take any pricing actions. And we fully expect to continue to do that for as long as it takes to reach a point of clarity here. Operator: Your next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: So I was just hoping to dive a little bit deeper. The 11% year-over-year revenue growth, fantastic. That's the best rate that you've seen since going public by like 600 bps. I know you listed the pricing and volume dynamics, but just kind of curious to hear from the perspective of how much do you think was driven by the better availability of your products via now your whole distribution footprint being wholly owned? Or maybe any other internally controlled pieces that you'd point out that helped drive the growth aside from pricing? Stephanie Disher: Yes. Bobby, thanks. Great question. And there certainly was some benefits of increased availability in the quarter. We continue to improve our availability across the global network, and we still see some runway to further improve that in at least fourth quarter and beyond. And so I would say I don't know if I had to -- it'd be about 1% maybe of that is maybe the availability improvement, if I had to give you a number. The broader benefits of us improving our availability are even more significant in my view. This is about how we build reliability as a company. We've continued to try to do that with investors and shareholders and we do it with our customers. And so really, what availability is about, it certainly is about share gain and getting the product where your customers need it. But it is about building that reliability with our customers, our current customers and our new customers, and that will create a flywheel effect of growth for our business. Robert Brooks: Super helpful color. And then just turning to maybe expansion outside of your current end markets. Just curious if we could get an update of any progress there? I know you've done some organic launches into kind of industrial filtration. Just curious to hear any color on that. Stephanie Disher: So our strategy remains unchanged. We are expanding into industrial filtration markets is our strategy. We're pursuing 3 primary market focus areas. And we do see our primary path to that through acquisitions. And our team have been doing a fantastic job. We have a great team working on this, and they are reviewing regularly a robust pipeline of targets. And obviously, as and when I have an outcome to share, I will certainly be sharing that. So I'm pleased with the muscle building for growth that we are doing as a team. And I'm also pleased with the disciplined approach we're taking to creating long-term shareholder value. On the organic side, we have certainly launched products that can be utilized in applications in industrial filtration markets. We are learning from those launches, and we are learning from working through new channels. I would say that is a small -- very small portion of our revenue, and it will -- it has the potential to accelerate on the back of us making an acquisition is how I would have you think about it. Operator: There are no further questions at this time. I would now like to turn the call back over to Todd Chirillo for closing remarks. Please go ahead. Todd Chirillo: That concludes our teleconference for the day. Thank you all for participating and for your continued interest. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good morning. Welcome to Trisura Group Limited's Third Quarter 2025 Earnings Conference Call. On the call today are David Clare, Chief Executive Officer, and David Scotland, Chief Financial Officer. David Clare will begin by providing a business and strategic update, followed by David Scotland, who will discuss financial results for the period. Following formal comments, lines will be open for analyst questions. I'd like to remind participants that in today's comments, including in responding to questions and in discussing new initiatives related to financial and operating performance, forward-looking statements may be made, including forward-looking statements within the meaning of applicable Canadian and U.S. securities law. These statements reflect predictions of future events and trends and do not relate to historic events. They're subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and their potential impacts, please see Trisura's filings with securities regulators. [Operator Instructions] Please be advised that today's conference is being recorded. Thank you. I'll now turn the call over to David Clare. David Clare: Thank you, operator. Good morning, everyone, and welcome. Q3 was another strong quarter for Trisura, underscoring our consistency and the growing opportunities across our platform. Our high teens operating ROE and mid-80s combined ratio reflect continued underwriting discipline. Book value per share rose to $18.90, up more than 20% year-over-year, supported by both profitability and strong investment returns. Primary lines, our surety warranty, and corporate insurance lines remain the foundation of our business, growing net insurance revenue 16% this quarter. Surety delivered another exceptional quarter with net insurance revenue up 25% year-over-year. Although premiums declined relative to Q3 2024 due to timing nuances of premium onboarding in the U.S., growth year-to-date is 22%, and we expect to return to mid-teens growth in Surety in Q4 of this year. Activity tied to infrastructure investment, manufacturing expansion, and data center construction across North America continues to accelerate. These sectors are expected to provide multiyear tailwinds for contract bonding demand. Our contractor business is strong, and our U.S. platform continues to grow in scale and credibility with national brokers while expanding licensing with the recent addition of Texas in October. Warranty growth has been significant, with 38% growth in written premium, driven by strong relationships with program partners and sustained demand in auto sales. We have been successful in expanding our share with our partners, driving a step-up in our market presence. Although we expect growth to return to the mid-teens level in the future, our platform has scaled meaningfully. Corporate Insurance was able to grow at a measured pace despite competitive pressure, with our selective underwriting and pricing discipline preserving margins. We continue to invest in our expansion into the U.S., which impacted net underwriting income in the quarter by almost $2 million. This phase of build-out is expected to yield a practice of comparable size to our Canadian business in time, a precedent established by our successful build-out in U.S. surety. Canadian Fronting saw an expected decline in premiums due to continued competition, though underwriting income improved through lower claims and enhanced efficiency. We expect the same in Q4 and are evaluating a strong pipeline of opportunities for 2026. U.S. programs returned to growth with gross written premiums up 18% in the quarter and admitted business reaching a record $179 million, a 22% increase. Increased capacity has improved reinsurance appetite and terms, setting up a constructive environment for growth. The quarter was particularly strong with several new programs contributing to growth, and we anticipate continued growth in Q4, albeit in the mid-single digits. Investment income continues to be a key driver of earnings growth. Our portfolio and investment income reached new records with $1.8 billion in assets and $20 million of investment income, up 24% year-over-year. That reflects portfolio expansion as well as prudent active management. Higher interest income, combined with disciplined duration and credit positioning, leaves us well placed in today's environment. Investment contribution will continue to support earnings and book value growth into 2026. Conditions remain supportive for our strategy. Our focus on niche specialty lines experiences market trends differently than broad or commoditized lines. Reinsurance capacity has improved, and this is a tailwind for our programs business as partners seek access to stable and strategic capacity. The potential for large-scale investment in infrastructure, clean energy, and data center construction across North America continues to expand the addressable market for surety. These trends, combined with the depth of our underwriting talent and expanding broker relationships, position Trisura to benefit from secular growth. At the same time, we remain focused on cost discipline and operating leverage. Our expense ratio reflects both a shift towards primary lines, which have higher commissions, and the investment phase we're in. We expect efficiencies to emerge as our platform continues to mature. This has been demonstrated through the build-out of our U.S. surety platform, which contributes meaningfully to the top and bottom line. Year-to-date, U.S. surety is over 40% of our surety premiums and operates at a combined ratio approaching our Canadian business. Q3 reinforces our ability to execute profitably while positioning for growth. Primary lines continue to drive our performance, and U.S. programs are benefiting from improved market conditions. Investment income remains a significant contributor to earnings quality and book value growth. As we look ahead, Trisura is well-positioned to compound book value through underwriting discipline, balanced capital deployment, and continued expansion in markets where we have proven expertise. With that, I'll turn it over to David Scotland for a detailed review of our financials. David Scotland: Thanks, David. I'll now provide a walk-through of our financial results for the quarter. Operating EPS, which reflects our core performance from the business, was $0.71 per share for the quarter, reflecting growth of 4.4% over the prior year. This contributed to operating ROE on a rolling 12-month basis of 18% at Q3 2025, which exceeded our mid-teens target. Gross premiums written were $853 million for the quarter, an 11% increase year-over-year, reflecting continued growth across the portfolio. U.S. programs returned to growth in the quarter, posting an 18% increase in gross premiums written. Net insurance revenue, which approximates net premiums earned, was $197 million for the quarter, reflecting growth of 6.4% over the prior year. Growth was driven by continued expansion in our primary lines, which increased by 16%. The combined ratio for the group was 86% for the quarter, which was slightly higher than the prior year. The loss ratio for the quarter was slightly higher in Trisura Specialty and slightly lower in U.S. programs than the prior year. Both remained within our range of expectations. On a consolidated basis, the expense ratio was slightly higher than the prior year, primarily as a result of the shift in the mix of business towards Trisura Specialty, which has a higher expense ratio than our U.S. programs business, but a lower loss ratio. Underwriting income in the quarter was modestly lower than the prior year as a result of a slightly higher combined ratio offset by growth in the business. Net investment income of $20 million increased by 23.8% for the quarter as a result of an increase in the size of the investment portfolio, driven by new cash deployment even as the broader interest rate environment continued to trend lower. Our operating effective tax rate was 24.3% for the quarter, reflecting the composition of taxable income between Canada and the U.S. and consistent with previous quarters. Overall, operating net income was $34.4 million for the quarter, which was greater than the prior year as a result of consistently profitable underwriting and growing net investment income. Nonoperating results in the quarter and prior year consisted primarily of net gains associated with unrealized gains on the investment portfolio. Exit lines had an immaterial impact on net income in the quarter. Strong EPS contributed to a 15% increase in book value for the year-to-date period, resulting in a book value per share of $18.90 at September 30, 2025. Book value per share also increased as a result of unrealized gains through other comprehensive income due to favorable movement in our fixed income portfolio. This was partly offset for the year-to-date period by FX movement associated with the weakening U.S. dollar against the Canadian currency. Book value has grown at an average rate of 26% over the past 5 years, ending the third quarter with over $900 million of equity. We are well on track to achieve our book value target of $1 billion by the end of 2027. Earlier this year, we drew down on our revolving credit facility to further capitalize our growing U.S. surety balance sheet. This increased our debt-to-capital ratio to 13% as of September 30, 2025, which was higher than December 31, 2024, but still well under our conservative leverage target of 20%. The company remains well capitalized, and we expect to have sufficient capital to meet our regulatory capital requirements and continue to support our robust organic growth. David, I'll now turn things back over to you. David Clare: Thanks, David. Operator, we would now take questions. Operator: [Operator Instructions] Our first question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: I wanted to ask, David, about your commentary on the data center build-out, the infrastructure announcement. We had the Canadian budget recently passed as well. So would love to get your thoughts on how meaningful this opportunity could be for your surety business on both sides of the border. David Clare: Thanks, Bart. At this stage, it's tough to size these opportunities. What we do know is these types of commitments, if we talk about Canada first, for nation-building projects for large-scale infrastructure generally fit the types of projects that require bonding. That bonding needs to the extent it's significant, would benefit the entire surety industry. And we've made a concerted effort over the past, I'll say, a year to expand our practice into some of that larger limit bonding space. So at this stage, we're very happy to see the commitments, although the rubber is going to hit the road when we start seeing what those commitments actually mean for projects. In the U.S., I think everyone has seen the level of commitment and activity around both manufacturing, data centers, and infrastructure spending as well. I think all of those things are positive for demand at a high level for the surety industry. It's worth noting for us as Trisura, it's unlikely we'll be participating with the large general contractors who would navigate those projects. But we do participate in the subcontractor space. And so, to the extent these types of projects lift that demand, we would be expected to participate in those types of activities. Bart Dziarski: And then just on the investment income, I mean, it was strong this quarter, up 24% year-over-year. But even year-to-date, it's still pretty strong at 14% over the year. And so how should we be thinking about that in terms of the durability of that and its contribution to book value growth as we go into '26 and '27? I'm sensing there's a bit of a shift there in terms of its growth power, but I wanted to understand that a bit better. David Clare: Yes. I appreciate you pointing this out, Bart. It's something that we're excited about, and it's a very natural consequence of the proportion of our growth coming from these primary lines. As you think about the big drivers of our growth, given the magnitude of expansion in lines like net premium earned, there's a faster recycling or a more significant contribution from those lines of growth into the investment portfolio. So something we track very closely is obviously the level of net premiums earned growth in the organization. That translates relatively quickly into a contribution to the investment portfolio. And given the nature of our portfolio as a majority investment-grade bond portfolio, we have fairly high confidence that, that is a very durable contribution and a new base for investment income going forward. So for us, we always like to see predictable earnings, and that portfolio's significant growth over the last 3 or 4 years has just positioned us in a lot better spot than we've been previously. Operator: Our next question comes from Doug Young with Desjardins Capital Markets. Doug Young: Just sticking, David, with the investment income side. Obviously, a good quarter from that line. As you mentioned, you tend to be more conservative in the investments that you make. Any plans to push a little bit more for yield duration, take on a little bit more risk within the portfolio? Or is it just steady under the current strategy? David Clare: Our priority in the investment portfolio is both capital preservation and optimizing for yield. We try to do that opportunistically, Doug. So what you've seen around the edges is some active management around both duration and credit quality. So for us, the focus here is not changing materially the composition of the portfolio, but reflecting opportunities, for example, if there's a better term premium than there has been historically. So you're not going to see us meaningfully change the composition of the portfolio. But around the edges, if we can add yield through an expansion of duration appetite or shifting asset allocations between investment-grade credit, we'll likely do that. What we haven't done year-to-date, and we haven't done really recently in the last couple of years, is meaningfully change things like equity allocations. So the portfolio gives us a lot of confidence in its durability, and the team has done a good job of defending yields as we've seen what I'd call a transitioning environment. Doug Young: And then Lots of discussions, some having lots of discussions around the softening of the P&C insurance cycle. I know you and I have talked a bit about this, and I think you talked a little bit about it in your prepared remarks. But to the extent that reinsurance pricing or the cycle does pull back, can you elaborate, maybe a little bit on how that impacts Trisura, and maybe just actually how it could potentially benefit you if reinsurance pricing in of itself does pull back a bit? David Clare: Yes. This is a question we get a lot, and it's worth level setting before we get into the discussion that, given our niche and specialty focus, the broad themes that people talk about and reference around cycle trends generally hit our business or impact our business differently than more commoditized lines. So, surety, for example, would be outside of typical market cycles. We've talked a little bit in the past about corporate insurance, which is, I'll say, a competitive environment right now. But the team is doing a great job of growing that business in that environment and maintaining the types of margins we expect. I think your comment around the program's business and the impact of reinsurance is likely underappreciated at Trisura. We tend to benefit when reinsurance markets are more available and when reinsurance market capacity increases. That makes it a better operating environment for an entity that consumes a significant amount of reinsurance. And our U.S. programs division is an entity that utilizes a lot of reinsurance. You saw this quarter that we were able to grow more meaningfully in that line than we have in other quarters. Part of that is lapping sort of that exited lines period, but part of that is our ability to launch new programs this year that fit our risk appetite. And a good component of that is the return of capacity to those reinsurance markets. So at a high level, it's at Trisura something that can be a benefit in that market cycle. And then in those specialty lines, it's something that we generally expect to have a less direct impact than more commoditized lines. Doug Young: And then just lastly, in the U.S. program business, as you said, gross written premiums grew this quarter and were above us. I mean, can you just kind of walk through how many new programs were added this quarter? I don't think they're all producing premiums yet. So I think there'll be a bit of a layering in of that, maybe correct me if I'm wrong, and retention rates, if you can paint the picture for us, how all of those things should impact gross written premium, net premium earned over the year or 2 years or so? David Clare: Yes. I can provide the program number on a year-to-date basis. We've added 8 or 9 new programs in that space this year. A few of those programs started producing premium in Q3, which has helped us step up a little bit. As you're thinking about modeling the business, I think the best way to think about it is that the retention component will likely be in the low teens range. It's going to bounce around by quarter, as you've seen this year. Your loss ratio is likely in the low 70s on a full-year basis. And then your expense is anywhere between 10% to 11%. So the combined ratio of that business, you should think about in the low 80s on a full-year basis. That trend in that business, what we see going forward, likely in Q4, is growth, but probably at a lower rate than what we saw this quarter, and then a good opportunity to continue expanding in 2026. Operator: [Operator Instructions] Our next question comes from Jaeme Gloyn with National Bank of Canada. Jaeme Gloyn: Just on the surety side, I was wondering if you could, and I apologize if I missed this, if you could break down the performance of Surety Canada versus Surety U.S. David Clare: Yes. Jaeme, the combined ratios of these 2 are pretty comparable. So, on a profitability perspective, I think you should expect, and to the extent you model this, those businesses are contributing relatively equally on a profitability standpoint. Premium-wise, year-to-date, the U.S. business has contributed, I'll say, just over 40% of the premiums for our surety platform across North America. So it's becoming more significant, but our Canadian business is still larger. Jaeme Gloyn: Okay. And the trends in that premium growth? David Clare: I would say on a percentage basis, our U.S. business is growing faster right now, although we do have some great momentum in the contract space in Canada. So the market opportunity for both is compelling, although the absolute size of the U.S. market is still quite a bit larger than the Canadian market. Jaeme Gloyn: Yes, of course. And then in terms of looking into the upcoming quarter, do you have any visibility on how that has performed? David Clare: The surety platform? Jaeme Gloyn: Yes, please. David Clare: Yes. I would say you should expect a return to growth in the surety platform in Q4. So certainly, we would expect something in the mid-teens level of growth from a top-line perspective. It highlights the nuances of Q3 just on a comparative basis, but we've got confidence that returns to growth in Q4. From a loss ratio perspective, I think you should model this as per usual. So think about kind of a 20% or low 20s percent loss ratio for that business. Jaeme Gloyn: Shifting elsewhere in Specialty, maybe you can sprinkle these comments around the other lines. But I noticed clearly an uptick in loss ratios or combined ratios across corporate insurance and warranty. Could you talk about maybe some of those drivers that are leading to that uptick? Is it something that we're at a higher level here, looking forward? Or is there something a little bit more unique in the quarter? David Clare: Yes. The quarter had a few nuances that are worth highlighting. So I appreciate the question. Warranty as a platform, you should think about running about a 90% combined ratio. And the big difference quarter-over-quarter this year is really that Q3 of 2024 was a significantly low quarter from a combined ratio perspective. However, if you look year-to-date for warranty in both 2024 and 2025, you're pretty comparable. You're pretty close between those 2, which is generally the level that we expect this to run in the long term. I think the growth in warranty is something we referenced a bit in our opening remarks. It's been spectacular. And so we have to congratulate the team and our partners on their success there. We do expect that growth comes from these high 30s levels, likely down to the mid-teens levels in the near term, but it's a great new base level for the business. Corporate insurance, I think you should model this business on a loss ratio basis in the low 30s. That's generally what we expect in the long term. We had a very strong quarter last year in corporate insurance. You had something in the high 20s from a loss ratio standpoint. But I think more importantly, this quarter in driving what I'll call net underwriting income or profitability, there's a pretty significant investment in the expansion into our U.S. business. That impact on NUI for corporate insurance is probably approaching $2 million in the quarter. So if you back out that type of investment, the results look pretty comparable to our long-term expectations for that corporate insurance line. Jaeme Gloyn: And sorry, just to dig in on that corporate insurance loss ratio, low 30s, historical trend here has been maybe more like high 20s. So is the U.S. platform driving some of that shift? Or is there something else? David Clare: No, low 30s is pretty normal. I mean, we had some very strong years recently as we are expanding the Canadian business. The U.S. is not material enough at this stage to really move around loss ratios. So I think what you're seeing here is just a return to long-term averages in Canada. Jaeme Gloyn: And then the last one for me. Just on the warranty growth side of it, I believe it's coming from new merchant wins as opposed to, let's say, like auto sales growth, which has been somewhat tepid. Perhaps you can outline some of the factors that are leading to those wins and broader distribution. David Clare: You're absolutely right, Jaeme. I wouldn't qualify the growth in warranty as a result of a booming auto sales environment. This is a win or expansion of relationships within our partnerships. I would say the factors here, or the drivers of this expansion, are candidly just strong relationships. So we've had a number of these partners for a long time in the last 12 to 18 months, and we've been successful in moving some business from competitors to our own platform, which you're seeing the uplift of through the year as we onboard those programs. It's candidly just a testament to the length of time we've been in the business and the strength of those relationships. So nothing spectacular, no change in risk appetite, no change in real product offering, just a consistent focus in the business on building with people that we know. Operator: Our next question comes from Tom MacKinnon with BMO Capital. Tom MacKinnon: A bit more of a broader question, just with respect to the program's business, thoughts as to where you want to see better growth. Do you see better growth in specialty versus programs? And then keeping with programs, is this something that you -- or what do you think would be the bigger growth driver of Trisura overall? And then just with respect to programs, what are you seeing in terms of retention here, maybe fees as a percentage of ceding commissions, just trends generally in that marketplace that you might want to view as being positive or negative, or opportunities to capitalize on? David Clare: Thanks, Tom. I think from a growth perspective, there's quite a lot of opportunity right now in the primary lines. You're seeing more significant growth in those lines as we candidly expand into the U.S. So you're coming off a lower base in some of these lines to drive a higher percentage growth in things like U.S. surety. We would expect, in time, U.S. corporate insurance to add to that. We do still have quite a strong expectation for growth in our Canadian platform, although the maturity of those lines makes that percentage look a bit different than the U.S. I think there is an expectation for continued growth in our U.S. programs business. That's likely on a percentage basis, not as significant as growth in some of our primary lines. And I would make that comment for the Canadian fronting business as well. There's clearly some competitive factors there that are limiting top-line expansion. But it means that we expect a relatively consistent and attractive contribution from both of those lines. In U.S. programs, retention should be thought about at a low teen level. It's going to bounce around by quarter, but modeling it over the full year at 12-ish percent should be fair. Fronting fees or fees as a percentage of ceded premium, about that 5% range, maybe high 4s should be pretty consistent with what we've done in the past and will be consistent with what we're seeing both on new programs and existing programs. Tom MacKinnon: And what opportunities do you see in programs overall? What particular programs are you seeing better growth in? And which ones would you not be as excited about? David Clare: Right now, we see continued excitement around the MGA industry in the U.S. So most groups, be they single MGAs or groups of larger MGAs, are continuing to exhibit very entrepreneurial behavior, more sophisticated platforms, and strong abilities to retain and attract good people. It means that there's quite a bit of opportunity expected to continue in that market. I would say for us, we try to target a mix of portfolio businesses. It's about 70% casualty and 30% property. The difference this year, I would say, is that we see a more supportive reinsurance environment, especially in property. So the opportunities that we've onboarded this year have been a mix of both property and casualty. But it's the first time in a couple of years that we've had both appetite and the types of support we expect to lean back into that property space. So the mix of business is, I'll say, pretty consistent with our overall segmentation of business, and the backdrop for both E&S, MGA demand, and supporting the reinsurance seems to be either consistent or improving. Operator: [Operator Instructions] Our next question comes from Stephen Boland with Raymond James. Stephen Boland: Just one question. In the MD&A, it does talk about a higher expense ratio in the U.S. that you're investing in the business. I'm just wondering if you can give a little bit more specifics on that? And that will be ongoing this quarter and even into 2026? David Clare: Stephen, we haven't made a lot of, I'll call it, de novo or new investments specifically this quarter in the U.S., but we made a number of them at the end of last year and the beginning of this year. You're seeing some of those investments just play through the year. So I wouldn't expect a significant change in that line or that expectation going forward. We're simply building the business and preparing that platform for growth, candidly in both programs and primary lines. So you shouldn't expect a meaningful change in the absolute dollar figures there. The trajectory likely flattens out over the next year or so. But we've made a number of investments that we talked about a lot in Q4 of last year and maybe referenced in Q1 of this year that we just think help us set up for a durable platform in the long term. Stephen Boland: Actually, I'll sneak in one. You're comfortable with the capital position in the U.S. I mean, you have to move some capital down there, do you think, over the next 12 months? Or you're set for the next little while? David Clare: No, we're very comfortable with our capital position across the organization. So despite having a bit of growth this quarter that was maybe ahead of expectation in programs, we're very well funded there. I think the area to think about us injecting capital in time will continue to be that surety balance sheet in the U.S. So as we continue to see momentum in that platform, we want to continue to get bigger there. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to David Clarr for closing remarks. David Clare: Thank you very much, everyone, for joining today. And as always, don't hesitate to reach out if you'd like to speak through anything further. Thank you, operator, and thank you, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Strawberry Fields REIT Q3 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Bajtner, Chief Investment Officer. Sir, please begin. Jeffrey Bajtner: Thank you, and welcome to Strawberry Fields REIT's Q3 2025 Earnings Call. I am the Chief Investment Officer, and joining me today on the call are Moishe Gubin, our Chairman and CEO; and Greg Flamion, our CFO. Yesterday evening, the company issued its Q3 2025 earnings results, which are available on the company's Investor Relations website. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about Strawberry Fields REIT's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond its control. Additionally, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the non-GAAP measure reconciliation page in our investor presentation. Now on to discussing Strawberry Fields REIT and our Q3 2025 performance. I want to start by sharing some key highlights. During the quarter, the company collected 100% of its contractual rents. As we discussed in last quarter's conference call, on July 1, 2025, the company completed the acquisition of 9 skilled nursing facilities comprised of 686 beds, located in Missouri. The acquisition was for $59 million. On August 5, 2025, the company completed the acquisition for a skilled nursing facility with 80 licensed beds near McLoud, Oklahoma. The acquisition was for $4.25 million. The company funded the acquisition utilizing working capital. The initial annual base rents are $425,000 and are subject to 3% annual rent increases. On August 29, the company completed the acquisition for a health care facility comprised of 108 skilled nursing beds and 16 assisted living beds near Poplar Bluff, Missouri. The acquisition was for $5.3 million. The company funded the acquisition utilizing working capital and the initial annual base rents are $530,000 and subject to 3% annual rent increases. A couple of other items I wanted to mention. During Q3, the Board of Directors approved increasing the dividend to $0.16 a share. This increase represented a 14% increase over previous quarters. Yesterday, the Board of Directors approved the Q4 2024 dividend, which will also be $0.16 a share and will be paid on December 30, to shareholders of record on December 16. On the acquisition front, we continue to see deals coming from around the country. As we have discussed in previous investor presentations, we are a big fan of the master lease structure and currently, 89% of our facilities are in master leases. With our disciplined approach, if there is a deal in an existing state, our current operators are looking to grow, and we can simply add the new facility to an existing master lease. If we were to enter and grow in a new state, we would be looking to acquire a sizable portfolio of at least 500 beds. As a final point, I'd like to point out that Strawberry Fields REIT is currently the closest pure-play skilled nursing REIT in the market with 91.5% of our facilities being skilled nursing facilities. I would now like to have Greg Flamion, our Chief Financial Officer, discuss the quarter end financials. Greg Flamion: Thank you, Jeff, and welcome, everyone, to Strawberry Fields REIT Third Quarter 2025 Earnings Call. Let's begin with the balance sheet. Total assets reached $880 million, which is a 33.1% increase compared to Q3 of 2024. This growth is primarily driven by our acquisition strategy and the successful retenanting of specific leasing. On the liabilities and equity side, we saw increases aligned with our financing activities and some foreign currency exchange losses, which impacted other comprehensive income. Overall, the balance sheet reflects our continued investment in long-term growth. Turning to our income statement. Year-to-date revenue through September was $114.9 million, up $28.3 million versus September of last year. This increase is largely due to the timing and integration of properties acquired over the past year, as well as the retenanting activity that began in January. While revenue is up, we've also seen higher expenses, mostly driven by depreciation, amortization and interest. These higher expenses are a result of the acquisitions discussed earlier in the presentation. Net income year-to-date is $24.5 million or $0.44 a share compared to $19.9 million or $0.40 a share last year. Looking at our quarterly performance, the drivers are similar to our year-to-date results. Revenue increased by $10.2 million, again, due to the acquisitions and lease transitions. Expenses rose as well, driven by higher depreciation, amortization and interest from new assets. Net income for the quarter was $8.8 million or $0.16 a share, up from $6.9 million or $0.14 per share in Q3 2024. To close, I'd like to highlight some key financial metrics. Projected AFFO for 2025 is $72.7 million, a 28.2% increase over the last year with a compound annual growth rate or CAGR of 13.3% since 2020. Adjusted EBITDA is projected at $126.1 million, up 38.9% year-over-year with a 13.6% CAGR. Our net debt-to-asset ratio was 49.2%, maintaining a balanced capital structure. As of September 30, our dividend was $0.16 a share, representing a 5.2% yield. With an AFFO payout ratio of 46.8%, we're delivering strong results while preserving capital for future growth. These results reflect our disciplined execution and commitment to long-term shareholder value. With that, I'll turn it back over to Jeff Bajtner, who will walk us through the portfolio highlights. Jeffrey Bajtner: Thank you, Greg. I'd now like to point out some of the Strawberry Fields REIT's portfolio highlights as of September 30. Currently, the company has 142 facilities. This is comprised of 130 skilled nursing facilities, 10 assisted living facilities and 2 long-term acute care hospitals. These facilities are in 10 states. And as you'll see later on in the presentation, we've got a map showing their locations. In these facilities, we've got 15,542 licensed beds. The company's total asset value at acquisition or its historical cost is $1.1 billion. I would like to point out that this amount reflects facilities which have been bought over the past 20 years. If you were to look at the company's fair market value of these facilities or the portfolio, it would be in excess of this amount. Currently, our portfolio has 17 consultants who advise operators. Our weighted average lease term is 7.3 years. Our tenants continue to do well, which is reflected by the EBITDARM rent coverage of 2.01x. Our net debt to adjusted EBITDA ratio is 5.7x. As I mentioned earlier, we're pleased that we continue to collect 100% of our rent. And as I mentioned earlier in my prepared remarks, the company continues to have a strong pipeline. We're seeing deals from across the country. And at this time, our acquisition pipeline is in excess of $250 million. With that, I'd like to have Moishe Gubin, our Chairman and CEO, continue with the presentation. Moishe Gubin: All right. Thank you, Jeff, and thank you, Greg. Staying on this slide, I would just reiterate what Jeff has said. We've continued to grow, as we'll talk about in a future slide with almost 15,500 -- well, the actual number, 15,542. Of course, we're going to keep growing. On the assets, total assets, we feel that our total assets real true market value is probably closer to $1.6 billion. I would stress potential investors not to really spend time looking at our balance sheet for our equity or our assets because they are net of depreciation, which we rely on, of course, to have the surplus cash that we use to buy more assets. I would move on to the next slide and show you all our growth, super proud. As we said on the previous slides, 13.3% growth rate. It was only 5 years ago that we made $38 million of AFFO, and now we are close to double that in 5 years. That's a good growth rate, what to be proud of. We'll hopefully break $73 million and next year, do even better. On the next slide, this is one that I don't usually really spend too much time on. It's the base rent growth. Obviously, that's going to keep growing as we continue to buy. We're in the business of buying and leasing. We do not give options. So everything you see in looking at straight-line rent should continue to be the same or better going forward. It's very rare that we sell something, even though in third quarter, we actually did sell something. That being said, we'll go on to Slide #8. On Slide #8, this is something that we actually ended the quarter okay, within range of last year. Obviously, with the increased AFFO, we should be trading a lot higher than last year. We're continuously working for the shareholders going to events. This week, we were in Arizona, meeting with new tenants and looking at deals. And like Jeff said, we have a very strong pipeline. Again, our bogey that we're trying to break is 150 million to 160 million in dollar spent a year. As we get bigger, we want to spend more, obviously, but we do our deals exactly the same way. And like we've talked about quarter in, quarter out, year in, year out, we are so disciplined on how we buy things that has to fit or we don't buy it. On Page 9, you see our growth rate. We try to educate the marketplace on -- you take the AFFO share growth of 11.3%, you add that to the dividend yield, and we're steadily bringing a return of 16% to 18% a year. That's going to continue to grow. We've maintained the payout ratio to be below 50%, and we've not been erratic at all with how we've done our dividend. In fact, we've raised our dividend, I think, now already 5x, 6x. And we will continue to do exactly what we're doing, paying out what we're paying, which this quarter, which we just announced, is 100% of our net income. And that leaves us $40 million or so from depreciation of surplus cash to go use to buy more assets. So that's just funding our future growth. I love this. I love this slide. Slide 10. You can see our stock is undervalued. Our AFFO trading multiples on the right side, we are the lowest by far. And I believe our profitability is better than most, if not all, of our peers. That being said, we're going to keep working it. We're going to keep meeting investors. We're going to keep doing what we can. We're going to manage the marketplace, continue. We're going to be doing a capital raise at some point. And when we do that, hopefully, that will help bring in more institutional investors and bring more liquidity to the stock price. On the next slide, Page 11, you can see our payout ratio, like I said, we're at 46.8%. Everybody else is in the 70s or higher. Our dividend yield is middle of the road at 5.2%. I would expect as our profitability grows, that dividend yield will grow. And because every time we raise a $0.01, right, if we're at $0.16, we go to $0.17, that's 1/16. That's close to 10% growth, and that puts the dividend yield at a nicer number, and that should happen. On Slide 12, again, this reflects Jeff's comments about us being the closest pure-play REIT. You see we're still 92% -- almost 92%, and our peers are actually decreasing in percentage. And so again, this is a marketplace, which we never have investor calls, we'd like to say it's relatively bulletproof where the clientele that comes to us, they have to come to -- they have to go to our tenant because they need to be cared for a certain way. And with the baby boomers pushing, which we'll talk about in a future slide, the reality is, is that we think that we're in a good spot because it's a business that's government paid for. So it doesn't -- inflation really doesn't affect it. And we keep going out to giving the story. We feel that the investor public should be happy with us and things should pick up. On Slide 13, you see what our AFFO share growth, the growth rate over the last 5 years. We're at 11.3% as our growth rate. There's only 2 other of our peers that are positive. The other 3 are negative, which basically tells you that what do they do? They don't have enough AFFO to cover their dividends, and they have to sell equity to use the cash to be able to pay dividends. In our case, we're paying dividends, we have twice the amount of money so we can go use to buy more deals so that we break the -- so that we can make the AFFO per share grow because we're not increasing the amount of shares outstanding, but yet we're increasing the amount of money we're making. EBITDARM coverage, we're above 2x is acceptable at any level. And I'm happy with where it is, but it's going to continue to go higher. Now because our investment is formulaic, every time we do a new deal and every deal is priced to 1.25x, we're fighting that EBITDARM coverage because of that, because we're our worst end. We want to grow and everything we bring in is 1.25x, which lowers our EBITDARM coverage. So if we would stop buying, which nobody wants us to do, and we're not going to. But let's say, if we did stop growing, then that EBITDARM coverage would go a lot higher because everybody -- we give it to them and everybody is always trying to improve and succeed. Again, we're only leasing out to seasoned operators that know their marketplaces that are local, and they continue to thrive and do better, and that's why the EBITDARM coverage would go up. Again, the fact that we grow, it makes it go down. Anyway, Slide 14. This used to be one of my favorite slides, not so much anymore. Our debt is below 50% leverage, like we said. And our debt has turned into basically 1/3, 1/3, 1/3 between HUD debt, bond debt, and bank debt. Interesting to note really that out of all of that debt, there's only -- it's the bank debt, which is basically 23% of the debt. That's the only debt that's variable rate. Everything else is with balloons that are at fixed rates. Like we talked about last quarter, the Israeli public on the last raise and there's a lot of demand they -- they wanted to give us. We were oversubscribed by twice 2x, we could have taken even more. So going forward, we have a lot of arrows in our quiver, whatever the word is. We have a lot of different choice on what to do to raise debt. If we need debt, I'd like to see the stock price go up, so that we could also sell equity at some point. But I think debt is cheaper than equity at this point. Next slide, Slide 15. This has become my favorite slide. This is as diversified as we've ever been, and we continue to get diversified where not a single state or a single tenant is over 25%. And in our case, the 25% is the best state, which is Indiana. So we're in 10 states, like Jeff said earlier, and God willing, and like Jeff said earlier, we're only willing to go to new states if it's a sizable portfolio, as we are a fan of the master lease, like he said as well. And so we're looking at other states now, and we're looking to grow our relationships. All of our tenant relationships today are good. Like you said earlier, we're getting 100% of our rents and our relationships with the tenants are good where they're doing well. They're paying the rent. Things seem to be -- the building is being taken care of. So we have the ability to grow in other places, and we're going to try to do that. Slide 16 shows the map. And you could see how we're finding our way left and right. We really like the idea of Southeast, Mississippi, Alabama, Georgia. These are all places we'd like to go. Deals are hard to come by over there. Georgia seems to be picking up that we'll be able to find something in Georgia. Again, pure play, you look at the pie graph on the bottom, you see 91.5% SNF, and that's what we do. So with that, I'd like to turn it over to the operator for questions and comments from our analysts and for those on the call. Operator: [Operator Instructions] Our first question or comment comes from the line of Rob Stevenson from Janney Montgomery Scott. Robert Stevenson: Did I hear correctly that you guys sold something in the third quarter? Moishe Gubin: Yes. We had an outlier in our portfolio, one facility in Michigan, that we owned for over 10 years. So we basically doubled our money on the property to begin with. And it was an outlier. We were never able to grow that region. We wanted -- this is really an asset that's been with us a long, long, long time. And we were never able to grow into a normal master lease where this could have fit into and grow the region. We haven't had good luck buying in Michigan. So we had an opportunity to get out of the asset, the tenant that was there ended up, the math worked itself out where we raised rent elsewhere. So we stayed budget neutral as far as rent being collected or rent being collected and the inverse of that is getting cash out of 10 cap for the portion of rent we're not getting. So yes, so we pared down. That's why we went down from 11 states to 10 states. And we feel good about that transaction. We're usually never a seller. We don't give options to anybody, but this was an asset that really -- we should have moved this asset a long time ago. The operator that was operating it, they were sending in a nurse consultant from Indiana. They were sending in a marketing team from Illinois, and they were really struggling with on the ground. And the facility had good care. I mean the survey results were fine, but they just weren't able to move that building forward, and they were always marginally making like maybe a one coverage, maybe even drop lower. And so finally got an ability to sell it, and they're happy, we're happy. But that's a one-off kind of deal for us, Rob. Robert Stevenson: What were the proceeds from that? How meaningful was that? Moishe Gubin: It's immaterial. We sold it for, I think, $2.6 million or so, and we gave them a note or we took a note at 10% interest, which is our 10% cap. So it's -- and so they have a couple of years to pay it off with a balloon, and they're actually operating well there already. And we're good with this transaction. Robert Stevenson: What do your acquisition pipeline look like today? How are you guys thinking about the end of the year and into '26 at this point? Moishe Gubin: So end of the year at this point, we had a couple of hot deals that would have been great to end the year. We would have to do a capital raise. It would have been a beautiful ending to the year. And now it seems like there's going to be -- we should have some good volume in the first quarter '26. And if '26 will be like '25 and '24, hopefully, we break the $150 million, $200 million mark for next year for growth. Robert Stevenson: The comments around the dividend increase, were you guys at sort of your minimum payout? And was the increase from $0.14 to $0.16 basically something that you had to do? Or is that something that the Board wanted to do at this point in time? Moishe Gubin: Yes, that's a great question. So like we sit here at the Board meeting and we lay out -- I act as -- I'm the CEO. So I sit there and I basically lay out here's the deal for us to stay in REIT compliance to distribute 90%, for us to not be erratic with our dividend, for us to satisfy to move our dividend yield up a little bit and for us to keep the investors happy. We debate the topic. I mean we have the capacity to distribute a lot more, as you know, because our payout ratio is so low. The $0.16 is exactly 100% of our net income for the quarter. The year-end number, when we end the year, there will be an adjustment somewhere that will include a little bit of capital gains, which you have to do 100% of. So when it all comes down to it, the -- they don't get a K-1 to the investors. I forgot the actual tax form that they get. There will be a portion of this that will be like -- that will be a return of capital, which is not taxable actually. Greg Flamion: 1099. Moishe Gubin: It's 1099, but it's not a regular 1099, I don't think, I don't exactly what the form is. But regardless, this -- the conversation in the room is we want to -- we know we're going to move every year because the way our model is, it's status quo and going higher. It's never -- we don't have the choppiness of going up and down. It's flat or higher. So we know that we're going to have at least one raise of a dividend a year, at least that's what we expect. And so we had just raised last quarter to $0.16. We could have made this one $0.17, but we left it at $0.16 for now. We'll see what fourth quarter brings and then either -- and most probably the next bump will probably be either -- probably not be the fourth quarter, probably the first quarter of 2026. But yes, that's basically the conversations that we have in the boardroom about the -- we have a few Board members that want us to distribute more. And I'm basically arguing that we have this 13% -- this 11% to 13% growth rate of AFFO because we're able to take this and spend it and do good with the money and continue the model and grow the model. And so right now, that's the prevailing argument in the boardroom to keep the dividend higher than the requirements and constantly growing annually, at least once a year to go up. And that's basically all the color on that topic, Rob. Robert Stevenson: Can you remind me when the Series D bond matures? I think that's by far and away, your highest cost of debt and when you basically get an opportunity there to refinance that? Moishe Gubin: Yes. We have our bond debt expiring September of '26. On this topic, I guess most people wouldn't air their dirty laundry, but I'm an honest straight-up guy. So one of the flaws of the bond, which we're fixing going forward is that there's a prepayment penalty all the way to the last day of the bond maturity. So we're holding out because the prepayment penalty today because the bond is traded at such a premium because it's such a high coupon, it would cost us way too much money to refinance today. But come September time, there will be a nice savings because we know that our -- we know that we're going to get repriced out probably 3 points lower, maybe give or take, a little higher, a little lower, but we'll save a ton of money going forward, and that reprices in September of '26. Robert Stevenson: So at this point, you think that if you had to access the debt markets today, you're probably pricing somewhere plus or minus around the sub-6%? Moishe Gubin: Yes. Yes, 100%. We know it. It's not even a question. If I want to take the money today, I think it would be maybe sub-6%. It's traded today at -- it was like 5% above par. So they love us. I mean, it's the actual yield. The yield on Series D today is in the 5s. So in theory, if we did a bond to replace it, the pricing would be a little bit higher because we would take 5-year money and because everyone is expecting rates to go down to lock in 5 years, they want to get a little bit of a premium. Actually, I think maybe -- I think what I just told you is right, but I have to think it has to give you the right exact thought, but duration plays a role in the pricing up and down. So this is a short duration today, and that's why its rates a little bit. It's as low as it is. So I guess, yes, that's the story there. The market there loves us. I love the market there. I do still really want to investigate doing similar to like a GMRE, like what their financing look like with BMO and lead and a couple of other guys. And so we're talking to our IPs to see what we can do here. But we're definitely going to keep a bunch of our debt staying in Israel. Operator: Our next question or comment comes from the line of Barry Oxford from Colliers International. Barry Oxford: Just to build on Rob's question regarding the pipeline. It was at $300 million, I think you indicated last quarter, now at $250 million. Is that just more a function of how you define your pipeline, but not necessarily a commentary on what's available out there in the marketplace? Moishe Gubin: Yes. Our -- it's a moving target. Our pipeline -- I mean, I don't know if our competitors or peers use pipeline and stuff that's inked already the deals that are going to close. Our pipeline, we have a high, medium and low on probability of deals getting done. And so we're giving you the overall total pipeline. Again, we're very disciplined in how we buy, as you know. And so for us to -- when we make a deal, that deal almost always closes. So we have to put in there the mix of the stuff that we've given LOIs, as well as things that are in contract. I don't know if that answer. I think that... Greg Flamion: I'd add to that. I mean, it's almost like living and breathing. Every week, it changes. We're constantly going to conferences. We've got people reaching out. And I mean $250 million represents deals that make sense for us, not just deals that are sitting -- I mean, in our e-mails. I mean, what's going into our pipeline is ultimately deals that we believe that if we can get the LOI in and we can get it, I mean, locked up, we could close it. Barry Oxford: Given that your property type is doing very well, it seems to be attracting investor interest. Are you seeing more people showing up at the bidding process? And also, we've seen some REITs trying to add more to their skilled nursing? Moishe Gubin: First of all, I don't know if I agree with you, Barry. The REITs -- I was just with David Sedgwick on Tuesday, who I love, by the way. But they're not -- and a lot of the other guys, they're buying less SNF portfolios today. And it seems like the assisted living product is still the -- for some reason, that's the product of choice by a lot of the peers of ours. I don't like it at all. But no, we're -- it's the same competition that we've had. And for us, like again, our sweet spot -- first of all, people are still willing to make a deal with us because they know we're going to close a deal. And I guess that's the same with our competitors. But the difference between us and the competitors, you don't see the competitors doing these small deals. Like we look at big deals, we look at small deals. On the huge deals, right, CareTrust, Omega and the others are always going to beat us by pricing. It's not even close because they're willing to go 8%, 8.5% cap and we stay at the 10%. And then you have small deals like we've talked about before in the past, like we have an owner-operator kind of deal, and they're willing to overpay because for them, they're going to be the administrator there, their wife could be the dean, right, or it could be their children with them. It's like -- so for them, they don't have they have a different setup on how they operate and where their money is coming from. And if they get a less of a return on their capital, that's okay for them. It becomes a family or a legacy asset. And for us, we have the shareholders to think about, and we just stay within our model. With that, again, we -- that soft spot between -- or that sweet spot for us between, I'd say, $20 million to $50 million deals, that's where we have a good shot at getting those deals. And then we also have these smaller deals that people come to us and just -- they don't even market it. And so that's where our deals come from. Like the last few deals we did, these were all deals that, that they came to us. They didn't put it through a broker per se, and they said, this is a deal we -- that's for you guys and you want it. And we've done it, includes a couple of deals in Oklahoma and a couple of deals in Texas. And with those same sellers, we have other deals that we know we're going to end up buying from them. So it's going to -- they're creating part of our pipeline. They're happy with the way we close a deal and the way we do business that they want to do business again with us and bring us another deal. Barry Oxford: Perfect. Then just kind of switching gears real quick. The G&A was lower by about $500,000 or $600,000, which is a good thing. But is that a good run rate? Or will we see it move back up closer to the $2 million level? Moishe Gubin: Greg, do you know the answer to that? I think he's on mute. Greg Flamion: I haven't really looked at the run rate for next quarter. I mean, to be honest with you, we -- Q4, I would expect this to kind of tick up a little bit more. So I guess if you want to answer right now, I'd say that we'll probably be closer to the $2 million. But I can give you a better answer, I guess, after the call, if you wish. Moishe Gubin: I could just -- just from a practical thought, we haven't added a new employee since I think maybe the first quarter when we added an asset manager, I think that was first quarter. We did hire a new lawyer, but we replaced a lawyer that was leaving after 14 years with us, and we brought in a new lawyer and it was relatively budget neutral. So from that, we talked about in the past, my personal compensation that hasn't changed. And as far as Board fees goes, that stayed exactly the same. We haven't raised Board fees in 3 years or 4 years. So that's, I guess, another positive about us. Only other thing that's out there that may be some -- that could be some G&A is legal, and that could be based on deals and financing and some other things that maybe makes one period more wonky. Doing -- having an ATM, which we haven't been using because the stock price isn't good, we still have to pay for comfort letters and all this and some of the work that needs to go for the ATM for the accounts and law professional fees. But at this point, it's the same quarter-over-quarter. It's not -- we're not doing something new that's going to have a bunch of fees associated with it. So I would bet you that it stays relatively flat to what you see, give or take, put yourself plus/minus a small margin percentage difference. But because there are payroll differences, some quarters have an extra payroll and others don't. So that should be the answer. Operator: Our next question or comment comes from the line of Mark Smith from Lake Street. Mark Smith: You've talked a bit about kind of liquidity and ability to finance additional acquisitions. I'm curious kind of your ability or thoughts around using stock more in future deals? Moishe Gubin: I love this question. One thing that gets lost in the investor public is that -- and I'm going different than what your question is, and I'm going to try to remember what your question is when I answer it. But is that one thing that gets forgotten is when we issue a bond series in Israel, the bond series has capacity for a couple of hundred million dollars more than we closed. So when we ever needed cash, if there was ever -- there's an investor public out there that might think, well, we might need cash and we're not going to be able to get the cash. In our case, because we have an approved bond series that's a lot higher than what our bonds are than what we actually took, we have availability of money at the original -- and a private placement would be at the trading price, not at the coupon price. So in theory, if it's trading higher, then we're getting paid a premium to issue more bond debt under a series that already exists in the past. That being said, as far as equity goes, I would love to sell equity. I would love to get more shares out in the public. I would like to get more liquidity in the stock. I would love to have more institutions be able to trade at larger volumes of stock. We've done a bunch of deals so far where we paid -- where we've been able to do stock. The last deal was the Missouri deal, where I think they took $2 million in stock or $3 million in stock. And they're actually happy with it. We had an investor call with them and walk them through their return, and they were happy with the stock. And I don't know if they're accumulating more at this point, but they're still holding it and they're happy to hold it. We need our stock to move. I don't know what the catalyst is at this point. Maybe we get into a really big deal and then we do a roadshow and sell a bunch of stock at a decent price and then maybe that will be the catalyst to make more trading happen and get more -- get the volume up. I mean our AFFO is at this point, it's going to be a run rate of like $1.30, $1.40 for the year. Based on an average of 13% or 14% AFFO multiple, I mean, our stock is trading at a 40% discount or something like that. I mean it's ridiculous. So I don't want to sell stock and dilute. The reality is our NAV is still probably at or around what -- where the stock is trading. It's not a metric we use for anything other than me being conscientious thinking about my shareholders and not wanting to dilute anybody. And that could be maybe a holdup that I shouldn't have, but I kindly use that to -- I'm looking out for the shareholders that they shouldn't be diluted. I know my peers don't care about that, and that's why like one of the slides, if you look at the deck, sees where they have a negative AFFO growth, and that's because they had to sell equities so they could pay a dividend. And that ends up hurting the shareholders. But I don't know, Mark, I don't know if I answered you, but that's my take on it. I would love it if somehow our stock got to be in a normal range where I could just go then do an offering so that all my IBs can make a little money and we can bring in institutions and we could be off to the races. And that's what I'm hoping that happens at some point soon. Mark Smith: I did also want to ask just if there's any impact on you or your operators here with the government shutdown. Moishe Gubin: Zero. The only impact that we have at Strawberry is we have stuff stuck in the HUD queue that they're not working. And without the HUD folks being able to process changes, we have a little bit of limbo on certain things, but money makes the world go around. And in our world, thinking about it from that point of view, business is good. We're collecting all our rents. We're meeting all our obligations. And so it doesn't have a real impact. But reality is I have a bunch of the loose ends that we'd love to tie up that aren't necessarily financial things. They're just things that have to get tied up so that we -- everything is tucked in so we can go to sleep at night. So that's really the only thing that affects us, my tenants. I don't -- I hear a little bit of noise regarding surveys because if they're not paying for that, there's not people that could go out there and survey them. We had that problem maybe 6, 7, 8 years ago, and it ended up becoming a disaster because by certain regulations require the regulators to -- anytime they hear a complaint or this or that, they actually have to visit the property and inspect, investigate the complaint. And if they're not working and you have a buildup of 6 months' worth of complaints because they don't act on a day 1 when they were working, right? So it takes some time. It ends up being they show up in a year from now, but something that happened a year ago, and then they say you did something wrong a year ago. And they say, well, but as of now, we already fixed everything. It's not -- they didn't do anything wrong today. And then they say, well, we have to give you a fine retroactively back there. And so there could be some kind of exposure there. But again, I've argued over the years, the operators are seasoned people that know what they're doing. And even more importantly is they're nimble enough to recognize that there's ups and downs in business, especially in the nursing home business. Corona is the exception of being the craziest thing that any of us have seen, right? But like in a regular world, you have ups and downs, labor disputes being one example that happens, unfortunately, time from time and reimbursement being down and then up and down, that just happens. So like the guys that know this business and are really in it because they really care about residential, but they also want to make a living. They are a business in the end. So they recognize that there's going to be ups and downs. So if there's something that is a little negative that comes out of this, so be it. It will be okay. Operator: [Operator Instructions] Our next question or comment comes from the line of Viacheslav Obodnikov from Freedom Broker. Viacheslav Obodnikov: Can you hear me clearly? Moishe Gubin: Yes. Viacheslav Obodnikov: Great. And yes, my question is on capital allocation strategy in the context of the current market. As you said, there is a very huge discount, implying about 16% to 18% annually. And maybe could you walk us through how the Board weighs the immediate and certain accretion from a share buyback against the returns from a new property acquisition? And at what point does the valuation gap become so compelling that maybe buybacks would take precedence over even a good acquisition? Moishe Gubin: Jeff, if you understood that, you can answer that. Jeffrey Bajtner: He was asking -- I believe he was asking if we plan on doing a share buyback program to help get our stock price. Viacheslav Obodnikov: I can rephrase actually. like there is a kind of huge discount and it implying a huge for investors about 16% to 18%, right? And there is like another decision to invest into new interesting opportunities in the market. And maybe you could walk us through how the Board thinks about those 2 decisions, like buyback against new acquisitions? Moishe Gubin: So that's a really good question. The pluses and minuses of that dialogue are we recognize the need for more shares in the marketplace, not less shares in the marketplace, counterbalanced by the fact that we can buy back shares at a discount. That's true. And we've utilized it when like the stock really egregiously linked at $10 a share. We've used the buyback program that we have on file. We've used that a little bit to prop up the stock, small. It hasn't been anything big. We still feel that -- and this is not something that comes up a lot. This comes up conversationally randomly, and it hasn't come up so recently because the stock was at more -- it was over $12 again. But our model, if we continue doing exactly what we're doing and we ignore for this conversation, we ignore the stock price and we keep returning the collective AFFO growth plus dividend yield of a 17% return, we feel at some point that should be recognized by the investor public. And if we take the cash that we're producing and we use that cash to be able to continue the growth the way we're growing, that meets our objective as a company to keep growing with a disciplined approach and making the high double-digit returns and building a portfolio that will continue to pay and doing it the right way, meaning we're not squeezing our tenants like a lot of other people. We have that set model and how it works, which I think is fair that we put capital out there, we take risk because this is -- it's not the simplest business to be in. And we take the risk. And for that risk, we're getting a 10% return, which we compound by doing what we do by adding debt and this and that, 10% return, I think, is fair. So -- but what you're asking is a good question because in reality is we could go and do that and then bring the stock price up. But then if there's less shareholders, there's less liquidity. And then inevitably, if somebody sells, it will kill the stock price again at some point. So I don't know. At some point, if our model stops working because the stock is just not found favorable, we'll have to do something. And I don't know if that is a fix, but it will be something that we look at. Viacheslav Obodnikov: Just a quick follow-up about the last call. There was a discussion about Illinois remains a laggard from a reimbursement perspective. Could you please kind of contrast the regulatory and reimbursement environments in kind of newer states where you're starting to invest much more against the legacy markets? Moishe Gubin: Yes. So again, to reiterate what we said in the past, right, there's two basic types of reimbursement in the country for Medicaid. There's price-based and there's cost based. The cost base is simply put, you get reimbursed for what you spend. And in those states are typically red states. And in those red states, you don't have any labor issues because you're able to pay people more because you get reimbursed more. It's almost every dollar you spend on a nurse or CNA, you get it back from the government. So you might as well take care of your staff easier because you have the money. Illinois is price-based. And that's basically the government gives you an allowance and says live within your means. But at the same token, in that case, I'm using labor as an example just because -- in that case, you have the employees that need to make more money because things are costing more money. And it's like an impasse because you want to give them more money, but the state doesn't give you more money to give them, and it's tough. So our portfolio in Illinois is performing. It's just -- you have some that are doing amazing and you have a bunch that are -- an amazing I'm talking about is rent coverage. I'm not talking about anything else in that example. Collectively, they're positive and everyone is paying rent. But you have laggards. And what's going on for our portfolio, the biggest tenant in Illinois for about almost half the portfolio is stuff that I personally have an ownership interest in. And we've announced that it's known where if we have an opportunity, we will start divesting out of not the company, but the tenant, which is related to the tenant. We will stop being in operations in some of these buildings because a mom-and-pop operator can do a better job because they don't have a corporate overhead of managing a bunch of homes. So our Illinois portfolio as the landlord, hopefully, I didn't confuse anybody here by mixing landlord tenant kind of deal. But on the landlord side of things, we're getting our rent. The rent coverage is sufficient. It's over 1. I don't know exactly the number for Illinois, but it's something. And it's still a laggard. Illinois is the biggest laggard. And that's because -- and that's really because the state has to catch up with the costs, and they will. At some point, they always do. And in fact, the union in Illinois actually is a help because they recognize -- for the most part, they recognize that the government has to raise the money, and they were out there lobbying and trying to push for their members, they're pushing to try to get that the reimbursement should go up so that there's more money to pay their employees -- to pay their members. So I think I answered your question. At the end of the day, Illinois, any price-based state, which really Illinois is the only one in this example that we have is the laggard and it's always going to be a laggard because the only way that it improves is that the state legislature has to be the ones who vote to increase rates because there's no set methodology that says, okay, you spend X and therefore, we'll give you back X. We'll reimburse you that X in year 2 or year 3, whenever they do it like the other states. And in this example, they just -- the legislature has to say, okay, the nursing homes are allowed X amount of millions -- billions a year, and we have to give them more money because they have to cover their expenses and it has to happen that way. So I think I answered your question. Operator: I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Jeff Bajtner for any closing remarks. Jeffrey Bajtner: Thank you so much, and I'd like to thank everybody for joining us today. On behalf of myself, Greg and Moishe and the team here, we continue to work hard on behalf of our shareholders, making disciplined acquisitions and ultimately working on getting our stock price up. So if you have any questions on all our presentations in the back, there's both my e-mail address and Moishe's e-mail address, we're always available while connecting with our shareholders and investors. Have a great weekend. Thank you. Moishe Gubin: Thank you, everybody. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Good day, everyone, and welcome to the EOG Resources Third Quarter 2025 Earnings Results Conference Call. As a reminder, this call is being recorded. For opening remarks and introductions, I will turn the call over to EOG Resources Vice President of Investor Relations, Mr. Pearce Hammond. Please go ahead, sir. Pearce Hammond: Thank you, Betsy. Good morning, and thank you for joining us for the EOG Resources Third Quarter 2025 Earnings Conference Call. An updated investor presentation has been posted to the Investor Relations section of our website, and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, this conference call includes forward-looking statements. Factors that could cause our actual results to differ materially from those in our forward-looking statements have been outlined in the earnings release and EOG's SEC filings. This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG's website. In addition, any reserve estimates on this conference call may include estimated potential reserves as well as estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Yacob, Chairman and Chief Executive Officer; Jeff Leitzell, Chief Operating Officer; Ann Janssen, Chief Financial Officer; and Keith Trasco, Senior Vice President, Exploration and Production. Here's Ezra. Ezra Yacob: Thanks, Pearce. Good morning, and thank you for joining us. It's been a significant quarter for EOG, one that marks both a pivotal strategic milestone and a disciplined continuation of our financial framework. As you know, we have successfully closed the acquisition of Encino in early August. This transaction strengthens our portfolio, cementing a third high-return foundational asset, diversing our production base and accelerating our free cash flow generation potential even during a more dynamic commodity environment. This acquisition was part of an exceptional quarter where EOG once again delivered outstanding operational performance that has translated directly into strong financial results. For the third quarter 2025, oil, natural gas and NGL volumes exceeded the midpoints of our guidance, while capital expenditures, cash operating costs and DD&A all came in below guidance midpoints, resulting in $1.4 billion of free cash flow, $1.5 billion in net income and $1 billion of cash returned to shareholders through our regular dividend and share repurchases. Through the first 3 quarters of this year, we have committed to return nearly 90% of our estimated 2025 free cash flow, including $2.2 billion in regular dividends and $1.8 billion of share repurchases. In today's dynamic energy equity environment, share repurchases are especially compelling, and we expect to remain active in our buyback program, further enhancing returns to shareholders through the cycles. EOG's value proposition is guided by our strategic priorities of capital discipline, operational excellence, sustainability and culture. Our continued outperformance this quarter and throughout the year demonstrates consistent execution of our value proposition by teams across EOG's premier multi-basin portfolio, while our cash return performance highlights our unwavering commitment to disciplined value creation for our shareholders through industry cycles. I want to highlight 4 key differentiators that set us apart and position EOG to deliver value to our shareholders in a dynamic market. First, our diverse high-return portfolio with a deep inventory of opportunities. We invest at a pace that generates high returns while optimizing both short- and long-term free cash flow generation. Our foundational assets in the Delaware Basin, Eagle Ford and Utica continue to underpin our activity, driving strong full cycle returns, while our emerging plays, Dorado and the Powder River Basin are making tremendous progress on improving well performance and lowering costs. And our consistent focus on exploration, both domestically and internationally, gives us confidence in our ability to continue improving one of the industry's highest quality portfolios. We are especially excited about the potential for international unconventional development through our entry into the UAE and Bahrain. Our differentiated exposure to both North American liquids and natural gas as well as international unconventionals positions EOG to benefit from medium- and long-term growth in all 3 areas, creating multiple avenues for future value creation. Second, our focus on lowering breakeven costs. Each year, EOG utilizes data and technology to drive continuous operational improvements, capturing incremental efficiency gains and identifying opportunities to reduce our cost structure. In addition, at times, we make strategic infrastructure investments that further lower costs. In the past year, we've brought online the Janus gas processing plant in the Delaware Basin and the Verde natural gas pipeline connecting Dorado to the Agua Dulce hub. These high-return strategic infrastructure projects helped further reduce our breakeven costs by enhancing reliability, lowering operating expenses and improving price realizations. Operational execution and investment focused on improving our broader asset base not only strengthens our resilience in a lower price environment, but also improves margins and returns for shareholders through industry cycles. Third, our commitment to generating sustainable free cash flow. Our low-cost structure drives robust, sustainable free cash flow generation, supporting EOG's regular dividend as well as additional cash return to shareholders. EOG has generated annual free cash flow every year since 2016 and has never cut nor suspended its dividend in 27 years, a remarkable track record that is a testament to our resilient business model and represents a key differentiator versus peers. And fourth, EOG's financial strength. Our pristine balance sheet is anchored by a leverage target of less than 1x total debt-to-EBITDA at bottom cycle prices of $45 WTI, $2.50 Henry Hub. With nearly $5.5 billion in total liquidity, we have tremendous capacity and flexibility to invest through the cycle, ensuring EOG emerges from any downturn an even stronger company than when it entered. On commodity fundamentals, the impact of spare capacity returning to the oil market is slowly becoming evident. We expect inventories to continue to build as it will take a few quarters for growing demand to absorb spare capacity barrels reentering the market. Beyond near-term oversupply, evolving geopolitical risk, the rapid decline in spare capacity, reduced investment in new supply and further demand growth will remain key drivers of the oil price. Looking past the few -- the next few quarters, we see constructive support for oil prices. And turning to natural gas. Our outlook remains positive. U.S. natural gas enjoys 2 structural bullish drivers, record levels of LNG feed gas demand and growing electricity demand, which should provide price support. Our investments to build a premier gas business has EOG poised to deliver supply into these growing markets. Looking to 2026, it's too early to provide specifics on activity and capital spending. Our capital allocation remains driven by returns-focused investments, our view on the outlook for supply-demand fundamentals and a reinvestment pace that supports continuous improvement across our multi-basin portfolio. This disciplined approach allows for optimal development of our assets while balancing both short- and long-term free cash flows to drive higher cash returns to shareholders. 2025 has truly been a transformative year for EOG with the successful acquisition of Encino as well as our strategic entries into the UAE and Bahrain. And moving into 2026, EOG is better positioned than ever to execute on our value proposition and create shareholder value. Now here's Ann with a detailed review of our financial performance. Ann Janssen: Thank you, Ezra. As Ezra mentioned, the closing of the Encino acquisition in early August is a significant event for EOG. The acquisition enhances the foundation of our value proposition, sustainable value creation through industry cycles, and our financial strategy remains unchanged, a pristine balance sheet to support a sustainable growing regular dividend, disciplined investment in high-return inventory and significant cash return to shareholders. The third quarter is an excellent example of this strategy at work. We generated adjusted earnings per share of $2.71 and adjusted cash flow from operations per share of $5.57. In the third quarter, free cash flow totaled $1.4 billion and through the first 3 quarters of this year, EOG has generated $3.7 billion in free cash flow. Regarding our balance sheet, following the funding of the Encino acquisition, we ended the quarter with a robust cash position of $3.5 billion and $7.7 billion in long-term debt. Our balance sheet continues to serve as a pillar of our financial strength. Our leverage target of total debt at less than 1x EBITDA at bottom cycle prices remains one of the most stringent in the energy sector, and we continue to view our pristine balance sheet as a competitive advantage, providing both protection in volatile markets and the ability to strategically invest through the cycles. During the third quarter, we continued our history of significant cash returns to shareholders, anchored by our robust regular dividend of nearly $550 million and supplemented by nearly $450 million in share repurchases demonstrating our commitment to both sustainable and opportunistic cash returns. For calendar year 2025, we have paid regular dividends of $3.95 per share, representing an 8% increase over calendar year 2024. On October 31, we paid our latest regular dividend, which was $1.02 per share, equating to an annualized rate of $4.08 per share or a 3.9% dividend yield at the current share price. This dividend yield significantly exceeds the S&P 500. Our sustainable and growing regular dividend forms the foundation of our cash return strategy. We also have other incremental levers such as share repurchases, providing an avenue for further cash return through industry cycles. Since initiating buybacks in 2023, we have repurchased nearly 50 million shares or approximately 9% of shares outstanding. We have ample flexibility for additional share buybacks with $4 billion remaining under our current buyback authorization. In the past 5 years, we have returned over $20 billion to investors through a mix of dividends and share repurchases. For the full year 2025, we are forecasting a $4.5 billion in free cash flow, a $200 million increase in annual free cash flow versus our previous forecast at the midpoint of guidance. This increase is driven by outstanding performance through the first 3 quarters of 2025 and strong fourth quarter guidance that leaves us well positioned entering 2026. In summary, EOG delivered another outstanding quarter. We strengthened our portfolio, maintained the robustness of our balance sheet and position the company for sustainable value creation through commodity cycles. As we look forward to next year, we remain focused on what we can control, operational excellence, cost discipline and capital returns. With that, I'll turn it over to Jeff for an update on operating results. Jeffrey Leitzell: Thanks, Ann. First, I want to recognize the exceptional dedication of the entire EOG team. Consistent outstanding execution across every part of the organization is what enables us to convert our operational strengths into value for shareholders. We had another strong quarter of execution across the business. Our teams continue to deliver consistent results, meeting or exceeding expectations on nearly every operational metric. Production volumes outperformed, largely driven by stronger-than-expected base production performance in our Utica asset, while capital expenditures were below target, supporting strong free cash flow while keeping us on track for full year guidance. Cash operating costs also came in under target, dominantly driven by reductions in lease operating expenses and GP&T across our foundational assets. These strong quarterly results reflect the quality of our assets and the continued discipline of our operating culture. In the Utica, the Encino integration is progressing exceptionally well. I want to thank all of our employees, including new employees from Encino for their efforts in efficiently integrating this asset and fast tracking the execution of high-return development. We have excellent line of sight to realize our $150 million of synergies target within the first year and lower well costs being the primary driver. We are extending EOG's culture and multi-basin portfolio of learnings, innovation and technology transfer to the acquired assets with excellent outcomes thus far. By applying EOG's drilling and completions technical expertise across the acquired Encino acreage, we have already realized strong efficiency gains. As a result, we can maintain the same targeted 65 net well completions for 2025 while reducing our Utica rig count from 5 rigs down to 4 for the remainder of the year. With respect to production, over 80% of the applicable Encino wells have been placed on artificial lift optimization. Moving forward, we anticipate continued efficiency gains and strong field performance as we implement EOG's operational best practices and our suite of proprietary software applications. During the third quarter, EOG brought online our first well in the Utica gas window. [ The Bakken ] wells each had an average 30-day IP of 35 million cubic feet per day. This was a 3-well package with average lateral lengths of just under 20,000 feet. Our focus in the Utica will remain on the volatile oil window, but we are extremely pleased with the potential upside from the Utica gas window over time. Turning to the Delaware Basin. We are pleased with our recent well results, which are on forecast and in line with our development strategy. Our teams continue to drive operational improvements that are helping us to unlock additional value from this already prolific asset. Over the last several years, innovations like our EOG motor program, super zipper operations, high-intensity completions and production optimizers have allowed us to lower cost and improve returns across our acreage. Throughout our core areas, we have built out our surface locations, facilities and gathering systems, and we'll be able to take advantage of this infrastructure when we return to these areas to continue development. Another major driver in well cost reductions has been longer laterals, where we have increased our average lateral length by over 20% in 2025 alone. Overall, we have lowered well costs more than 15% over the last 2 years. Due to this positive step change in capital efficiency, we continue to evolve our development approach to balance returns with resource recovery. This has enabled our team to unlock additional distinct landing zones that now meet or exceed our stringent economic hurdle rates and increase our total recovery per section. We see outstanding economics on these new targets with payback periods of less than 1 year and direct well level rates of return across both shallow and deep targets in excess of 100% at current prices. In the Eagle Ford, economics continue to improve even after 15-plus years of development. For our 2025 program, we have reduced our breakeven price by 10% due to extended lateral lengths and reductions in both well costs and operating costs. Moving forward, we will continue to leverage technology and efficiency gains to drive strong returns and margin enhancement across the Eagle Ford play. In Trinidad, we have completed the first wells of our Mento program and are extremely pleased with the initial results. For 2026, we plan to commence installation of the coconut platform, reflecting further investment in our high-return Trinidad program. Finally, we are advancing the Barrel oil discovery towards FID with our partners and look forward to giving you an update in the near future. In the Gulf States, our exploration programs are moving forward, and we are pleased with our progress. We drilled our initial wells in Bahrain in the third quarter and will spud our first well in the UAE this quarter. We are excited about these opportunities that allow us to leverage our technical expertise and extensive data set from drilling thousands of unconventional wells across a wide variety of plays. The opportunities in the UAE and Bahrain are just another example of EOG's focus on exploration as we continue to look for organic ways to improve and expand our inventory. Regarding service costs, as industry activity has decreased in the second half of 2025, we are seeing some softening in the market. The majority of these decreases have been associated with non-high-spec equipment since these are the first to be released and become available. For the high-spec services that EOG utilizes, we have observed much more resilient pricing with utilization remaining high. We have just recently started seeing a low single-digit reduction in spot rates for high-spec equipment, but this has largely been offset by the impact from tariffs, primarily on non-casing steel products. As we look to the future, we currently have around 45% of our service costs locked in for 2026, and we'll look for opportunities throughout the next few quarters to take advantage of any additional softening in the market. Regardless of how service costs shake out, we remain focused on delivering sustainable efficiency gains year in and year out. After an outstanding third quarter, we are poised to finish 2025 strong and enter next year with tremendous momentum. Now I'll hand it back to Ezra to wrap up. Ezra Yacob: Thanks, Jeff. In closing, let me highlight a few key messages. First, this has been an exceptional quarter for EOG. We strengthened our portfolio with the successful completion of the Encino acquisition, maintained a robust balance sheet and further position the company for long-term value creation. Second, today's dynamic market environment is exactly what EOG is built to excel in. Our diversified portfolio enables ongoing investment in high-return projects, while our low breakeven costs drive strong free cash flow that supports both our regular dividend and additional shareholder returns. Our industry-leading balance sheet remains the cornerstone of our financial strategy, ensuring value creation through every phase of the cycle. Third, EOG holds a distinctive position in the upstream sector with access to a deep inventory of growth opportunities spanning North American liquids, North American natural gas and international conventional and unconventional plays. Our continuous data collection and development of proprietary technology reinforce EOG's culture of innovation and exploration, keeping us at the forefront of industry advancement. And finally, this quarter's results highlight the enduring strength of EOG's value proposition, anchored in capital discipline, operational excellence, sustainability and a high-performing culture. Thank you for your continued interest in EOG. We will now open the line for questions. Operator: [Operator Instructions] The first question today comes from Neil Mehta with Goldman Sachs. Neil Mehta: Appreciate One macro, one micro question. So the macro, Ezra, you guys do really good macro work, especially given the analytical department that you set up a couple of years ago. And it sounds like on oil, you guys got a pretty cautious near-term view, but a more constructive medium-term view. And on gas as well, you had some comp. So can you just unpack it and maybe put some numbers behind your viewpoint because I know everything you say is backed up by some analytics here. Ezra Yacob: Yes, Neil, this is Ezra Yacob. That's a great question. I like how you phrased that, cautious near-term constructive medium and long term. I think broadly, even in spite of a lot of rather daily or weekly volatility, I don't know if that much has changed in our broad view since we discussed it last quarter. We continue to see fairly consistent and what I would call moderate demand growth for 2025 and continuing into 2026. The volatility earlier this year with uncertainty around potential tariffs has generally eased as that policy -- as those policies have become a bit more transparent. And what we see, as I spoke to in the opening remarks, driving near-term fundamentals is the spare capacity return to the market, rather -- the spare capacity return to the market is really causing concern more so than investment in significant new supply. And that's an important distinction because what we forecast with continued growth in demand is while the near term looks to be oversupplied, like you mentioned, we have a potential where you could rapidly see us move from an undersupplied environment to -- from an oversupplied environment in the near term to an undersupplied environment really in the medium term. And it actually sets up for us that we end up being quite bullish when we look out longer term on the supply-demand balances for liquids in light of the reduction in spare capacity and the reduction in investment that you see right now in combination with there's always going to be ongoing geopolitical risks. And then we also see a continued long runway for demand growth to continue. That's on the oil side. On the natural gas side, as I mentioned in the opening remarks, again, we see 2025 as being kind of that inflection point, and it's playing out that way. While you do have storage approaching the 5-year -- really about 5%, I think, above the 5-year average, we are seeing the increase from LNG demand for feed gas, and we're really starting to see the increase in electrical demand continue. Our forecast has always been that kind of the back half of the decade we'll end up seeing somewhere around a 4% to 6% compound annual growth rate. And I think you're starting to see a number of forecasts actually even exceed that range for North American gas demand. Neil Mehta: Good perspective as always. And then the follow-up is a little bit more micro. We recognize well data can be super noisy, but we've got -- there have been a lot of attention on the Delaware, in particular, and some of the third parties around productivity data coming in a little bit softer. And that times up well with people getting concerned about Permian maturity around some of the wells. And so I wanted to give you an opportunity to address that directly and help potentially comfort the market around that risk. Jeffrey Leitzell: Yes, Neil, this is Jeff. And as we just talked about in our opening remarks, our Delaware Basin wells, they're performing just as we have them designed. And it's really just a continued evolution of our development strategy out there, which ultimately, our team is fully focused on taking that asset and maximizing the value. The first thing that I'd tell you, the team's focus on is they're always looking to balance returns with maximizing NPV per acre and the overall recovery of the acreage. And what we've really seen over the last handful of years just through innovation and efficiency gains is we've really lowered the cost there in the Delaware and seen a pretty big step change in our capital efficiency of the play. A couple of examples of that is we've increased our lateral length this year alone 20%, which has really helped cost. And when you look at that cost reduction, we've had about 15% reduction over the last 2 years. And then on top of that, through all of our core areas, we've been able to build out our infrastructure. And whenever we return to these sections, we're able to use that infrastructure for a benefit. So when you take all this and you add it all up, what we've been able to do is unlock additional unique landing zones there in the Delaware that they're meeting right now our stringent economic hurdle rates at bottom cycle pricing. And what I'd say about these zones is they really vary all the way up and down the stratigraphic column. and they kind of vary from area to area. But really, if you look at this kind of development progression, it's very similar to what we've done in other plays. I mean, take the Eagle Ford, for example, we lowered well costs there. We applied new completion technology, and we were really able to unlock additional resource in that play. And you're seeing the same thing out here in the Delaware. And then the important thing to really take away with this is that these new targets have just outstanding economics. With payback periods, they're less than a year. And then at the direct well level rates of return, I mean, they're greater than 100% at current prices right now. So I'd say our teams are really excited about the progress they're making with the program, and they're going to continue to look for innovative ways to drive down cost, keep improving well performance and unlock as much resource as we can out there in the Delaware. Operator: The next question comes from Steve Richardson with Evercore. Stephen Richardson: Ezra, I was wondering if we could talk a little bit about '26. I know you said explicitly, it's too early to talk about '26. But I was wondering maybe you could -- if we take fourth quarter CapEx, which is a number you just guided to and annualize that, I know there's a whole bunch of problems with that framework. But I was wondering if you could kind of talk about activity levels today and what that may look like as you roll forward or even just some of the considerations up, down international, Utica after you've had it under your belt for 3 months. So just wondering if you could just kind of go around the portfolio and maybe just give us a sense of how you're thinking about things with the macro backdrop you just outlined. Ezra Yacob: Yes, Steve, thanks for the question. I know usually, there is a lot of pushback on using a fourth quarter number as a run rate. I actually think in our case right now with where we see the macro environment, under the current macro environment, which I appreciate you prefacing with that, I actually think the Q4 run rate is probably a pretty good spot for everyone to start with, to be honest, because as you said, some of the puts and takes. Now again, it is a dynamic market. So you've got a lot of potential for things that can change. But as we see the market going forward on the oil side being likely oversupplied for the next couple of quarters, maybe that turns over pretty quickly next year, maybe it pushes out a little bit further. But really, on the oil side, we see next year, as we sit here today, is really probably being no to low oil growth and low oil growth would really mean that in the next few months, we're seeing maybe the potential for some oil supply to increase in the back half of the year. But right now, it's pretty difficult to see the market asking for increased supply in the front half of the year. So I think no to low oil growth. We obviously are going to continue to invest in our gas play, as we've talked about at Dorado, as we've talked about trying to build a premier gas company basically inside of EOG. We're ramping up our LNG commitments over the next few years. We continue to see, as I talked about at the beginning, kind of 2025 being an inflection point for North American gas demand. So I think continued investment in Dorado. And then we have continued investment in the international at a pretty similar pace to what we're doing today. We do have another platform under construction there in Trinidad, but we've had an active drilling campaign there for this year. And then with the Q4 number, we've actually started investing in both the UAE and Bahrain, and we'll have some consistent activity going there as well. I think, again, with the purview of the asterisk that it is a dynamic environment. I think those are kind of the puts and takes, Steve, that I'd be looking at. And I think, like I said, the Q4 run rate is probably a pretty good starting point. Stephen Richardson: That's great. We won't hold you to it, but that's a really good starting point, fourth quarter times 4, it is. Maybe one a little bit more on the asset side on the Utica, but I was wondering if you could talk about how you're thinking about oil gathering and market access there. The movement in what the asset has done to your corporate differentials is meaningful. And I know you've got a number of ways to solve that either third party or like you've done yourself in other instances. So I was wondering if you could talk about that and the time line at which we could see something there. Jeffrey Leitzell: Yes, Steve, this is Jeff. When we think about the oil markets up there, first off, there's plenty of market for the molecules. That's not the issue. Really, what we focus on up there is going to be the differentials. And as you actually alluded to, our premium oil differentials, they did narrow slightly since the Encino differentials were a little bit wider. And that's to be expected. Encino on that acreage, we were really active in the volatile oil window, and they were a little bit more active to the east of us, which tends to be a little bit more condensate related. So that's really where you're seeing the difference. And the way I look at it is with any play, over time and maturity, we'll be able to improve those oil differentials there, especially with the added scale from the overall acquisition. Operator: The next question comes from Josh Silverstein with UBS. Joshua Silverstein: Pretty big drop in the overall cost guidance this quarter, $0.25 here. Can you just talk about the drivers of this? Was it a function of adding the Encino assets and how we should kind of think about the costs looking forward into next year? Jeffrey Leitzell: Yes, Josh, this is Jeff. Yes, it's kind of right across the whole board with our operating expenses. We're seeing really good performance. So on the LOE side, we had about a $0.10 beat from midpoint, and that was primarily driven by lower-than-expected workover costs and compression costs across the whole company in most of our assets. And then also, we did see a little bit lower offshore LOE in Trinidad than what we had forecasted. On the GP&T side, we were about $0.20 below midpoint. And what that had to do with was our natural gas gathering and processing fees in the Eagle Ford and the powder came in a little bit lower than expected, which was good. And then also with us only having about a week under our belts before the last call, we had a slight forecast variance in the Utica due to the Encino acquisition. So that came in a little bit less on GP&T. And then also, everything else was looking pretty good. G&A was about $0.08 below midpoint. That was somewhat tied to the Encino acquisition there coming in under. And then DD&A also came in under, which primarily is related to a little bit better performance across the portfolio from an overall reserve standpoint and really good costs flowing through there to the pools. Joshua Silverstein: Got it. And then just going to the balance sheet and shareholder return profile. Now that you're post the Encino acquisition, how should we start thinking about the free cash flow allocation going into next year? Do you want to start trimming away at the debt that you guys have taken on? Do you want to build the cash balance up to that kind of $5 billion, $6 billion level? And then should we still be thinking maybe of that 70% plus of the free cash flow to shareholders? Ezra Yacob: Josh, this is Ezra. Yes, I think maybe I'll start with the last point there, that 70% commitment. Don't forget, that is a minimum commitment. The reason we came out with that 70% commitment of free cash flow return to shareholders that it's durable throughout the cycle. But as you know, you've seen we've basically exceeded that in the last few years, been closer to about 90%, I think low -- maybe 92% of free cash flow return to shareholders. Going forward, we love where our balance sheet is right now. Our total debt is right at our target of total debt versus EBITDA at bottom cycle prices at about 1x. And I think we're in a great spot with our cash position. As we talked about in the opening remarks with $5.5 billion of liquidity, it gives us a lot of opportunities to continue to invest throughout the cycle or look for small bolt-ons or other opportunities to build value for the shareholders. I wouldn't say that it's a priority to continue to build that cash balance at all. I think as Ann mentioned in the opening remarks, right now, we actually see continued return of cash to shareholders through stock buybacks as being a pretty opportunistic avenue that we have in front of us, not only for EOG, but really for the entire sector right now. Operator: The next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Ezra, I wonder if I could try and hit the inventory question. I know you haven't given a lot of updates today on that or sustaining capital for 2026. But my question is really more philosophical about how you think about managing the business. There's been a lot of focus, for example, on what is the Delaware inventory depth. You've already addressed that. But it kind of -- it's almost like folks are looking at, well, that means you can't sustain the production. So my question is, are you looking -- are you running the business to optimize production at basin levels? Or are you running the business to sustain portfolio free cash flow? And in other words, the interplay of the different basins? That's my first question. My follow-up is a quick one on exploration because obviously, you've stepped out into the international arena in certain areas. But our understanding is that EOG may be starting to build a position in Alaska. And my question is, what is your view of business development? Is Alaska part of your portfolio? What are your plans there in terms of incremental spending? And how should we think about that going forward? Ezra Yacob: Thanks, Doug. Yes, this is Ezra. I appreciate that you can get on. I know you're traveling a little bit. But listen, to start with the kind of the total portfolio and how I think about the business, multi-basin operations has always been a strategic advantage for us. We've got flexibility, diversity of rock types. We continue to collect data and learn about different reservoirs. It also puts us in -- gives us diversity of product mix and direct diverse access to different markets. And we've been able, as a first mover to really put together a high-return inventory of over 12 billion barrels of equivalents as we've talked about. And so I think with that, combined with our low-cost structure, really gives us a significant runway to continuing generating free cash flow in a very sustainable manner. As I mentioned in the opening remarks, we've actually generated free cash flow 10 years in a row now through a couple of different cycles. And I think it also demonstrates not only the sustainability of that inventory, but also our consistent focus on ultimately capital discipline, the company's commitment to capital discipline. Resource depth by play is part of what you're asking, and I'd say that's a really dynamic question. And Jeff addressed that with specifics to the Delaware Basin and the Eagle Ford example because as we continue to build infrastructure, lower well costs, we lower operating costs, and we continue to actually learn about the reservoir, the normal life cycle of any of these unconventional plays is that you'll unlock additional resources. We've seen it in the Bakken, the Eagle Ford, the Permian to a certain extent in the Powder River Basin. So as far as assigning a static number, the Permian, obviously, with its stacked play potential and the high level of landing zones is probably our top resource base. Utica and Eagle Ford based on sheer size, obviously, are very strong as well. And that said, we do have a slide in our deck that highlights the payout, the returns, the costs of all 3 of those foundational assets. And that slide actually does take into consideration the current differentials as well between the Utica, the Delaware and the Eagle Ford. And what you see is really all the economics are quite similar at the basin level in terms of the economics, which directionally points to the free cash flow generation of the potential of all 3 basins being pretty similar. And again, it's why we see a long runway for sustainable free cash flow generation of the current inventory. The way we think about the business is investing in each asset at the right pace at the right time. Part of that is a function of our learnings. Part of it is a function of our infrastructure and part of it is a function of generating free cash flow, Doug. So we really think about the individual basins individually, and then we roll them up to the company level. And at the company level, of course, we end up viewing the macro environment and then are, like I said, committed to capital discipline and generating free cash flow. Now on the second part of your question, Doug, as far as exploration, you know as well as anyone that exploration is really nothing new for EOG. It's long been a, I'd say, a cornerstone of our strategy is to use data and technology like I just talked about to continue to unlock reserves that are typically overlooked. We're not necessarily frontier basin type of a company. We've really built the majority of our inventory with the strategy of using data and technology to look for bypass reserves. And in fact, we've done that. We've invested in exploration in the last few years at times when really it's been a little bit unpopular, but we continue to see that as the best way to improve the quality of our asset base. And we think it's key to our high full cycle returns and our lower breakevens. So I think the takeaway really should be that we do have a pretty strong pipeline of projects that span the spectrum of -- from initial ideas to leasing to initial wells to maybe delineation wells. And so we feel very good about our exploration efforts. That being said, in the last 12 months, we have expanded our inventory pretty dramatically with the Utica acquisition. And I think our near-term focus really is continuing to integrate that asset, continuing to drive down our breakevens across all of our plays, especially in the Utica, continuing to invest in growing our Dorado asset. And then, of course, our investment in unlocking the potential that we see internationally in both the UAE and Bahrain. Douglas George Blyth Leggate: And you confirm the Alaska position? Ezra Yacob: No, Doug, as you know, you've been following us for a number of years, Doug, and it would be a first if we actually start talking about individual exploration plays. So we'll just leave that one for some time in the future. Operator: The next question comes from Leo Mariani with ROTH. Leo Mariani: I appreciate you all's comments on '26. certainly helpful here. Clearly, it sounds like on oil, a little concerned near term makes sense. On gas, obviously, there, it seems like you're quite bullish as we roll into 2026. So just curious there, do you view '26 as maybe the year where you can step up the Dorado activity a little bit to take advantage of that bullish outlook? Ezra Yacob: Yes, Leo, it's Ezra again. It's a good question. I will -- so we are bullish on gas. And part of the reason is because we have captured some markets to grow into. We see the electrical -- electricity demand has continued to grow. We're taking advantage of that right now really with our -- especially our capacity along Transco that delivers our gas into the Southeast power demand pool. But also, obviously, our commitments on the LNG side are increasing. The biggest thing with gas, though, as we saw last year, if we just look at the last 12 months, I might be off on this just a little bit, but we really exited last year's injection season right around the 5-year high. And then within about 6 or 7 weeks, we were at a 5-year low on the 5-year range with respect to storage levels due to a pretty cold winter, but I wouldn't say anything exceptionally out of the ordinary. And I think it shows the volatility of gas because here we sit today with storage levels, again, about 5% above that 5-year inventory level. a little bit of background, Leo, on the ultimate answer where I'd say our pace for Dorado, kind of like I just finished up with Doug, is ultimately going to be governed by keeping our full cycle returns high, which means continuing to develop that at an appropriate pace where we can keep our costs very, very low. I've talked about before how there are a couple of step changes for costs in any of these unconventional plays. The first is when you can really command a rig full time. The second is when you can get to a frac spread full time. And yes, '26 will probably get pretty close to that. But like I said, there is a little bit of flexibility still in the plan that we've baked in. Let's see how it plays out. Let's see where winter goes and really see how the LNG demand continues to increase. And that will kind of determine again our investment rate at Dorado. -- growth, again, ends up being an output of our ability to kind of invest in these plays, each of these plays at the right pace to drive those returns. Leo Mariani: Okay. I appreciate that. And then just wanted to jump over to Bahrain here. So it looks like you guys showed in your results a little bit of international gas production outside of Trinidad on the quarter. I know you drilled some wells in Bahrain in 3Q, like you said. So it sounds like there's some production on those wells. Just any kind of early time kind of read? Are those wells kind of hitting or beating expectations at this point? What are you guys seeing there in Bahrain? Keith Trasko: This is Keith. We're very excited about the positive momentum we have in the Gulf States. In Bahrain, we have a full team operating there. We've been granted that exploration concession in the partnership with BAPCO. That did allow us to take over a handful of legacy producing wells. That's the gas volumes that you see reported here in the quarter. As far as the expectations for those or the production on those, those are the same wells that led us to want to get into the concession in the first place. So they are a little bit older wells. They were part of the robust data set that we had before entering the country. So they're a little bit older. We have drilled our first few wells, first few new wells and we're going to look to starting completing them on this quarter. So we'll say we're gaining a better understanding on both the geology and the operations side in Bahrain. It's early days, but we're very excited about the opportunity here. Operator: The next question comes from Scott Hanold with RBC Capital Markets. Scott Hanold: Ezra, you were clear that you'd be willing to obviously extend above 70% of shareholder returns, especially at the attractive valuation right now. Looking -- obviously, it looks like you've already done about 1 million, at least 1 million shares of buybacks in the fourth quarter to date. What's your temperature on at this valuation to potentially push to 100% or even more this year? I mean, how compelling is valuation today versus, say, a year or 2 ago when you were closer to 100%. Ezra Yacob: Yes, Scott, thanks for the question. We've definitely got the flexibility and the strength of the balance sheet that would support going to higher levels than the 70% minimum and really going to the higher levels of the 92% that we've done in the past. Like I said, I think it's very compelling, not just for EOG, but really for all the sector. I think currently, energy's weighting is around 3% of the S&P 500. And so we see a large dislocation in valuations. And we see a large dislocation in valuation of EOG. And so I think it's a fantastic opportunity for us here when you look at the near term where it looks like there's the potential for continued oversupply, spare capacity entering the market. We're focused on capital discipline and continuing to generate free cash flow. And at this point, like I said, building cash is not -- on the balance sheet is not a priority for us. Our balance sheet is in a very pristine state where we like it. And so there is opportunities to return close to 100%. Scott Hanold: Okay. That's clear. And my follow-up, I think, is for you, Jeff. You mentioned obviously better base production performance in the Utica. Can you give us a little color on that? Was it some of the artificial lift efforts you did? Or was it just better performance of the reservoir as you all got into the Encino assets? Jeffrey Leitzell: Yes, Scott, thanks for the question. And it's really kind of a magnitude of the whole integration. And really, we've -- over just a few months, we've realized significant operational momentum just by putting all of our drilling completion and production expertise out there into the asset. So we've talked about the efficiency gains we saw on the drilling side. So we're actually dropping down 1 rig going from 5 to 4. So we're seeing really good performance on the efficiency side there. And then over on the production side, I think we've implemented the high-intensity completion design there now with scale. So we're starting to see some benefit from all of that. And then as you alluded to, too, as far as some of the legacy wells, we've moved over the full 1,100 wells to the EOG suite of proprietary applications. and that includes 80% of them that are the applicable wells. We've got them on the EOG artificial lift optimizers. So we're starting to see the uplift benefits from that. And as you alluded to, that's part of the reason that we see the beat there in Q3 out of the Utica. So still have a long ways to go, though. There's still technologies that we can unveil. There's still things from the efficiency aspect, but we're doing really well there in the Utica, and we're realizing a lot of the synergies and the production uplift that we expected. Operator: The next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: I wanted to ask a little bit more about the optimization and lower operating costs. I think you cited lower workover expense for this year. And I'm curious, is that really just specific to the integration that you're seeing in the Utica? Or is this broad-based around, I guess, just better reservoir productivity? Or are you just seeing better responses from reservoir performance across your assets that requires less workover intervention? Jeffrey Leitzell: Yes, David, this is Jeff. What I'd say is it's really across the whole portfolio. We're really seeing improvement where we're focusing on where major failures are. So a lot of it's going to be with our data and our analytics, understanding where failures are in each one of these wellbores and the different artificial lift systems and how to go ahead and alleviate those failures out of the front end. And then some of the additional technologies we actually talked about on our last call with some of these HiFi sensors where we're able to put it on subsurface and surface equipment we're able to monitor vibrations and other data real time to understand when failures may happen or even understand prior to failures, so we're able to catch them and be able to minimize the overall expense. So I really think it's just a credit to all of our teams out there that they're not leaving any stone unturned. We're making sure we take all of our data and apply it to all of our wells that are producing to make sure that we're minimizing the downtime and really maximizing the overall production across the portfolio. David Deckelbaum: Appreciate that. And Ezra, just given some of the commentary, particularly around spare capacity dwindling in the ensuing years ahead, how do you put that in the context of your appetite for just expanding in the areas where you're at? Or overall, I guess, your appetite for trying to hoard as much resource as you can sort of in the next, call it, 12 to 24 months period, either through M&A or just trying to organically focus on expanding resource? Ezra Yacob: Yes, David, it's a great question. And downturns are a fantastic time to explore because typically, a lot of companies -- if companies are exploring in a downturn, that's one of the things that's typically easy. That's a program that's easy for them to pull back on and reduce. As far as the inorganic, I think at this point, small bolt-ons are really some of the more fundamental blocking and tackling of trades to continue to shore up our acreage position is what you should be expecting from us. The Encino acquisition was very reminiscent of the Yates acquisition, which we did 10 years ago now, it was a bit of a unicorn that came along in an emerging asset with hand-in-glove acreage positions and fit. It's a very, very high return prospect for us, and we got it at a price because it was really an emerging asset that made it very, very compelling. Typically, in these emerging assets, you don't really have the opportunity to do something like that because as competition starts to see your well results, those price -- those entry points, the price points really start to increase. And for us, we look at any of these opportunities, inorganic or organic through a returns-focused lens. And so what I mean by that is any of our exploration opportunities really need to compete, and this calls back a little bit to Doug's question. It really needs to compete with the existing portfolio. We aren't really interested in just grabbing more inventory, quite frankly, we're continuing to have interest in expanding the quality of our inventory and continuing to improve the returns, really the full cycle returns that we can deliver to our shareholders. Operator: The next question comes from Betty Jones with Barclays. Wei Jiang: I wanted to ask about technology. EOG has always been on the forefront of integrating technology and big data. We're hearing a lot about AI models. So just want to get your take on the materiality of AI integration on your operations and exploration efforts and whatnot. And do you still see advantage of building these -- your capabilities in-house? Ezra Yacob: Yes, Betty, this is Ezra. AI at EOG, yes, we definitely see advantages and advantages, significant advantages to building a lot of our proprietary apps and software developments in-house, typically because we couple them directly with the field operations, things like Jeff has talked about, I think, on the last call with regard to our high-fidelity sensors, some of our downhole tools that we've got real-time measurement that's really making a big impact on the way that we operate and driving down costs. I'd say, broadly speaking, AI, and you've heard it throughout this earnings season, everybody mentioned something on their call. So I think it's clear that AI really is transforming the entire industry, the oil and gas industry. And it really is happening, I'd say, at every stage of operation from, as you pointed out, exploration throughout the field, including safety. And as you know, our journey has been maybe a little bit longer in the tooth than others. We started with smart technology really prior to COVID. And that's some of the technology that we put out on our centralized gas lift systems. I mean, we're coming up on almost 10 years of utilizing that really, which really manages and optimizes the amount of injection gas versus the production that you're seeing out of it. And we've, since that time, developed machine learning algorithms now that we utilize for not only that production optimization, but for other aspects of our operations as well. And it's just recently that we've started to develop some of the deep learning tools where you're really collecting, organizing and using significantly more types of data, including human observation and experiences, really experiential learning. And so while we're not quite to true agentic intelligence, we are using quite a bit of generative AI, not only to organized geologic data and attempt to uncover hidden trends, but we've got real-time drilling optimization. We're improving efficiency and equipment reliability. We've got predictive maintenance, process optimization, really some autonomous operations going on in the field. And then like I said, maybe I'll just finish up on the safety side. Safety is crucial in oil and gas, and AI is definitely helping our efforts in that regard as well, helping to detect anomalies, both on the emissions, spills and safety side throughout our different operation disciplines. Wei Jiang: Great. That's very helpful color. A follow-up probably for Jeff. Just curious on the dry gas Utica well drilled. What was the impetus to drill that well? And clearly, I see that more as a dry gas option in the portfolio. So what would it take, whether market or price related to trigger that option? Jeffrey Leitzell: Yes, Betty, this is Jeff. Yes, we're extremely excited about those Bakken wells. As we said, they came on, each one had individual 30-day IPs of around 30 million a day. So very, very strong. And they actually -- those were wells that we acquired. So we just completed those wells and brought them on production. So they were already drilled when we acquired them. But what I'd say is we're excited about those results, but we also know we've got a multi-basin portfolio all around the country. So we have a lot of flexibility to take advantage of all the different markets and be very strategic in how we're maximizing our price realizations and netbacks. And in the Utica, as in-basin demand continues to increase and we get some additional pipeline capacities in there and built out, we feel like we'll be well positioned to take advantage of it. But ultimately, I mean, when we're talking about gas growth within the company, we have Dorado, which is the lowest cost gas in the U.S. It's located right next to the Gulf Coast market center. There's a growing LNG market, as you know, and increasing demand growth. We've got a 21 Tcf resource down there, and we're just excited about the opportunities that gives us in the market. So realistically, up in the Utica, as we said, we're going to focus on the volatile oil window. We have opportunities to grow the gas in the future there. But really with gas growth, I'd say our focus is on Dorado. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Yacob for any closing remarks. Ezra Yacob: Yes. We appreciate everyone's time this morning and want to thank our shareholders for your continued support. And a special thanks to all of our employees and partners for delivering another outstanding quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Karat Packaging Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Roger Pondel. Please go ahead, sir. Roger Pondel: Thank you, operator. Good afternoon, everyone, and welcome to Karat Packaging's 2025 Third Quarter Conference Call. I'm Roger Pondel with PondelWilkinson, Karat Packaging's Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-K as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and Karat Packaging undertakes no obligation to update any forward-looking statements, except as required by law. Please also note that during this call, we will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share and free cash flow, which are non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the company's website. And with that, I will turn the call over to CEO, Alan Yu. Alan? Alan Yu: Thank you, Roger. Good afternoon, everyone. Despite ongoing trade volatility, Karat achieved another quarter of record net sales, up over 10% year-over-year, fueled by solid volume expansion, a favorable product mix and effective pricing initiatives. We've experienced double-digit growth across all major markets, especially in Texas and California. Even with significant higher import costs due to increased duties and tariffs, we successfully sustained a gross margin of 34.5% for the third quarter. We remain committed to our sourcing diversification strategy, and our nimble and flexible operating model continues to enable us to effectively manage ongoing supply chain challenges. During the third quarter, we increased domestic sourcing to approximately 20% from about 15% in the second quarter, and we reduced imports from Taiwan to approximately 42% from 58%. We continue to closely monitor tariff developments and are ready to quickly adjust our sourcing strategy accordingly as we have done in the past to maintain Karat's competitive advantage. Additionally, foreign currency exchange rate between the U.S. dollar and the new Taiwan dollar have shown increased stability since August, which is expected to help improve our operating performance for the current quarter. Earlier this year, we secured a major add-on of business to supply paper bag, a new product category for Karat to one of our largest national chain accounts. Initial shipments to select distribution centers started in the third quarter, and we expect the volume to accelerate in the fourth quarter. With fulfillment expected during Q1 of 2026, this new category of business with this chain account is for a 2-year term and expected to contribute approximately $20 million in additional annual revenue. Over the next 2 to 3 years, we aim to scale our paper bag business to more than $100 million in additional annual revenue. The anticipated growth from this new category is being driven by national and regional restaurant chains that are transitioning to paper bags from plastic bags. This shift is influenced by evolving state and municipal regulations as well as a growing emphasis on enhancing customer experience and brand images. We expect continued market share growth in this segment, further solidifying our position as a leader in providing sustainable, eco-friendly disposable food service products. In late May and June this year, we implemented broad pricing increases across most product lines to offset rising import costs. Heading into the fourth quarter and 2026, business trends remain strong. We continue to make disciplined pricing approach and partner with our customers while focusing on operating efficiencies. We are actively integrating several meaningful new customer accounts and focusing on increasing online marketing, which will strengthen our 2026 pipeline, building a strong foundation for what we expect to be another record-setting year in sales. Karat announced a first-ever stock repurchase program this week. In addition to the regular quarterly dividend, the announcement underscores our Board confidence in the company's future growth prospects and financial strength. And I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company's financial results in greater detail. Jian? Jian Guo: Thank you, Alan. I'll begin with a summary of our Q3 performance, followed by an update on our guidance. Net sales for the 2025 third quarter were $124.5 million, up 10.4% from $112.8 million in the prior year quarter. The increase was primarily driven by an increase of $9.4 million in volume and a $3.5 million favorable impact from product mix, partially offset by a $0.7 million unfavorable year-over-year pricing comparison. Sales to chain accounts and distributors were up by 13.7%. Online sales increased 3.1% over the prior year quarter and sales to the retail channel were down 12.5% over the prior year quarter, reflecting the softness of the overall retail sector. Cost of goods sold for the 2025 third quarter increased 17.8% to $81.6 million from $69.3 million in the prior year quarter. Product costs increased $5.0 million due to sales growth, partially offset by more favorable vendor pricing and product mix. Additionally, import costs increased $8.2 million due to higher import duty and tariffs, coupled with a 21.0% increase in import volume as we purchased more inventory ahead of expected business expansion, partially offset by a 13.4% decrease in average freight container rates. Gross profit for the 2025 third quarter was $42.9 million compared with $43.5 million in the prior year quarter. Gross margin for the 2025 third quarter was 34.5% compared with 38.6% in the prior year quarter. Gross margin was negatively impacted by higher import costs, which as a percentage of net sales increased to 14.4% compared with 8.6% in the prior year quarter. The decrease in margin was partially offset by a decrease in product costs as a percentage of net sales due to more favorable vendor pricing and product mix as well as a reduction in inventory write-offs and adjustments as a percentage of net sales. Operating expenses in the 2025 third quarter were $34.3 million compared with $32.2 million in the prior year quarter. The increase was mainly driven by $2.1 million of higher shipping costs due to higher sales volume, $0.7 million of higher rent expense due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center and $0.6 million of higher salaries and benefit expenses. These increases were partially offset by a $1.4 million reduction in online platform fees. Operating income in the 2025 third quarter was $8.6 million versus $11.3 million in the prior year quarter. Total other income net was $1.3 million for the 2025 third quarter compared with $0.6 million in the prior year quarter. The increase was primarily from foreign currency transaction gain of $0.7 million, driven by the strengthening of the United States dollar against the new Taiwan dollar during the 2025 third quarter compared with a loss of $0.3 million on foreign currency transactions during the 2024 third quarter. Net income for the 2025 third quarter was $7.6 million compared with $9.3 million for the prior year quarter. Net income margin was 6.1% in the 2025 third quarter compared with 8.2% in the prior year quarter. Net income attributable to Karat for the 2025 third quarter was $7.3 million, $0.36 per diluted share compared with $9.1 million or $0.45 per diluted share in the prior year quarter. Adjusted EBITDA for the 2025 third quarter was $13.1 million compared with $14.7 million for the prior year quarter. Adjusted EBITDA margin was 10.5% of net sales for the 2025 third quarter compared with 13.0% for the prior year quarter. Adjusted diluted earnings per common share was $0.37 for the 2025 third quarter compared with $0.47 for the prior year quarter. We generated operating cash flow of $1.0 million in the third quarter compared with $19.5 million in the prior year quarter. Duty and tariff payments as well as the inventory purchase payments increased. However, such increases were offset by strong collections and as you will see described in the Form 10-Q filed tomorrow. Despite the significant cash outlays for operations and a $3.5 million early loan repayment on one of our consolidated variable interest entities term loans, we ended the quarter with $91.1 million in working capital. As of September 30, 2025, we maintained financial liquidity of $34.7 million with another $19.9 million in short-term investments. As of September 30, 2025, we reclassified one of our consolidated variable interest entities term loans into current liabilities as the maturity is within 12 months, totaling $20.4 million. We intend to pay down the loan upon maturity with our cash on hand. On November 4, 2025, our Board of Directors approved the quarterly dividend of $0.45 per share payable November 28, 2025, to stockholders of record as of November 21, 2025. Additionally, our Board of Directors approved our first-ever share repurchase program of up to $15.0 million, under which Karat is authorized to repurchase shares of its outstanding common stock from time to time through open market purchases. Looking ahead to the 2025 fourth quarter, we expect net sales to increase by approximately 10% to 14% over the prior year quarter with gross margin projected to be within 33% to 35% and adjusted EBITDA margin to be within 8% to 10%. As Alan mentioned earlier, our new business pipeline for 2026 is robust, supported by the new paper bag category offering and the addition of several key customer accounts. We remain focused on accelerating top line growth with disciplined pricing while continuing to enhance operational efficiency and cost management. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator. Operator: [Operator Instructions] And the first question will come from Michael Francis with William Blair. Michael Francis: Alan and Jian, it's Mike on for Ryan. Nice quarter. I wanted to start on paper bags. Did I hear you right that you aim to scale that to $100 million over the next 2 years? Alan Yu: Yes, that is correct. Michael Francis: And what gives you confidence in that number? Alan Yu: It's because there's a lot of chains are moving away from plastic bag into paper bag. And this is a segment that we're seeing that it's -- as one of the large chains in the U.S. move towards this area, more and more similar chain will follow through that. And there -- basically, that -- we feel that there is an organic growth in that segment. And also at the same time, it is not just the paper bag was handled, there's different type of bag. There's SOS bag, which every fast food restaurant will need. And I mean with the growth of the fast food chain that is growing, the number of stores that is growing, we feel that we're competitive -- we can be competitive enough to gain market share in that segment as more and more people looking toward that area. And also, there's other bakery bag as well. There's just too many items in that segment, that make us feel that we can grow immediately. I mean, as we mentioned in our announcement that one chain, the annual sales of that number will be $20 million to $25 million per year just for one chain. And we do have 2 or 3 other chains already working in testing our paper bag and SOS bag. That's why it's -- we feel confident that this will grow quickly into an annual sales of additional $100 million a year. Michael Francis: That's all good to hear. And then I wanted to ask on gross margins, went lower, I think, as we were expecting and 4Q is a little lower than we were expecting. Would like to know longer term, do you think that there's an opportunity for you to get back into that high 30% range on the gross margin number? Or is that going to be difficult while tariffs are in the market? Alan Yu: Well, we're trying to be conservative right now at this point because there's still uncertainty. But the good thing is we feel there's a tailwind. One of the things that -- one of the issues that reduces our gross margin drastically in the second quarter was the sudden drop in the Taiwanese -- sudden increase in the Taiwanese dollar versus the U.S. dollar that it was a drop of 11% in just 3 days alone. And that 11% has come back to just about an increase of 4.5%, 5%. So basically, it's more of a stabilization in the U.S. dollars against Asian currencies. And this is actually enabling us to go back to our vendors to negotiate a better pricing this past 2 months basically. So we're seeing that there's more tailwind in terms of the gross margin. But we do want to be conservative in terms of how we look at in terms of the numbers in September and giving us the number that we see in October, we already see some improvement in October versus September. September was better than August. So we want to see more of the positive trend before we can issue a -- increase our gross margin numbers basically. Michael Francis: Okay. And lastly for me, it's good to see the share buybacks. Would love to get an update on your capital allocation priorities between debt paydown, buybacks and the dividend and any potential M&A. Alan Yu: Well, we -- our strategy is that if we have more than $20 million in short-term deposit that we can allocate it to the dividend, special dividend, regular dividend or use it for other investment. At this point, even with the increase in tariff, increase in -- inventory-wise in the second quarter, our deposit amount is still the same, remains the same. So we're still strong in cash. And lately, we're seeing that we're bringing -- we have been bringing down our inventory to reduce our cost in terms of the tariff as well as implication costs. So we're seeing cash flowing back into our accounts. And that's why we feel like it's good for us to do some type of a share repurchase. While our stock is kind of low right now, I think it's a value to repurchase share back. At the same time, we are still looking to merger and acquisition. We do have a few in the pipeline, investment, partnership, joint venture and also acquisition. We don't feel that this will deter us in terms of moving towards this direction. Operator: The next question will come from George Staphos with Bank of America. George Staphos: Can you hear me okay, Alan? Alan Yu: Yes, I can, George. George Staphos: So listen, maybe just piggybacking on the question on capital allocation. I want to take it from a different approach. I mean your dividend basically represents the majority of your earnings per share. Why would you consider or contemplate doing more buyback in light of that? Would you consider borrowing to buy back more stock? It would seem like deleveraging and taking care of your incoming debt paydown needs would be probably more prudent. But how do you think about that? Alan Yu: Well, here's the thing. The debt -- we don't have any debt on our book right now at this point. The debt that you're seeing VIE, that's on the real estate [ side -- part ] of the ventures. George Staphos: That $20 million, that current liability, you said you're going to pay that down in the upcoming year? Alan Yu: We can pay it down. We can pay either with our current CD that we have in our short-term deposit, to utilize some of the cash on that. And at the same time, we can have third party -- we can also continue to borrow with different banks. It depends on how -- what the cash flow situation is, if there's a need to do that because right now, like I said, we don't have any debt in our Lollicup or Karat Packaging book right now. So we're -- this is one of the things that we still have time to think what we want to do, allocate our capital. If there's other things that we can do better, then we will do that. But at this currently, the rate of CD income is dropping as the interest rate reduces. So we have to figure out which is better. If we were to pay down the debt, we actually will be making -- generating additional income. It will be an interdepartment -- intercompany loan to the VIE company in paying down that debt. So it won't be like really just paying, it will be paying down the debt for the VIE company, but at the same time, for Lollicup, it will be income -- additional income. Instead of [indiscernible] us for deposits from -- yes, deposits from the banks, there will be actually more income from the VIE company. Jian Guo: And George, this is Jian. I just wanted to add on to what Alan was talking about to answer your question. The main purpose really is to have one additional tool in our toolbox to further enhance our shareholder return while we continue to focus on growing the company either organically or inorganically. As we previously announced, as you probably saw yesterday in the announcement, the total amount of the Board approved of the share repurchase program is $15 million. So it is a fairly small program at management's total discretionary. So this will be something that management will continue to evaluate in terms of a lot of the different factors, right, the pricing, the performance, the liquidity, the strength of the balance sheet, quite a few factors, just another tool in our toolbox to further enhance our shareholder return. You're right. I mean, obviously, our dividend yield is already pretty rich. So that definitely is something that we consider as we move forward with the potential execution under this program as well. George Staphos: Okay. I appreciate the thoughts on that, and thanks for the reminder on the VIE. One question, back to the question, I think Mike teed up on the bag business. So let's assume you have perfect accuracy on the revenue side on bags, and that's $100 million in whatever time period you said. What kind of margin do you think you're going to get on that business? And you're already starting to see some of that show up in the fourth quarter, you said, correct? So 2 questions there. Alan Yu: It will be a mix -- more of a mix margin. The higher volume will be in the -- could be in the high teens on margin side, and the SOS bag could be in the high 30s. So it depends on the product line. There's also bakery bag that could be in the high 50s. So -- and also at the same time, we are selling online on these new bags that we're bringing in. The online will be even in a higher margin range. So it will be more of a balancing mixture of each, just like as we are doing right now. So -- and also, we are actually working heavily toward in terms of getting our bags to manufacture more efficiently to increase margin from there, better sourcing of raw material from our vendors and also moving -- shifting the manufacturing site locations, potentially moving some into domestic U.S. production, that might save some costs, even enhancing more margin. So this is -- these are the things that we can do once -- as the volume increase in the next 12 months. George Staphos: All right. So 2 quickies for me, and I'll turn it over to Alan. So with that being the case, and we're already in November, so almost halfway through the quarter, the range on revenue growth, the range on margin is fairly wide. And I realize you're trying to be prudent. I realize there are a lot of vagaries in the market, especially with tariffs and sourcing. But I find the range is maybe a little bit wider than I would expect at this juncture in the year. What's giving you pause in terms of maybe perhaps having a little bit narrower both growth rate range and margin range for the quarter? And then did I hear you say -- and my last question, I'll turn it over. Did you say there was an inventory write-off? I apologize, I'm on the road right now, so I don't have your materials in front of me. Alan Yu: I wasn't -- I'm not sure what the inventory write-off was, but I know that we're reducing inventory at this currently for the year-end. Actually, our sales have been very robust. As you said that we are in the middle of the fourth quarter already. So we're seeing our sales almost in the mid-teen range, but we just want to be conservative. And basically, at the mid-teen range, this is a sales increase organically that we haven't seen for actually for the past 3 years. That's where -- we're seeing that 12% to 14%, but we are seeing numbers very close to the mid-teens. But we just want to be prudent in terms of 12% to 14%, that's where we're trying to -- this is where we're being conservative, but we're seeing in the mid-teens right now in the growth of numbers -- actually, the sales numbers. And basically, in our industry, this is kind of very good numbers in terms of -- well above our industry right now. Operator: And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Alan Yu, CEO, for any closing remarks. Please go ahead. Alan Yu: Thank you. Thank you, everyone, for joining our third quarter Karat Packaging earnings conference call. I'd like to say thank you again, and have a nice day. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Arkema's Third Quarter 2025 Results and Outlook Conference Call. For your information, this call is being recorded. [Operator Instructions] I will now hand you over to Thierry Le Henaff, Chairman and Chief Executive Officer. Sir, please go ahead. Thierry Le Hénaff: Thank you very much. Good morning, everybody. Welcome to Arkema's Q3 2025 Results Conference Call. With me today are Marie-José Donsion, our CFO; and the Investor Relations team. To support this conference call, we have posted a set of slides, which are available on our website. And as usual, I will start with some comments on the highlights of the quarter before letting Marie-José go through the financials. At the end of the presentation, we'll be available, as always, to answer your questions. Let's comment first on the economic environment, which remains, as you know, challenging. We noted weaker-than-anticipated trends in the U.S. over the summer. The lower demand is probably a reflection of ongoing uncertainty around the tariffs and frictions in adjusting supply chains. On the other hand, Europe and Asia remain consistent with what we have seen since the start of the year, Europe at relative low levels and Asia still with a positive dynamic in particular in China. The negative currency impact was also slightly stronger than in Q2. Despite this challenging macro environment, our growth pockets, which are at the heart of Arkema strategy delivered substantial growth. As a matter of fact, our sales were up 20% in several key markets, namely batteries, sports, 3D printing, health care and new generation fluorospecialties with low Global Warming Potential. This positive momentum is also supporting the ramp-up of our major project shown on Slide 7. But all in all, that was not sufficient, obviously, to offset the strong macro headwinds of the third quarter. With the Q2 results, we shared with you that this major project should bring EUR 50 million additional EBITDA in '25 versus '24. I am happy to convey that we reassessed the progress, and we can lift the impact to EUR 60 million. This contribution is essentially supported by the strong momentum in PVDF for batteries, by use of Pebax in sports and 1233zd fluorospecialties in building insulation. PIAM has also showed good growth since the start of the year, thanks to new smartphone models and now flexible packaging adhesives starting to contribute. This is certainly less than the initially estimated EUR 100 million attribute to the tough environment. Nevertheless, these projects show good momentum and the setup for 2025 is encouraging. As you know, these projects are already fully financed and therefore, are included in our capital employed with only limited contribution to the P&L until now. In this regard, the group will gain around 2.5 points of ROCE from this project over the next years in addition to the improvement of the cycle, which will benefit to everyone. We can mention also the start of 2 new plants in Q3 in the U.S., both on budget and on schedule, the new 1233zd unit, a fluorospecialty with low emissive impact used for building insulation or thermal management and our new DMDS capacity for refining and biofuels with an impact on earnings still limited in 2025. In addition, the new Rilsan Clear transparent polyamide plant reached mechanical completion. This unit, downstream of its polyamide 11 plant in Singapore is expected to be operational in the first quarter of 2026. Given the tough environment, I'd like to stress that all teams are fully mobilized on a daily basis to best manage the current economic and geopolitical context. We run a number of cost-cutting initiative as shown in Slide 3 and are on track to deliver the targeted EUR 100 million of fixed and variable cost saving by year-end. The cost alignment will continue, and we strive to again offset inflation in 2026. In addition, Arkema stayed disciplined in capital allocation. You see that we made progress in working capital management and delivered EUR 200 million (sic) EUR 207 million recurring cash flow, up compared to last year despite lower earnings. This cash generation is fully reflected in the reduced debt, maintaining a robust balance sheet. Arkema will once more reduce CapEx next year to EUR 600 million while continuing to optimize its working capital. Despite all the efforts of the Arkema teams, EBITDA was down to EUR 310 million. Looking at the results by segment, you could recognize the different profile of each product line. Adhesive Solutions and Advanced Materials are more resilient with earnings affected by lower demand, while net pricing was only slightly down. In contrast, there was more volatility in Coatings linked to the low cycle in upstream acrylics, while the old generation fluorogases in Intermediates reporting a seasonally lower outcome. I already mentioned the ramp-up of our major project, which reflects the execution of our growth strategy, but also our ability to work in parallel on 2 tasks. We focus on optimizing our operations in the short term, but at the same time, secure our growth potential on the long term, both prepare us to be ready in a year when the macro will again be more supportive. As highlighted before, we follow our strategy focused on 5 identified high-growth markets where we continuously look for new opportunities. In this context, I am happy to announce that we will expand our potential in the attractive advanced electronics market by adding a new structure platform dedicated to data centers. We have shared details of it in Slide 5 of our Q3 presentation. By dedicating a joint initiative to this powerful market, we see significant growth prospects, though starting from a low base. Besides, I would like also to emphasize Arkema's success in the battery market in Asia. Our bet on LFP batteries is clearly a winning one and our strategy to expand our asset base with modest CapEx in China, Europe and the U.S. turned out to be relevant, putting us in a good position to grow in this dynamic market. We recently inaugurated a new laboratory dedicated to the next generation of batteries using an innovative dry coating process for electrodes that significantly reduces the cost of battery production while lowering its carbon footprint. This innovation illustrates that PVDF's long-term growth potential remains significant while offering premium margin when we target as we are doing the high end of the range. I will now hand it over to Marie-José for more details, so a more in-depth look at the financials before we discuss the outlook at the end of the presentation. Marie-José Donsion: Thank you, Thierry, and good morning, everyone. Let's start with the Arkema's revenues. At EUR 2.2 billion, our Q3 sales were down 8.6% year-on-year. They were impacted by a negative 3.9% currency effect, reflecting mainly the weakening of the U.S. dollar against the euro, but also from other currencies, including Chinese yuan and Korean won. Volumes were down 2.5%, reflecting the lower demand observed in the U.S. over the summer and the overall weak demand environment in Europe. On the other hand, we continued to benefit from a positive dynamic in Asia and more particularly China, mainly driven by High Performance Polymers. The price effect was a negative 3.7%, impacted essentially by the acrylic cycle and the old generation refrigerant gases. All other activities showed a more limited price decrease of 1.3% with a slightly negative net pricing, the benefit from lower raw material costs works progressively through the supply chain. Q3 EBITDA came in at EUR 310 million. The currency effect representing around EUR 15 million negative. Looking at the performance by segment. Adhesives EBITDA reflected the weak demand in industrial additives and the disappointing summer in the U.S., notably in flexible packaging and construction. On the other hand, construction business grew in Asia, thanks to positive momentum in Asian buildings and remained broadly flat in Europe. The performance of Bostik continues to be supported by our ongoing work on efficiency and our price discipline. Finally, the integration of Dow's adhesives brought a limited contribution this quarter due to the softness in the U.S. market notably. In Advanced Materials, the EBITDA was essentially affected by the volume decrease in Performance Additives that were impacted by the weak demand environment in Europe and in the U.S. as well as the reorganization of our Jarrie site in France, in hydrogen peroxide. On the other hand, High Performance Polymers volumes were stable, benefiting from strong growth in Asia. And the margin of the Advanced Materials segment remained overall at the good level, 18.8% with HPP maintaining its solid margin level of 20%. In coatings, EBITDA was essentially impacted by the low cycle conditions in the upstream acrylics. Sales declined in the U.S., in particular, in the construction and the decorative paints markets. The performance of the segment was therefore significantly lower than last year. Lastly, Intermediates EBITDA included the usual seasonality of the third quarter as well as the impact of the evolution of regulations in the U.S. and Europe in refrigerant gases. Depreciation and amortization stood at EUR 168 million. They included the amortization of new production units, which started up in the course of 2024 as well as in 2025. This led to a recurring EBIT of EUR 142 million and a REBIT margin of 6.5%. Nonrecurring items amounted to EUR 48 million. They include the typical EUR 35 million of PPA depreciation and EUR 13 million of one-off charges, notably restructuring costs linked to the reorganization of our hydrogen peroxide site in France. Financial expenses stood at EUR 33 million. The increase versus last year reflects mainly the increased cost of our bonds as well as the lower interest of invested cash. And consequently, Q3 adjusted net income stood at EUR 78 million, which corresponds to EUR 1.04 per share. Moving on to cash flow and net debt. Arkema delivered a solid cash flow, as you could see in Q3 with recurring cash flow standing at EUR 207 million. This reflects our continuous initiatives to tightly manage our working capital and integrate also decreasing CapEx versus last year. The working capital ratio on annualized sales stood at 17.3% and total capital expenditure amounted to EUR 131 million, in line with our objective of EUR 650 million for the full year 2025. Net debt amounts to EUR 3.4 billion, including EUR 1.1 billion of hybrid bonds. The net debt to last 12 months EBITDA stands at around 2.6x. Note also that we continue to refinance our 2026 loan maturities with the issuance in September of a EUR 500 million green bond with an 8-year maturity and an annual coupon of 3.5%. This has also enabled us to extend our debt maturity now to 4.6 years. Thank you for your attention, and I'll now hand it over back to Thierry for the outlook. Thierry Le Hénaff: Thank you, Marie-José. So going into Q4, the macroeconomic environment remains challenging, marked by low visibility and weak demand in U.S. and Europe. So no surprises there. In this context, as already said, optimizing the short term by working on fixed costs, CapEx, working capital remains among our top priorities. We are on track, as mentioned, to achieve around EUR 100 million of fixed and variable cost savings in '25. More specifically, our numerous initiatives on fixed costs will enable us to offset inflation in both '25 and '26. At the same time, we continue to build Arkema for the future. It's very important, by maintaining our efforts in R&D as well as in sales and marketing, focused on the key attractive market identified by the group, supported by the major projects that you are well aware of. Taking into account the macro environment that remains challenging and the softer-than-expected demand in the U.S. for the time being, at least, we aim at delivering an EBITDA of between EUR 1.25 billion and EUR 1.3 billion in 2025 with a midpoint globally consistent with the consensus and a recurring cash flow of around EUR 300 million. I thank you now very much for your attention. And together with Marie-José, we are certainly ready to answer any of your questions. Operator: [Operator Instructions] First question is from Martin Roediger, Kepler Cheuvreux. Martin Roediger: I have 3 questions, if I may. The first question is for Thierry. Regarding the reason for this additional guidance cut this year, it seems you are getting more concerned about the U.S. market, especially about the weaker construction market in the U.S. How do you see the near-term prospects in the U.S. construction market? And the other 2 questions are for Marie-José. Other chemical companies have released bonus provisions in Q3, some already in Q2. Have you done that as well? And do you plan that in Q4? And is that part of the EUR 100 million cost savings this year, which tackles both fixed costs and variable costs, and we know that bonus belongs to variable costs. And finally, on cost savings impact on your P&L. Your SG&A costs increased in Q3 quarter-on-quarter and year-over-year. Why do we not see the cost savings in your SG&A line? Thierry Le Hénaff: Okay, Martin. So on the first -- thank you for your question. First -- on the first one, no, what we see today is that, yes, in the summer, the U.S. was weaker than expected, not necessarily weaker than Europe because Europe was already weak but does not mean necessarily that we are more pessimistic on U.S. going midterm. I think U.S., and we have a long experience there because it's [ 45% ] of our total sales around. Experience in the U.S. is that things are moving quite fast. They are -- this country is very agile. So you can have a quarter which is disappointing and 2 quarters after, it goes in the other direction. So I would be cautious on the answer. We just comment on what we see in Q3. We think Q4 will be in the same [ vein ]. But I would be cautious in extrapolating what it means for the following quarters because [ this is the ] nature of U.S. to be more reactive and we have a little bit more volatility than we can have in other parts of the world. Marie-José Donsion: So regarding cost saving, maybe more broadly, just to remind what we aim at doing. Basically, the objective is to deliver EUR 100 million cost saving. I would say, 2/3 fixed costs, 1/3 variable costs. And when we look at the fixed cost component, for sure, they incorporated bonuses. So this has been adjusted progressively as we progressed in the year based on the, let's say, the revised guidance we gave to you. So there is no last minute, I would say, effect that I expect in Q4. It has been progressively factored in the publications. So when you look at the evolution year-on-year, basically, you see a slight increase, which means right now, we are not fully offsetting inflation, but we are actually quite largely offsetting inflation. I consider inflation amounts to roughly EUR 60 million, EUR 70 million a year on fixed costs for Arkema. And clearly, we are limiting the effect of increased fixed costs right now at, I would say, only a total of EUR 50 million. So clearly, we are producing or delivering the effort to massively compensate this inflation effect. So I'm not sure why you think it's not visible, but it's definitely visible internally when we look at our metrics. So no particular effect of provisions, which when you look at the balance sheet, are rather stable over the period. I hope it answers your question. Thierry Le Hénaff: Maybe to add also to Marie-José, when we say that we remove inflation for next year, this means that we take into account the fact that, as Marie-José said, that a part of the savings this year are linked to bonuses. And we know that we will need to set that next year, but it's part of the game, and we take the challenge. Operator: The next question is from Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. First one is around the data center presentation that you made and specifically the refrigerant gases. You talked about Forane for chillers. What does that do to the market? Will that rapidly tighten the currently -- the current offering of HFCs and HFOs. And then secondly, with regards to the immersive heaters. Is that going to be a higher-margin product than your current emissive refrigerant gas business? So that's a couple of questions there. Secondly, on -- really on a kind of a higher level. Obviously, if I look at the bridges for all of this year, pricing is going down faster than raw materials. So is that a function of mix, i.e., you're losing higher-value products more so than you're retaining -- than you're keeping raw material gains? Or are you having to give back price to hold on to volume? Thierry Le Hénaff: Okay. Thank you, Tom, for this question. So very different in nature. So with regard to data center, first, as you could see, you have a presentation, Page 5. It's the first, I would say, exchange with you on data centers. It does not include -- for the sake of your knowledge, it does not include what we do in battery for data centers. This means what -- stationary batteries each in the battery platform. So this means that when we say more than EUR 100 million of sales in 2030, starting from a base, which is today, our first estimate is a bit more than EUR 10 million. So a significant increase. It does not include what we are doing in battery. So as you mentioned, chiller will be a key part on next generation of refrigerant. Today, the sales there are very, very limited, but we see strong potential for low GWP fluorogas in chiller. So it depends, as you know, on the technology of data centers, but we see there good growth with good margin, but it's only 1 point among 6 or 7. We see also growth for High Performance Polymers. It can be PVDF, it can be polyamide 11 for wire and cable. It can be also for [indiscernible] waterproofing. It can be even for direct-to-chip cooling, a kind of PVDF, et cetera. So we have plenty of application there. But as you mentioned, HFO is certainly one element. With regard to pricing, in fact, it's interesting to see more detail what is happening in pricing. In fact, we separate acrylic monomers and fluorogas, which obviously are affected significantly in pricing. The first one because of the cycle, the second one because of the evolution of generation. So it's not you don't compare apple-to-apple because of the quota mechanism. But clearly, Intermediates is big -- certainly has a big impact on pricing. Outside of Intermediates, it's far less. And outside of acrylic monomers, it's even far less for Adhesive Solutions and Advanced Materials. The net pricing is close to neutral, slightly negative, but close to neutral and the pricing itself is around minus 1%. Now with regard to raw material, what is happening is that, as you know, the supply chain, you have some stock, supply chain are long. And it takes time to work through for the raw material to work through the P&L. And so you have a little bit of a time lag between the pricing effect and the raw material. But we are not worried at all on, I would say, Adhesive Solutions and Advanced Materials. We have some examples where we are a bit more, especially in China under pressure in pricing there. But on the other side, we have positive pricing in some other areas, including our new business development with a high price. For us, a question of pricing, but since the start of the year is really concerning refrigerant for the old generation and acrylic monomers. Operator: The next question is from Matthew Yates, Bank of America. Matthew Yates: A couple of questions, if I may. I just like to follow up on Tom's one around the data center. As you said, it's the first time you've really mentioned this. So I'm just trying to educate myself a little bit. Where are you in the commerciality of some of these products? Are they technically developed? Are they qualified with customers? Are they already generating sales? Or is this more of an ambition and there's a lot of work to do over the next few years to actually get these products to market and generate some revenue? So just -- that's the first question. The second one, I'm not sure if it's for you, Thierry or Marie-José, but I wanted to ask about the dividend. And we know that traditionally, Arkema had sort of other strategic priorities, and the dividend payout ratio was relatively low. But compared to the amount of free cash you're now generating of EUR 300 million is effectively 100%. And you've got your leverage creeping up to 3x. So can you just give us an idea of how important and how sustainable that dividend is when you get to the end of the year, and you debate that with the Board? And whether has it got to the point where if we don't see a macro improvement paying out so much is going to infringe on your strategic flexibility and whether you want to do CapEx projects or M&A, whatever it is? So just like to hear your sort of philosophy around the dividend. Thierry Le Hénaff: Thank you, Matthew, for this important question, clearly. So with regard to data center, as I mentioned, so we have around a bit more than EUR 10 million of sales, which means that we have already a commerciality of this product and that most of the products we are talking about have already been developed now what takes time. And this is why we have a ramp-up until 2030 to be above EUR 100 million. And it does not, as I mentioned, take into account the PVDF for batteries in stationary, which go to data center, which is not insignificant, which is already fully commercial. But on what is outside, I would say we have already a certain maturity of the technology themselves. So it's more a matter of developing application with some qualification, et cetera. So it will take the time it takes, knowing that in data center, the technology are really continuing to evolve, as you may know, significantly. So even for -- you would have already mature sales in certain application, anyway, you need to work on the new application, the new technology and to adapt your product and your new business development to this. So to answer your question, we are in the middle of your question, I would say, some commerciality, mature technologies, but application are not fully mature. So we need to ramp up, and it will take a certain number of years. But I think it was mature enough to share this data center call with you, and we'll have the opportunity to come back in far more detail next year on this topic of data center, which is, as I mentioned, joining the electronics -- advanced electronics platform. With regard to the dividend to a certain extent, the answer is in the question. The good thing first is that we are in absolutely trough conditions in specialty chemicals and chemicals overall. And despite of that, we cover -- with the free cash flow, we cover the dividend. So I think it's good news. You know that the dividend return to shareholder is a very important policy for Arkema. So we will -- the idea is to make it sustainable as it has been in the past. You have not a year which looking like the other one. And to make it sustainable beyond what I've just said, you could see that next year, our CapEx will be at EUR 600 million versus EUR 650 million this year. So it's a difference. Our project will also ramp up. So no, I think we stay in the same -- with the same idea of [ at least ] stable dividend. Obviously, it has to be decided by the Board. So we will have this discussion normally before the Feb presentation of full year results, but this is the philosophy of Arkema. Operator: The next question is from Georgina Fraser, Goldman Sachs. Georgina Iwamoto: I've got 2. First question is on HPP. We've seen a decent amount of CapEx and also the acquisition of PIAM going to this division. And I just wanted to hear from you, how is the performance of this division been versus your expectations? And should we think about the fact that we're maybe at low utilization rates at the moment? I just want to try and gauge what kind of upside potential there is here and maybe why the performance has been a bit lackluster. And then my second question, a little bit of a follow-up on the dividend or cash flow outlook question. EUR 600 million in CapEx next year is still quite high. Could you give us a sense of what your maintenance CapEx is and how much flexibility you have there if it was needed? Thierry Le Hénaff: Yes. Okay. Thank you, Georgina. So on the first one -- first of all, we -- if you look at HPP, we have 4 lines, which are very interesting. We have PVDF, specialty fluorogases. We have polyamide 11, and we have PIAM. I would say all these line are growing line on which we have, as you mentioned, spent a high amount of money for development, for growth, for CapEx and for acquisition. Clearly, this year is a real challenging year for all chemicals company. So HPP is not immune. As you could see this part of the performance of Advanced Materials, HPP has resisted [ quietly ] compared to what we can see outside, but below our expectation because of the macro. So the projects themselves are ramping up okay, but they are not immune to the macro. So we -- at the beginning of the year, we were expecting more from HPP. The good thing is that we think that all the strategic moves that we have done with HPP were the right ones that the line is certainly one of the most resilient inside Arkema. And the prospect of growth -- even if they have been delayed to a certain extent because of the macro, the prospect of growth remain quite significant. With regard to utilization rate, it's clearly that in consistency with what we see from the macro, they are more on the low side. And don't forget that we are also optimizing our inventory as everybody is doing on the supply chain from customer down to our suppliers. And that -- because of that, we, let's say, also adapt the utilization rate of our site. But we consider that HPP will continue to remain a bright spot of Arkema in the coming periods. With regard to CapEx, I don't share with you the fact that CapEx is still quite high at EUR 600 million. And to share with you because we have discussion with all of you and including investor, some are telling us the contrary that maybe is a bit too low. So I think for us, we think it's reasonable in this kind of environment to take down the CapEx to something which remain relatively okay not to jeopardize our mid- and long-term growth. It would be a full mistake, and some companies have done that in the past in chemicals and now they regret it. So we try to stay consistent over years. And -- but on the other side, we were in '24 at EUR 750 million, then we are at EUR 650 million this year, next year, EUR 600 million. I think a good adjustment of the CapEx in order to take account the evolution of the macro. With regard to which part is maintenance, modernization, legislation, CapEx, I would say that we have around EUR 400 million -- when we are at EUR 650 million, we [indiscernible]. So this means that it's EUR 400 million, yes, around EUR 400 million. And the rest are really productivity and development CapEx, but which are more smaller scale compared to what we have been doing in the past 3 years with the major projects. Operator: The next question is from Jean-Luc Romain, CIC Market Solutions. Jean-Luc Romain: [Technical Difficulty] Operator: Romain, could you please get closer to the microphone, please? Jean-Luc Romain: I'm [indiscernible] microphone. Thierry Le Hénaff: We hear a second voice behind you. Okay. So maybe we can take another one and then come back to you when we fix your topic. Operator: Okay. So the next question is Chetan Udeshi, JPMorgan. Chetan Udeshi: I just had a bit more philosophical question. It seems from all your comments that your view is this is much more a cyclical phenomenon in the sector, and you don't want to necessarily take any radical steps for that reason. Is that understanding correct? Because when I look at your numbers, and it's not just Arkema, right, I mean, to be fair, it's across the whole sector. Everybody is suffering from same issue. And a lot of time, at least my personal opinion is it's blamed on demand weakness, which may or may not be the only reason. So I'm just curious, from your perspective, you don't see any structural changes in the industry that would warrant more structural changes in how Arkema is setup, I mean in terms of whether you need to have all the businesses that you have within Arkema, maybe it's better to monetize some of them, given the multiple. Thierry Le Hénaff: So thank you for the question. It's a good question at least on the [ paper ] is that from what we see today, which part is, let's say, short-term cyclical and which part could be more structural. I would say we have been in the business, as you know, since 20 years, I'm frankly speaking. And you may have forgotten what we have seen in 20 years are significant shifts of the world. So you have at the same time -- and it can be positive and negative. When you see structural change, the negative is always one-to-one with a positive. So you have opportunities and challenges at the same time. It's true today. It was true in the past 20 years. So this means that what we see today is a combination of -- and this is the majority of what we see by far of some macro-related cyclical issue, and it will come back. This is -- we are absolutely convinced of that. And then you have some more structural change. You have more, let's say, protectionism, you have more regionalization, you have more aggressiveness from Chinese competitors. But by the way, we also take advantage of it because we are strong in China, and we have enjoyed quite a good year in China. Yes, this is a world of today. You need to be agile to adapt permanently. Where I don't agree with you is this question of radical step or whatever. I think if you look at the, for example, portfolio of Arkema, 60% of the business, which was at the origin has been sold, we changed completely, we made the acquisition. I think it's part of our business life, and we continue to take the steps that makes sense to do. And so we are thinking all the time but not necessarily sharing what we are thinking with all of you, obviously. But no, no, I think we have a good level of reaction. And we try really to manage the 2 horizons at the same time. One is really short term, working on the cost, working on the cash. And we think we are doing quite a great job, thanks to the team on that. At the same time, having in mind that the frame in which we are operating is shifting a little bit, we are moving in order to adapt to that. This is what we have sold in the recent years with PMMA and we bought Ashland and PIAM. And even if these 2 are not in terms of ramp-up exactly where we would have thought they would be, I can tell you they are far more resilient than many business in chemicals. So it goes in the right direction. It takes time. But I think we are doing -- we are really on the right topics, and we are doing what we need to do, and it does not prevent us from thinking all the time if another evolution could be meaningful or not. So no, no, we are -- we recognize that. And it's good for us. I've always said that Arkema would not be the Arkema of today if the world has been easy and lighter, then you would have had the same players as they were 20 years ago. I think the fact that there is a disruption, maybe we suffer short term. But we think that in the long run, it gives opportunity to company like us, to companies that are reactive, agile, ready to question themselves to take new opportunities and to make a difference with the other guys. Operator: The next question is from Emmanuel Matot, ODDO BHF. Emmanuel Matot: I have 3 questions. First, do you think we are close to the bottom of the cycle now that the issue of customs tariff has been settled in the U.S.? What your main customers are telling you in that country? It seems you are very cautious about the scenario of recovery next year, considering your decision to reinforce your efforts on costs. Second, can we have an update on PIAM? How is it delivering in the current context? And my last question, your inventory levels at the end of September are stable in value compared to the end of June at EUR 1.3 billion. Does this mean that it will be very difficult to reduce stock in the future, demand does not recover? Thierry Le Hénaff: Okay. Clearly, as we mentioned, we are in a low cycle. So where are we exactly? I think everybody has to be modest on that. All the analysts and all the players in the industry, we have all been wrong. My feeling is that we are really at a low point -- and it has been also a long period of decline quarter after quarter. So I don't know if we are at the bottom, but we get close to the bottom. And what we cannot say is when the recovery will start. And this is why -- and I think we gave the message, we want to be ready for whatever scenario. This is why at the same time, we really optimize what is linked to cost, cash, et cetera, but not jeopardizing the ability to rebound when the cycle is coming back. And your experience has been that each time the light has come back, we are one of the first one to take advantage of the recovery. So we want to stay with this mindset, while recognizing the challenge of the current macro and adapting what we have to do, but without losing the, I would say, the focus on the long-term development of Arkema. It's a fine balance, but I think this is what we try to do so far. On [indiscernible], as you know, it depends really on the end market, particularly advanced electronic of PIAM. The vision per quarter can change because it depends on the stock policy of the customer, et cetera. But globally, we have done a good year, a good progression for PIAM with a margin around, again, 30% in Q3, which means the resilience of this -- of PIAM is far above any product line in specialty chemicals. They were rather stable in Q3 after a very strong growth in Q2. I don't want to talk '26 for the time being. But with regard to PIAM, I can make just a short comment is that this seems to be quite positive on '26 and from their discussion with the customers. So I would say PIAM certainly lagged from their initial business plan, but quite resilient, growing this year, rather positive for next year. On your last question, I think the difficulty -- first, we are doing a good job on our stock. You can see that in the cash generation. The difficulty when you are in the middle of the year, especially at the end of the Q3 is that you are still at a point where the sales seasonality is rather stable. So you cannot absorb, take the risk of losing sales. And -- but we know that we have opportunities to reduce further our stock up until the end of the year, and we will do it, and we know how to do it. Maybe Marie-José, you want to complete? Marie-José Donsion: So in fact, Emmanuel, when you look at the ratio of inventory on sales, frankly, we are very much aligned if you compare with last year. Last year, end of the year, we finished with EUR 1.350 billion, which represented 14.7% of our sales in terms of level of stock. And this year, we are at EUR [ 1.309 ] billion, as you mentioned, which represents 15% of our 12-month sales. So ultimately, because it's still not year-end, there is a very limited, let's say, excess of stock in the chain compared to last year year-end level. So definitely, we are adjusting permanently to the forecast, and there is an additional expected reduction for year-end on this metric in particular. Operator: The next question is from James Hooper, Bernstein. James Hooper: I have 2, please. The first is about the cost savings and delivery. How does the increase fit into the ambition that you had at the 2023 CMD to deliver EUR 250 million savings over the 5 years? So you've added the incremental EUR 50 million this year. Is this -- is it the opportunity has become EUR 50 million bigger? Or is this more just pulling forward savings to kind of take advantage of the current situation? And the second question is about the kind of Specialty Materials projects. So the -- initially, when you guide 2025, you had EUR 100 million. They've been downgraded to EUR 60 million. What kind of growth potential contribution are you expecting if we assume a similar macro environment in the coming years? And then kind of put another way, if these projects have contributed EUR 60 million more and EBITDA is down EUR 250 million year-on-year, then how do -- what actions are you taking for the rest of the business? Or can these businesses grow fast enough to offset weakness elsewhere despite your cost savings? Thierry Le Hénaff: Okay. With regard to additional -- to cost savings, so yes, clearly, what we are doing is not just to get quicker on the cost savings. It's to have cost savings. This means that if we say, for example, this year, we increased by [ EUR 50 million ]. This means this [ EUR 50 million ], you will find them at the end of the 5 years period. So this means that we are at EUR 300 million. If next year to deliver the offset of inflation, so we will be again significantly above the [ EUR 50 million ]. This above will be also on top of this EUR 300 million we have just talked about, et cetera. There is no way we said EUR 205 million to be, at the end, far more than EUR 250 million. I think it answer your first question. On the project contribution, the growth potential for us is intact. So the question is more -- it depends on the scenario of the macro. Well, it depends if the macro is coming back already in the course of next year or later or whatever. What is clear is that we believe that the number we have shared with you are still the same. The question is more the time line. This means that if the macro is coming back sooner than later, I think we can certainly still target EUR 400 million in '28. If it take more time, it will be difficult to deliver the EUR 400 million. But I think the best will be to have an update in the course of next year on all this project. What is very important for me is that this project is from a strategic standpoint. And it comes to a certain extent, it's consistent with the answer I made to the question before, the strategy that is supporting this project is still completely valid. Even if the world is changing all the time, I think this project are still completely relevant from what we see of the evolution of the world, and this is the most important thing. Now we can debate on the timing, if we can still maintain what we said for the achievement of the EUR 400 million for '28 or if the macro remains similar, as you mentioned, then by nature, there will be some delay. But at the end, the contribution will still remain very significant. And the endpoint would be the same, clearly. Now, as we said, I don't know if it clears really your question on additional action on the project. You got the answer or no? The work of Arkema is not limited to this project. There are plenty of new business, which are absolutely not linked to this project. And clearly, looking at, for example, when we discuss data center, which was not in our -- so much in our vision up until recently is something that we will develop, will be not linked to this major project [ as something ] else. So we permanently to complete our new business development prospect based on the evolution of the world. Operator: The next question is from Jean-Luc Romain, CIC Market Solutions. Jean-Luc Romain: [indiscernible] better now? Thierry Le Hénaff: You have to talk a little bit louder, I don't know because it's very low. Jean-Luc Romain: My question relates to the 5 outlets, which have 20% growth. When you first talked about those 5 sectors, it was representing 52% of your sales and your target is 25%. Where are you now in terms of the weight of those 5 outlets, which are growing faster than the rest of your business? Thierry Le Hénaff: Okay. So if I understood well the question, this 20% growth belongs to the 5 market, which represents 15% of Arkema, but they are not -- we don't make 20% on the full 15%. It's an extract -- the market we are mentioning at the beginning, battery, sport, et cetera. It's a part of that 5 market, of the 5 platform. This means this 20% applying more to around 7% of the sales. On the rest, the other 8%, we are far more stable. Does it answer your question? We take the last question. Operator: Gentlemen, there are no more questions registered at this time. Thierry Le Hénaff: Okay. So if no other question, I would like to thank you very much for taking the time to hear us, and I wish you a good day. Don't hesitate to come back to Beatrice and to James if you have any further question. Thank you very much again. Operator: Ladies and gentlemen, this concludes this conference call. Arkema, thanks you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to loanDepot's Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Gerhard Erdelji, Senior Vice President, Investor Relations. Please go ahead. Gerhard Erdelji: Thank you. Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance in future periods. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, guidance to our pull-through weighted rate lock volume, origination volume, pull-through weighted gain on sale margin, strategies, capabilities and financial performance. These statements are based on the company's current expectations and available information. Actual results for future periods may differ materially from these forward-looking statements due to risks or other factors that are described in the Risk Factors section of our filings with the SEC. Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking the performance and value of our business and facilitating company-to-company operating performance comparisons. For more details on these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please refer to today's earnings release, which is available on our website at investors.loandepot.com. A webcast and a transcript of this call will be posted on our website after the conclusion of this call. On today's call, we have loanDepot's Founder and Chief Executive Officer, Anthony Hsieh; and Chief Financial Officer, David Hayes. They will provide an overview of our quarter as well as our financial and operational results and outlook. We are also joined by Chief Investment Officer, Jeff DerGurahian; and Dominick Marchetti, Chief Digital Officer, to help answer your questions after our prepared remarks. And with that, I'll turn things over to Anthony to get us started. Anthony? Anthony Hsieh: Thank you, Gerhard. I appreciate everyone joining us on the call today. During the 5 months since I returned to loanDepot as CEO, we made significant changes to our business that align with our objective of growing our market share profitably. Before I speak to these achievements, let me first talk about our strategy and positioning in the marketplace today. We continue to believe strongly in our diversified business model with best-in-class origination capabilities across multiple channels that provide access to purchase, refinance and home equity lending opportunities across market cycles. These origination capabilities are complemented by our in-house servicing platform and recapture capabilities, all of which are enhanced by our technology assets and our nationally recognized brand. This diversified strategy enables loanDepot to grow from a de novo start-up in 2010 to at one point become the second largest retail lender in the country. We are confident this strategy will win in today's highly fragmented market and are committed to profitably regaining share. The key is execution, and our team is laser-focused on our plan. Our actions in the third quarter reflect this focus. In the third quarter, we initiated a business transformation that included naming new leadership across all of our origination channels, consumer direct, retail and partnership lending as well as our in-house servicing platform. We also transformed our technology and innovation functions under new leadership. In our consumer direct channel, we realigned our sales leadership team to catalyze new sales strategies under our next-generation lending initiatives. We also announced the formation of a revenue operations and strategy function to be led by our returning Chief Strategy Officer, Rick Calle. On the marketing side, in October, our brand lit up on the national stage during the MLB post season, which through the League Championship Series enjoyed the highest viewership since 2017, including the ALCS and NLCS post-season viewership averaged 4.5 million views per game. Looking beyond the baseball season, loanDepot Park will soon host some of the biggest events in professional sports, including the NHL Winter Classic and the World Baseball Classic, providing our brand with continued strong national exposure. In our retail and partnership channels, we announced new channel presidents, Tom Fiddler and Dan Peña, respectively. Tom is reigniting the energy of our retail channel, emphasizing profitable organic growth and helping ensure our loan officers have access to the best-in-class products, tools and operations in the industry. Dan is doubling down on our commitment to providing value to our homebuilder partners, most recently leading a new relationship with Betenbough Homes. In September, we announced the addition of Adam Saab to lead our servicing business. Our servicing capabilities and portfolio of customers are key parts of our strategy, particularly the flywheel effect of recapturing our existing customers for refinancing or purchase at no additional acquisition cost. In terms of innovation, our Chief Digital Officer, Dom Marchetti, and Chief Innovation Officer, Sean DeJulia, who rejoined the company in August, have already made an impact by introducing AL capabilities to some of our most repeatable and scalable call center functions, both improving performance and driving down cost. Right now, we are pivoting the use of new and emerging technologies across sales, operations and software engineering with an expectation that these innovations will improve the customer experience while driving improved productivity and lower our cost of production. We are just scratching the surface of what this team can do. And last, but certainly not least, in terms of leadership talent, just yesterday, we announced Nikul Patel as our Chief Growth Officer. He will be responsible for growth opportunities, acquisition activities and customer engagement, helping the company capitalize on AL disruption and accelerate our momentum. Nikul is a significant hire that brings a proven track record of success, deep fintech expertise and a strategic mindset, completing the company's leadership transformation. To recap, the third quarter was a period of significant change for our organization, focused on establishing the leadership team that will execute our plan for profitable market share growth. We believe in our strategy and the positioning of our assets in this highly fragmented market. Our focus is on execution, which we look forward to sharing our progress along the way. With that, I will now turn the call over to Dave, who will take us through our financial results in more detail. David? David Hayes: Thanks, Anthony, and good afternoon, everyone. The third quarter reflected the benefits of higher revenue and contained expense growth from positive operating leverage. We reported an adjusted net loss of $3 million in the third quarter compared to an adjusted net loss of $16 million in the second quarter of 2025 due primarily to higher lock volume, higher pull-through weighted gain on sale margin, higher servicing revenue, offset somewhat by higher expenses. During the third quarter, pull-through weighted rate lock volume was $7 billion, which represented a 10% increase from the prior quarter volume of $6.3 billion. Pull-through weighted rate lock volume came in within the guidance we issued last quarter of $5.25 billion to $7.25 billion and contributed to adjusted total revenue of $325 million, which compared to $292 million in the second quarter of 2025. Our pull-through weighted gain on sale margin for the third quarter came in at 339 basis points, within our guidance range of 325 to 350 basis points and compared to 330 basis points in the prior quarter. Our higher gain on sale margin primarily reflected a channel mix shift with a higher contribution from our direct channel and a lower contribution from our joint venture channel compared to the prior quarter. Our loan origination volume was $6.5 billion for the quarter, a decrease of 3% from the prior quarter's volume of $6.7 billion. This was also within the guidance we issued last quarter of between $5 billion and $7 billion. Servicing fee income increased from $108 million in the second quarter of 2025 to $112 million in the third quarter of 2025, and primarily reflects the increase in our unpaid principal balance of our servicing portfolio and interest earned on the seasonal increase in custodial balances. We hedge our servicing portfolio, so we do not record the full impact of the changes in fair value and the results of our operations. We believe this strategy helps protect against volatility in our earnings and liquidity. Our strategy for hedging the servicing portfolio is dynamic, and we adjust our hedge positions in reaction to the changing interest rate environment. Our total expenses for the third quarter of 2025 increased by $19 million or 6% from the prior quarter. The primary drivers of the increase were due to onetime benefits in salary and general and administrative expenses recognized in the prior quarter. Recall that during the second quarter, salaries benefited from approximately $8 million in lower stock-based compensation from equity surrenders and G&A benefited from $5 million insurance recovery of legal fees related to the successful outcome of litigation. Excluding these nonrecurring items, our total expenses would have increased by approximately 2%, demonstrating the positive operating leverage we are striving for as volumes and revenues increase. Looking ahead to the fourth quarter, we expect pull-through weighted lock volume of between $6 billion and $8 billion and origination volume of between $6.5 billion and $8.5 billion. We expect our third quarter pull-through weighted gain on sale margin to be between 300 and 325 basis points. Our guidance reflects market volatility, seasonality in purchase volume, affordability and availability of new and resale homes and the level of mortgage interest rates. Our total expenses are expected to increase in the fourth quarter, primarily driven by higher volume-related expenses from the increase in funded volume as we close the pipeline that started growing through the third quarter. We remain laser-focused on our commitment to profitability and continue to work with a discipline to grow revenue and manage costs while maintaining ample cash and a strong balance sheet. We ended the quarter with $459 million in cash, increasing by $51 million from the second quarter. With our reshaped management team focused on leveraging loanDepot's unique collection of assets, high-quality in-house servicing, scalable origination capabilities and operating leverage, we are positioned to profitably grow volume and market share in the current environment. Assuming a sustained decrease in mortgage rates, we believe we will materially improve our bottom line as the benefits of our scaled branded direct origination platform comes to bear while our investments in technology-enabled efficiency-generating initiatives will provide the foundation for additional momentum into 2026 and beyond. With that, we're ready to turn it back over to the operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Doug Harter with UBS. Douglas Harter: I was hoping you could talk about your outlook for the ability to fund the growth with capital given the upcoming debt maturities and kind of the upfront capital that some growth might take and just how you're thinking about that in the current environment? David Hayes: Doug, David Hayes. Yes, we feel really good about the opportunity to fund additional growth opportunities. We largely have already worked our way through sort of our renewal season for warehouse lines. We've got a great lender group there that have been very supportive of the business. And we also think there's opportunities to upsize as needed. So from the daily funding of the warehouse lines, we're in great shape from our perspective. From a capital structure perspective, we do have an -- the need to take a look at that capital structure in the coming 12 to 18 months, and that's something we're focused on, but nothing that's really going to impact how we operate day-to-day as we sit now. Anthony Hsieh: Yes. Doug, it's Anthony Hsieh. Let me just add to what Dave is saying, and that is once we return to the standard of operations that has led this organization since 2010, we're very confident that we'll be able to grow market share profitably. I just want to remind the audience that we started this company with $70 billion of capital and have grown 38% year-over-year for the first 11 years of our life. So we understand what it takes to grow market share and grow profitably. This market is still highly fragmented. There is a ton of room chasing the leader in the space. So we're very enthusiastic, and we are laser-focused to stay on plan to get back into a standard of operations that allows us to be an industry-leading mortgage bank. At which point the mortgage IQ here and the origination IQ here and then having a fully diversified origination muscle in both builder, joint venture, in-market retail and direct lending, direct-to-consumer model really gives us an edge to scale up, particularly as we all hope that there'll be some growth in volume due to a more favorable interest rate cycle next year. Douglas Harter: And I guess how do you think about the size of the MSR servicing book in that context? Is that something that you would look to grow over time -- regrow over time? Anthony Hsieh: Yes. This is one of our strategic advantages, Doug. The fact that we made an investment to bring servicing in-house. And my mind desires what that was 5 years ago. So we made that investment to bring it in-house because having a direct-to-the-consumer model, our retention recapture is at an industry-leading number. So any time we put a loan in our servicing portfolio, there's an opportunity for us to double dip or have a second bite of the apple without any marketing costs or acquisition cost. So our desire is to continue to mount and increase our MSRs. But at the same time, that is -- that puts pressure on cash. So in order for us to do so, we're going to have to be able to drive down the cost of our production while waiting for the volume of this market to return. Operator: [Operator Instructions] Your next question comes from the line of Eric Hagen with BTIG. Eric Hagen: Maybe following up on that last point because there's all these moving pieces. Have you guys sensitized the portfolio to what the minimum level of originations might be in order to return to profitability? Anthony Hsieh: So let me just make sure I have your question right. Can you rephrase your question again, please? Eric Hagen: Yes. Have you guys sensitized the portfolio or your business to what the minimum level of originations would be in order to return to profitability? Anthony Hsieh: Well, a lot of that has to do with margins, right? Margins are highly dynamic. And in our industry, as soon as that volume returns, then your margins will widen out. So if you look at our Q3 performance, it doesn't take much. So not only does when margins return, when volumes return, we're going to get both the benefit of increased volume and increased margin. So it doesn't take much at all. So we are well positioned for any sort of return. Eric Hagen: Yes. Okay. That's helpful. When the stock got up to $4.50 back in September, did you guys consider any sort of capital raising to help maybe stabilize the capital structure a little bit more? And then if the stock got back up to that level in the future, I mean, are you prepared to put an ATM in place? Or how would you think about potentially raising capital in order to, again, stabilize the capital structure a little bit more? David Hayes: Eric, it's David Hayes. So yes, of course, when the stock traded up, the valuations were at those levels, it was obviously an attractive place to look at raising capital. So we're actively looking at all sorts of ways to shore up the capital structure from potential debt refinances down the road to opportunities for an ATM or follow-on. But those discussions are in flight. So nothing we can share at this point. Anthony Hsieh: Yes. It's Anthony Hsieh. So I mean the best way to combat that is with profitable market share growth. We're just going to get back to our level of comfort and what we've done in this company since 2010. So the market is well positioned for loanDepot to continue to capture market share. And we are obviously always looking at opportunities for capital. But as we continue to reposition our organization for increased originations, I think that will solve a lot of our issues going forward. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call back over to Anthony Hsieh for closing remarks. Anthony Hsieh: Thank you. On behalf of Dave, Jeff, Dom and the rest of our team, I want to thank you for joining us today. The pieces are in place. We're executing a bold strategy to compete at the highest levels by returning to our core strength. Our approach is centered on retaining top talent with exceptional attitudes, deploying leading-edge technology and drive operational efficiency and innovation, delivering superior product and service levels to our customers and leveraging these assets to drive profitable market share growth. This is how we win. The disciplined focus positions us to create sustainable value for our shareholders while accelerating growth in a competitive landscape. So thanks again, everybody, and I appreciate your support. Operator: This concludes today's conference call. You may now disconnect.
Unknown Executive: Good morning, everyone, and welcome to SLC Agricola's Earnings Video Conference for the Third Quarter 2025. My name is Andre Vasconcellos. I am the Planning and Investor Relations Manager. Joining me today are our CEO, Aurelio Pavinato; and our CFO and IRO, Ivo Brum. It's a pleasure to be with you this morning. We would like to inform you that the conference is being recorded and will be available on the company's Investor Relations website where you can also find the presentation. [Operator Instructions] We would like to remind you that the information in this presentation and any statements made during the video conference regarding our business outlook, projections and operational and financial targets are the beliefs and assumptions of the company's management and are based on information currently available. Forward-looking statements are not performance guarantees. They involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not occur. Investors should note that general economic conditions, market factors and other operational elements may affect the company's future performance and lead to results that differ materially from those expressed here. Now, I would like to turn the floor over to our CEO, Aurelio Pavinato, to begin the presentation. Pavinato, please proceed. Aurelio Pavinato: Thank you very much, Andre. Good morning. We thank everyone for joining SLC Agricola's 3Q '25 Earnings Video Conference. Please let's advance to Slide 4 to discuss the cotton market. The third quarter of 2025 was marked by stable cotton prices in both the international and Brazilian markets, hovering around $0.68 per pound, reflecting global supply and demand fundamentals. According to USDA data, global cotton consumption for the '25, '26 crop year is estimated at approximately 120 million bales compared with production of 118 million bales, resulting in a global supply-demand deficit of about 1 million bales. On the demand side, the spinning industry has been operating strategically, keeping inventories of raw materials and finished goods below historical averages. This behavior reduces future market liquidity and puts downward pressure on prices. The industry has scaled back amid growing risk aversion, driven by a tougher global backdrop of high interest rates, inflation and geopolitical tension. We believe that stabilizing inflation and the interest rate cuts now underway in the United States and Europe, both which are key textile consuming regions are fundamental steps towards improving business and consumer sentiment globally. Now let's move to Slide 5 to discuss soybeans. Soybean prices, both on the CBOT spot contract and the Paranagua basis showed significant volatility throughout the third quarter of 2025, while in Mexico, prices remained relatively stable. One of the main factors to watch right now is the progress of the U.S. soybean harvest. The country's planted area has fallen roughly 7% from 87 million acres to 81 million acres. And globally, supply is projected to exceed demand by about 2 million tons, one of the smallest surpluses in recent years. Now moving to Slide 6. We'll discuss corn. Corn prices on the CBOT spot contract and in the Brazilian domestic market fluctuated in divergent ways over 3Q '25. In Brazil, corn prices, in spite of some short-term declines, continued to find strong support from increasing domestic demand, fueled by the expansion of the corn ethanol industry. Globally, the corn market is currently balanced with production is now outstripping demand by only 5.7 million tons. Let's go now to Slide 8 to discuss our operational performance in the past crop year '24-'25. Soybean harvest was fully completed, reaching 3,960 kilograms per hectare, 21.4% above the previous year, virtually in line with budget and 9.4% above the national average. Cotton reached an average yield of 1,845 kilograms per hectare below both the plan and the national average, mainly due to drought conditions in Bahia. Second crop corn achieved a historical record yield of 8,243 kilograms per hectare, 9.3% above initial projections and above the national average as well. In Slide 9, we look at unit costs for the '24-'25 crop year, which due to higher productivity showed a significant drop compared to '23-'24. Soybean unit cost fell 27.4% in comparison to the previous crop year. Corn decreased 17.5%, while cotton averaging first and second crops rose 3% due to lower yields and higher use of crop protection inputs. In Slide 10, we will show you our current hedge position for the '24-'25 crop year. We have further advanced in our hedging positions for the '24-'25 crop year for soybeans. Including commitments, we locked in 99.7% of production and for corn, 96.4%. And for cotton -- now I'll turn it over to my colleague, Ivo Brum, to comment on our financial performance. Ivo, please continue. Ivo Brum: Good morning, everyone. Could we please turn to Slide 12, which highlights a few key points in our income statement. Net income for the quarter totaled BRL 2.1 billion, up 28% year-on-year, reflecting higher soybean and corn volumes sold. Year-to-date revenue reached BRL 6.3 billion, up 27%. Both quarterly and in the 9-month totals, we marked record highs. Our adjusted EBITDA in the quarter was BRL 531 million with a margin of 25.5%. Year-to-date adjusted EBITDA reached BRL 2 billion with a margin of 32.3%, consistent with historical performance. Net income for the quarter was a loss of BRL 14.5 million, a decrease of BRL 2.8 million versus the prior quarter. The variation reflected an increase of BRL 343 million and also higher SG&A expenses and other operating items totaling BRL 132.4 million, of which BRL 51 million were non-recurring linked to the sale of Sierentz' spin-off company, a negative financial result of BRL 126.6 million and an increase of BRL 81 million in income tax and social contribution taxes. The main factor behind the loss recognized on the sale of the Sierentz' spin-off was the inclusion in the spin-off of all historical development CapEx related to those areas. Since these amounts had been incurred in prior periods, they were not directly considered in the valuation of the transaction. Over the 9-month period, net income reached BRL 636 million, up 19.3% year-on-year. Cash generation was BRL 567 million in the quarter, while 9-month cash flow was BRL 1.5 billion, reflecting ongoing investments. Free cash flow was positive in the quarter, capturing the typical financial cycle moment between harvest cost payments and the '24-'25 crop and start of the corn and cotton billing. During the quarter, we paid the first installment for the Sierentz acquisition and received proceeds from the sale of the spin-off company to Terrus, resulting in a net outflow of BRL 268 million. For the year-to-date, key investments included BRL 180 million, final payment for the Paysandu farm, BRL 229 million, final acquisition of the minority stake at SLC LandCo, BRL 361 million Fazenda Paladino acquisition, BRL 95 million acquisition of Fazenda Unai, BRL 103 million minority stake in SLC Mit, BRL 268 million, first Sierentz Agro payment, net of Terrus proceeds and BRL 241 million relating to dividend payments for the fiscal year of 2024. On Slide 13, we look at our debt position. Adjusted net debt at the end of 3Q '25 stood at BRL 6.2 billion, up BRL 2.8 billion versus 2024. This increase is mainly due to strategic investments we made. The net debt over adjusted EBITDA ratio closed the period at 2.34x. On Slide 14, we look at the debt profile. Well, there was an evolution compared to 2Q '25 because our long debt share rose from 65% to 69% with an average maturity extending from 980 days to 1,168 days. On November 6, the Board approved a new share repurchase program of 10 million shares to be held in treasury for subsequent sale or cancellation. Now, I'll turn it over again to Pavinato to discuss the '25-'26 crop outlook. Aurelio Pavinato: Well, let's turn to Slide 16 to discuss the outlook for the '25-'26 crop year. Planted area for this season will total 836,000 hectares, up 13.6% over '24-'25. Cotton area will grow 11.1%; soybeans, 14.2% and corn, 29.3%. We can now go to Slide 17 to talk about the planting of soybeans. Early soybean planting, which allows for subsequent cotton and second crop corn cultivation began on September 18. And by November 4, we had planted 62% of the area and the fields have been showing good development. On Slide 18, we look at the productivity and estimated yields for '25-'26. Company's expectations for crop potential are based on historical trends and consider its historical trend and also the maturity of the fields. We now go to Slide 19 to comment on costs per hectare. Total budgeted total cost per hectare stands at BRL 7,082 per hectare, up 9.7% from '24-'25. Final cost adjustments reflect the procurement of inputs now nearly completed. The main factors driving the increase are higher fertilizer volumes for soil nutrient replenishment and also improvements to our crop protection programs. Now moving to Slide 20. We discussed the current hedging position for '24-'25 and '25-'26. We have also made advances in the '25-'26 hedging. We have now 60.2% of soybean output fixed, 27.2% of cotton locked and 18.6% of corn. On Slide 21, we announced our sales forecast of seeds for 2026. Estimated seed sales to third parties, combined with internal use totaled 1,800,000 bags, up 28% year-on-year. Cotton seed sales, including internal consumption are projected at 157,000 bags, an increase of 8.3% in comparison to the previous year. On Slide 27, we revisit the irrigation project disposed on July 9, in which we shared the company's expectations regarding the growth of the irrigated area. In the '24-'25 season, the company had 16,025 hectares of irrigated area. For the current season, an additional 6,303 hectares will be implemented, totaling 19,385 hectares with irrigation. The goal is to reach 53,180 hectares in coming years. Irrigation will help mitigate climate risks, maximize land use through second crop production, increase land value and boost yields and stability in a sustainable way. Now let's turn to Slide 25, in which we'll discuss the business strategy of the deal announced yesterday on a material fact, the association between SLC Agricola and the private equity investment funds managed by BTG Pactual. The objectives are to monetize farmland at market value, maximize operational efficiency through irrigation projects and establish agricultural partnership contracts. The remuneration of the partner is 19% of our agricultural output and the term of the agreement, 18 years. which later can be renewed every 3 years. Finally, we go to Slide 26, in which we'll take a look at the structure of this deal. Special purpose entities will be created with SLC Agricola holding 50.01% and the private equity investment funds FIPs managed by Banco BTG Pactual with 49.99%. SLC Agricola will contribute Fazenda, Piratini and its irrigation infrastructure at market value. The funds will invest BRL 1.33 billion, of which BRL 914 million will be paid upfront at the closing and BRL 119 million upon completion of the Piratini's irrigation project expected for the second half of 2026. Using these proceeds, the SPEs will acquire Fazenda Paladino from SLC Agricola for BRL 723 million, paying BRL 361 million upfront and BRL 361 million in March 2026. Besides that, the SPEs will also purchase irrigation infrastructure at Piratini and Paladino for BRL 86 million and BRL 27 million, respectively. Remaining funds will go towards project implementation at the SPEs. The land-owning SPEs will sign rural partnership agreements with SLC Agricola for grain and fiber cultivation, with sharing of production outcomes. SPE remuneration will be equivalent to around 19% of agricultural output from the partner areas. The initial contract term is 18 years, automatically renewable every 3 years. On the next slide, Slide 27, we look at the irrigation project and farm locations in this deal. Fazenda Piratini is located in Jaborandi and Fazenda Paladino is located in Sao Desiderio, both in the state of Bahia. The 2 farms together have a first crop area of 39,523 hectares, with plans to irrigate 27,934 hectares, adding both will reach 67,457 hectares of planted area with a growth of 71%, an expansion of 71% in our irrigated area. Projects include monitoring of the Urucuia Aquifer, the use of artesian wells and efficient pumping systems to reduce losses and increase efficiency. Thank you very much. And now we'll open our Q&A. Unknown Executive: [Operator Instructions] So, here's our first question from Mr. Lucas Ferreira. He is from JPMorgan. Lucas Ferreira: I have questions about this transaction announced yesterday with the FIPs, with the private equity investment funds. I would like to understand if this transaction is just something for use for leveraging your balance sheet or if it -- if there is room for a larger partnership in the future? It's clear that you want to accelerate your irrigation project. And the second question is really -- well, since this is quite a complex deal, part of the production will be with the FIPs later, with the funds later. Did you consider Piratini based on your annual valuation? And what can you share in relation to the implicit cost of this deal with the sharing of volumes later down the road? Aurelio Pavinato: Thank you very much, Lucas, for this question. Yes, Lucas, let me try to give you more details on the deal. So, we have contributed the Piratini farm at the appraisal value. So this is what we contributed in addition to the irrigation systems we had implemented as late as last year. So now the SPEs will own the land. They will own the infrastructure and also the irrigation system. And SLC Agricola will run the 2 farms. With the funding we have obtained, we are going to acquire the Paladino farm. So when we consolidate both of them, we'll have 50% and the funds will have 50%. So as if we had sold half of each farm, so we'll continue to own 50% of Piratini and 50% of the Paladino farm. This is the rationale, right? Our contribution is the Piratini farm. And the investors' contribution is the money, the money we'll use to buy Paladino that we had acquired from Mitsui just a couple of months ago. So, we are incorporating it in the deal. And the SPEs will be doing additional investments in irrigation. So with this, we can accelerate our irrigation project and also accelerate value creation in the farms. They are now, of course, going to start producing irrigated crops. We're going to have 2 crops a year instead of 1 like today with much more stability. So in our understanding, we will add value without contributing any funding. So, this is the mathematical equation behind this deal. We are unlocking value from our real estate assets. We are using our real estate to unlock value and accelerate irrigation investment, adding value to our agricultural output. And the 19%, this is the rationale in which we have adequate return for both investors and ourselves. Unknown Executive: Now let's continue with Isabella Simonato, Bank of America. Isabella Simonato: Well, I would like to know about the cotton cost performance in the '24-'25 crop year. There was a revision of realized costs. So, could you please shed some light on the drivers behind this performance? And if you could also give us some flavor on the '24-'25 crop that is still to be sold in the '26 fiscal year? I think that this will give us a clear understanding of the picture. Unknown Executive: Can I answer? Isabella, in fact, the cost of the '24-'25 crop year was under the impact of the climate issues in Bahia, and we applied more crop protection inputs. Of course, this raised costs. When we analyze costs, it's important to compare the costs with the budgeted dollar exchange rate at the time. So, part of the inputs were more expensive, but at the same time, we had an offset with revenue. This actually was balance of our hedging. There was no loss of margin. So, we have to factor the exchange rate variation as well. This is what explains the difference in costs. And by the way, Isabella, that's why our realized cost '24-'25 was above budget. And when we look at the budget, we see an increase of 9.7% in comparison to the budget. But in comparison to the realized, it's a much lower increase. So, we are delivering the results in '24 and '25. So the increase in cost is 9.7% for us. But in comparison with the actual this year, it's a much lower difference, 4%, not 9% of increased costs in the comparison between those 2 years. And also, in terms of volume, we want to deliver at least 45% of the volume produced '24-'25 until the end of the year. The harvest was completed in August. We started processing. So the volume carried over in this quarter is not significant. Most of the volume will be recorded in the fourth quarter, in fact. Unknown Executive: Now, our next question from Mr. Henrique, Bradesco BBI. Henrique Brustolin: There are 2 areas I would like to explore. Firstly, on the deal, the first point is how easy it is to replicate this model in the future, creating partnerships to finance expansion and also the installation of irrigation systems? And also with the BRL 836 million for SLC, what changes in the way we consider your capital allocation strategy from now on? The reason I'm asking is because you were incorporating the transactions to deleverage, but this gives you some room in the balance sheet to expand acreage and also to implement irrigation systems. So, should we consider this? Also in relation to cotton this quarter, when we look at the cotton margin, unit margin where there was a 3% increase and the unit cost also changed. How recurring -- is there a recurrent effect on the margin for cotton like this quarter? I know that it was a mix of farms that could be the reason, but how representative it is as a recurring factor from now on? Aurelio Pavinato: Thank you very much, Henrique. Let me talk about the deal and expansion. Well, we were really -- we had a long negotiation. And well, the future is yet to come. Nobody knows what could happen. But the model we created is a first for us. So if it's successful, it will open doors for rolling out the replication of this deal, this deal that we created with the funds. Okay. Ivo, would you like to discuss capital allocation? Ivo Brum: Yes. It's just like you said, Henrique, this created an important opportunity to continue growing if opportunities arise. We won't buy as many assets. We'll focus on leases. There is a working capital and CapEx and also machinery. There are some constraints, but this positions us on a good platform for growth. Now speaking of cotton, we had loss of margin in cotton this quarter resulting from -- well, of course, the mix of farms. In this quarter, specifically, we harvested in Bahia and Bahia, of course, we had an early harvest in August and the margin specifically for Bahia was smaller because we didn't have as big as an output. And so there is an expectation that margins will improve because we'll have now Mato Grosso harvesting. So, we should not consider this margin as the average for the entire harvest this quarter. Unknown Executive: Our next question is from Matheus Enfeldt, UBS. Matheus Enfeldt: Well, my first question is about the soybean productivity and the '25-'26 harvest. We are tracking rainfall on your farms, and it seems that in October, rainfall was a little below expectations and also quite below the historical record, which was last year. So, did your yield consider this? Did you consider the effect of climate for this year? Or is there any reason to be concerned in relation to rainfall? And also the second question on cotton, Pavinato. Could you give us some insight on the potential for Brazil to continue adding cotton acreage? Well, some analysts are saying that cotton acreage will reduce next year. Do you see an opportunity for expanding cotton acreage in Brazil? And also, there was an expectation of conversion of additional areas to cotton in future years. Are you thinking of following up on this plan, increasing cotton, especially considering the price levels we are witnessing today? Aurelio Pavinato: Thank you very much, Matheus. Matheus, in Mato Grosso this year, well, in September, it rained above the historical average. So it was very good rainfall at just the right time. In October, we didn't get much rain in Mato Grosso. So, there are some farms that were some -- under some rain deficit and others not. So when we look at the overall picture in Mato Grosso, it's fine. We have some farms with great potential and some fields not more than 5% to 10% that suffered with the rainfall deficit in October. So in November, the rain cycle resumed as normal. So it will depend on November and December. If it rains as expected, we are looking at very good yields in Mato Grosso. So, this is the summary, right? So the Mato Grosso farms are going well. And in the other farms, Maranhao and Bahia, it's now raining. So, we are expecting that our project will be met. This is a La Nina year, very similar to last year. So, we expect normal rains in coming months in the Northeast with a very good crop. About cotton now. In recent years, Brazil has really secured a strong foothold in this market. Brazil today is responsible for 14% of the world's output. We represent 30% of the exports. Something that 30 years ago -- well, we used to import cotton, and we were completely irrelevant in this market, in cotton market. And in the interval, consumption really didn't change much. So in fact, we were occupying the position of other players. And why? Because Brazil is very competitive. Our yields in Brazil in cotton is the best in the world. So when we think of Brazil, we are really a strong player. So the price levels today are low. They are not really encouraging the expansion of planted areas. So, we are seeing some downward revisions in planted areas, especially among the new entrants. They are now suffering more. Now, those who have stable operations will maintain their planted area. But in the average, we'll see a reduction in the planted area in Brazil, which is convenient, especially considering the slowdown in demand. Well, demand is growing very slowly. It's really inching little by little. We are now going to reach BRL 169 million bales of consumption. So when prices are lower like they are now, this encourages some pickup in demand. So at SLC, we analyze the data really farm by farm to see what crop is more profitable in each farm. But at this price level, we probably won't be stepping up on the gas in terms of new projects. We are going to wait for the price moves to really make our decisions. We want to maximize the use of the assets we have today. Cotton is a long cycle crop with a long financial cycle as well. So with high interest rates, you shouldn't really allocate much capital in CapEx and working capital, which is something cotton is very demanding about. So, you have to think of how much we're going to grow in 1.5 years. So, this is our vision on the expansion of the cotton area. Now the irrigation project in Bahia is aimed at planting first crops, soybeans and cotton in 3/4 of the area for the second crop. So, we're going to expand in Bahia cotton as second crop, which is the cheaper and the more efficient cotton. And that's why we see now the second crop in Mato Grosso for cotton expanding now and also in Bahia, but supported by irrigation. Matheus Enfeldt: Justa quick follow-up, Pavinato, if I may. This idea of waiting a little bit for the cotton expansion, does it also apply to the Sierentz areas that you had been planning to start planting cotton on in 2 or 3 years? Aurelio Pavinato: In fact, we now have 3 farms. We have one farm where we are building a cotton farm in -- [ right besides it ]. So we're going to have -- and the other farm has a great potential for soybean and second crop corn. So we'll calculate -- make the -- crunch the data. And probably in this case, we're going to delay the investment in cotton in the second Maranhao farm. As for the Parana farm, we never thought of planting cotton there, just soybean and corn. This combination of high interest rates and low prices is discouraging. Now if interest rates go down, then maybe it will make sense to plant cotton because to invest paying 15% a year in interest rate is a weighty consideration in any investment. Unknown Executive: Our next question is from Gabriel Barra, Citi. Gabriel Coelho Barra: In fact, I have a question and a follow-up. When we think that the buyback program, the share buyback program you have just approved, I would like to give it more of a framework when we consider the liability of the company. We see that the amortization cycle from now on -- well, we still have a very comfortable position in terms of income. And the net, however, is a little higher than expected. And so I would like to combine this question with the following. So how do you view the buyback program in view of the deleveraging process of the company, especially now that this program has been approved? And the second point on capital allocation in the rolling of debt. Ivo has just talked about interest rates in Brazil and your debt still is correlated with the BRL and CDIs. So are you thinking of having issuance of a paper overseas? We see that the credit markets are a little more stressed out. So, what's your view on your liability management program? And at the risk of sounding repetitive, in relation to the deal, a very interesting point for me is the remuneration of SPE, which is different from the sale leaseback in bags of soybean. So if I understood it correctly, there is also an upside in terms of productivity and yield. So it's a win-win. So my question is, what do you expect in yield by implementing irrigation in both farms? Do you have an estimate? What could we expect in terms of increase of yield after irrigation? Ivo Brum: Well, about the share buyback program, Gabriel, I think that -- I think that what's important in this deal is that we're going to bring the company to a leverage level we feel more comfortable with. Our Board discourage us from going over 2x, and we are now at 2.3x. So it's really our objective in deleveraging. And of course, we could go back to go to using other leases. But in terms of share buyback, since the shares are being traded at a very low price, it doesn't make sense to buy more land. So if we had, for example, an opportunity emerging of buying more land, we know that SLC is the best investment for our shareholders. So, we want to grow leases instead of owned land. So, this is what the share buyback program indicates. About issuance of a paper, well, we've been thinking of taking debt in USD. You'll see at the balance sheet that we have now some debt coming in dollars now related to the Sierentz acquisition. And we, of course, have to adjust this with our hedge accounting policy. And we think of taking short-term loans in dollars because long-term dollar debt is more difficult to manage. But this is what we're considering in terms of exposure to dollar. Okay. What about yield? Pavinato, you go. Aurelio Pavinato: So, what is the rationale when we create a business plan thinking in the long term like this? If you look at our history, we have an EBITDA margin, a net margin, and this is the result of commodity price, production cost, exchange rate and yield. Those are the 4 variables that define this. And a long time, the productivity gains, the yield gains generated value, added value to whom? They add value to the entire chain. Well, Brazil has increased yields more than competitors. So, we are capturing some of this value and applying this to our operations. In 15 years' time, yields will be even more higher than the yields we have today, of course. But as a consequence, production costs will be higher in 15 years' time. Will our EBITDA margins be higher than now? No, we don't believe so. We'll be more competitive in the international markets, but our EBITDA margin will be similar to the one we have today, depending on how efficiently the operations are managed. So the partner will participate in the revenue, but not in the costs. So, maybe this is the bottom line of your question. We're going to transfer a percentage of the EBITDA margin to this part of the SPEs. And in the SPEs, we hold 50%, a 50% stake. So it actually goes back to us. This is the rationale. In fact, agricultural partnerships for us as agriculture operators is the sharing of the proceeds, but in a much more resilient way because we know that there are some years in which we experienced crop failures with low yields. And who suffers? The operator. The landowner will get just as much. But now when we have a real partnership, like in this case, if there is a climate event leading to crop failure, the partner shares the losses too. So considering the long-term plan to grow our lease areas, this agricultural partnership mitigates risks, in fact, because I will never pay in a lease a higher percentage than that even in years when the output is not so good. So in fact, the partner is now going to be exposed to both variables, not only to price. Today, lease -- when we lease based on bags per hectare, the partner is only exposed to price, not on anything else. So, this is what we believe will add value in a very fair way to both partners. Gabriel Coelho Barra: I'm sorry. I think maybe I wasn't clear. It was about upside and downside. With high yields, your partners will also get more. So, I would like to know how much you can generate in terms of additional yield, thanks to irrigation? This was the focus of my question. Aurelio Pavinato: Okay. Let me complement then. Well, today, we have one culture that sometimes has good yield and sometimes 70% to 80% of the potential. And the productivity of this farm is just at 90% of the potential. Now with irrigation, my yield will rise to 110%. So, I'm not going to lose any yield. So in terms of revenue, if today I get 100 in revenue, this will go to 220 with irrigation, 220, 230, this is the potential value generation with irrigation. Unknown Executive: Our next question is from Thiago Duarte, BTG. Thiago Duarte: I have a question about the gains to be obtained with irrigation, but from a different angle. Pavinato, what's the cost associated with the building of infrastructure for irrigating 1 hectare, right, especially considering what this -- the comparison between the irrigated land and the dry farmed area? I would like to know what would be the return considering the market conditions of today? Aurelio Pavinato: Let me answer this question, please, Thiago. Well, including all of the infrastructure that you need, electrical bidding, et cetera, BRL 25,000 per hectare, this is the cost, okay, for you to generate this additional revenue. Actually, I would even think that it's -- I think that the gains will be even higher because it's cotton second crop, right, so with even higher unit revenue. Yes, yes, you're right, in fact, Thiago. If you consider only yield, it's 230. But if you consider cotton, yes, because I have 1 year -- soybean 1 year cotton. In 2 years, 8,000 and 20,000 with cotton. So, 30,000 in a 2-year period. But now the 30,000 will be generated in addition to the higher yield per year. So in the same year, both crops with much higher yields. And in the case of cotton in Bahia cotton with irrigation, well, it's been very good and really surprisingly good. And with lower risk because there won't be any crop failure. You become the rainmaker. Thiago Duarte: Yes. Perfect. This is very clear. Now, my second question. This has been already discussed, right, the project and the budgeted costs for next year, growth of 9.7% or 4% if we consider the effective cost for '24-'25. Could you please explain more about the increased costs? Really trying to break down what is volume and what is cost because I'm under the impression that part of the cost hike is associated with the need for greater soil correction. So is this part of the picture, this one-off effect with the land that you're adding, especially when we consider the costing base for next year? Unknown Executive: Perfect. Thiago, in fact, our budget for '24-'25 was defined, but we had to use more crop protection, especially in cotton in some of the varieties and we ended up spending more than expected. Now in '25-'26, crop protection, again, we have prepared the budget, adding additional products, and we have now a package of crop protection for '25, '26. As for fertilizers, we are applying fertilizer in a more efficient way, and this not only in the newly added land in this scenario where fertilizer prices, for example, phosphorus and potash, we bought more cheaply than last year, and our fertilizer package didn't really see any increase in costs. A very small variation of 2% to 3% in dollar. In BRL, the prices didn't go up. We made good purchases for '25-'26. So we were -- we planned our fertilization program in a more efficient way. So, we really were trying to find out why the costs. It's really our planning that is leading to this increase, especially in the dollar-based accounts, which are the inputs. In BRL line items, we have inflation in services. This is what also drives costs up. So, this is the summary. This is what justifies the increase of costs in the '25-'26 crop year versus '24-'25. We are compensating this with higher yields, actually outstripping the target for this year. And there's an offset also because the prices in BRL, we have some hedging in that are favorable to us. So, we will be able to deliver higher profitability rates. This will also depend on yield. Yield will be the determining factor in the '25-'26 crop year. Thiago Duarte: Okay. But this -- you said that it's actually more volume per hectare than price that is causing the effect, right? And is this volume a one-off thing? Or is it something different? I would like to understand how recurrent this effect is. Unknown Executive: I'll answer. If prices continue low, volume will go down in the following crop year. If prices rebound, maybe it won't go down. So it's correlated with commodity prices and how much we invest. Unknown Executive: Our next question is from Mr. Leonardo Alencar from XP. Leonardo Alencar: Congratulations on the results. And by the way, I would like to go back to the deal, if I may. Pavinato, you said that this is something that was an elaborated deal. It took a long time to prepare. But well, considering that part of the attractiveness of this deal lies on the fact that you had recently acquired some land that required irrigation. But if we think of other occasions that could lead to this unlocking of the land value at the appraisal level, would it make sense for you to think of different sharing schemes because you mentioned that this model -- you could have another lease model where the leasing partner would also share the risks. So, do you think that -- does it make sense to you? And in addition to this, a quick follow-up on SG&A, where there was an increase. You talked about the freight for corn because of Sierentz. Is this a one-off thing? Or will there be more impacts coming in the future? Unknown Executive: Thank you, Leonardo, for your question. I'll start with the answer with the second one. Well, in fact, we've -- well, we've created this deal. It's a structure that work, but rolling out more deals like this will depend on opportunities that emerge. We were able to create this, and we think that expectations were met both on our side and the investor size, and this is not going to be automatically replicated. We need this good fit in terms of the value of the land, the value potential of the operation so that we can really create more similar deals. There's always potential to do more, but something that we have to think about in the long term. Leonardo Alencar: Well, let me just explore that for a moment. If there is another partner on the table, do they share any other strategic value? Or is there demand from other partners that seek this type of deal or this is something that's very new and people prefer the traditional lease deals? Unknown Executive: Well, think of an 8-year agreement. Nobody who is thinking of the short-term and short-term results would engage in something like this. So, this is the profile of the investor looking at deals like this. And that's why there's always a rationale and a strategy behind each deal, and it takes proper analysis and the commitment of long-term investors really to work out. Leonardo Alencar: What about SG&A? Unknown Executive: Well, there is an important difference in the way Sierentz would sell, would trade their commodities. They deliver at corn as well. So, there is a freight cost that could be better, but we need to factor in. There was also a super production of corn. This increased our storage costs and had an impact in our SG&A. And in administration, we had significant expenses related to the Sierentz deal that was also reported under this line. And yesterday, the deal also, we had to use auditors, consultants, attorneys. All of this adds to the expenses, but they are one-off expenses. They are not recurring in any way. Unknown Executive: Now let's continue with Gustavo Troyano, Itau BBA. Gustavo Troyano: Two points I would like to discuss with you. Firstly, we've talked about the SPEs and potential return. But what about the timing of these irrigation investments, specifically? You said that Paladino would be from '28 to 2030. But what is the step-by-step process to get there? Once approved in terms of water intake and electrical feeding, is this CapEx going to be disbursed all at once to understand what the curve looks like? And the second question about capital allocation. Can you tell us a little bit about future opportunities? We have talked about expansion in leases, expansion in irrigation. And I would love to hear from you, especially considering the growth of corn-based ethanol in Brazil, can you ride this wave either through a partnership with an industrial operator? We saw some of these deals taking place in Brazil. And in the relation between lease irrigation and potential of corn-based ethanol, what would you give priority to? Because, of course, there are lots of projects and limited capital. But I would like to know what's in your mind. Unknown Executive: Thank you very much, Gustavo, for this question. The investment in irrigation in this project that we announced yesterday at Piratini, well, we have the water intake facilities and the power is already established. So, we are starting with the investment in 2026. So, cash generation and the creation of the SPEs. In Paladino, we have said '28 to -- from '28 to 2030. We have most of the water needed and all the licenses will probably get obtained very soon, but not -- we don't have yet the electrical feedings. So, that's why we consider that the investment will run as of 2028. And in the SPE cash generation, we will have the funding for those investments in 3 years or in 2 years. It depends on the decisions taken at the specific time. So, we are feeling comfortable with the design for this project and the meeting of the deadlines. About capital allocation, when you have several options to allocate your capital, it's always a good thing. You're not forced to choose just one way, right? And it really depends on the cost of capital. Right now, cost of capital is very expensive. So, we really have to think it over. And as we said before, irrigation, well, we're going to allocate capital because it makes sense. It is strategic because it will increase output, will increase yield. It will add stability and helps mitigate risks for the company. So, there is no doubt in our mind. And as for the other possibilities you've mentioned, well, there are possibilities. So, we're going to decide how to allocate our capital. So, maybe considering the share buyback program, maybe this is the best way to go especially because as the company grows and we start deleveraging below a level of 2x, then we'll be able to invest or make other investments, but buyback is always a good option, especially now that SLC is being traded at 50% of our NAV. But thinking of the long term, am I going to grow? Am I going to add value? Or am I going to buy my shares back? All of this has to be factored in. Unknown Executive: Okay. So, this video earnings conference call on the third quarter 2025 is now closed. Our Investor Relations department will be happy to take any questions. We thank all participants and wish you a great day. Thank you.
Operator: Greetings, and welcome to the NHI's Third Quarter 2025 Earnings Webcast and Conference Call. [Operator Instructions] And please note this conference is being recorded. I will now turn the conference over to your host, Dana Hambly. Dana, the floor is yours. Dana Hambly: Thank you, and welcome to the National Health Investors conference call to review results for the third quarter of 2025. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this call were released after the market closed yesterday in a press release that's been covered by the financial media. Any statements in this conference call, which are not historical facts, are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the year ended December 31, 2024, and Form 10-Q for the quarter ended September 30, 2025. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I'll now turn the call over to our CEO, Eric Mendelsohn. D. Mendelsohn: Thank you. Hello, and thanks for joining us today. We had a solid quarter, highlighted by the transition of 7 properties to our SHOP portfolio which resulted in consolidated SHOP NOI growth of approximately 63% compared to the prior year's quarter. We also announced our first SHOP acquisition for $74.3 million effective October 1. We've surpassed last year's investment total with more deals expected to close this year, and we're working on a strong active pipeline that should generate similar or higher external investment activity in 2026. We're raising our guidance for the third time this year. Our updated guidance represents over 10% NFFO per share growth at the midpoint, which would be the strongest annual growth since 2014. The momentum at NHI is building. We are well positioned and laser-focused to capitalize on the generational growth in the senior housing industry over the next decade. As I noted last quarter, we have methodically invested in creating a strong foundation across all of our disciplines that will allow us to significantly expand our presence in private pay senior housing, where we see the greatest risk-adjusted returns. We've onboarded 11 properties and 2 new operators to the SHOP platform in just the last few months. Combined, the recent additions should more than double our annualized SHOP NOI from approximately 5% to 10% of total adjusted NOI. Through strong organic growth and continued acquisitions, our current view is that our SHOP NOI should more than double again in 2026 to at least 20%. We've taken corrective measures in the same-store portfolio and are confident that it returns to double-digit growth levels in 2026 as it did in 2024 and through the first half of this year. This portfolio has been an important part of our development as we are starting to ramp up the SHOP platform. As we evaluate new opportunities, we're placing a high priority on operators and assets with solid trailing performance that should lead to more consistent and exceptional multiyear NOI growth. The pipeline activity indicates that acquisitions will be a meaningful component of our growth profile for the next several years. We've announced investments of $303.2 million so far this year and currently have approximately $195 million under signed LOIs, which we expect to close in the next few months. We have a large incremental pipeline of active opportunities entirely focused on senior housing, including a significant number of SHOP deals. The balance sheet continues to be supportive of our ample capital needs. Our net debt to adjusted EBITDA at 3.6x is below the low end of our target range, and we have available liquidity of over $1 billion. We believe this low leverage and strong access to capital creates a real competitive advantage as we're able to move quickly and with limited closing risk. Touching briefly on the NHC rent negotiation, we disclosed last night that NHC has notified us of their intent to renew the master lease for one 5-year term commencing on January 1, 2027. Management and the special committee are currently reviewing the effectiveness and legality of NHC's notice. Before turning the call to Kevin, I'd like to conclude to say that NHI is in a great position with several levers to pull both internally and externally that we expect to drive exceptional long-term FFO per share growth. The third quarter benefited from some nonrecurring items, but we believe the core remains strong and well positioned to create sustained shareholder value. The industry tailwinds are gusting, our financial health is peak, and we have invested in the people and resources necessary to scale our future growth. Kevin? Kevin Pascoe: Thank you, Eric. The transition of 7 properties to the SHOP portfolio is just over 3 months old, and we are happy with the early results. The third quarter NOI from these assets is above the prior cash rent, and we now expect that the 2025 NOI contribution exceeds our original forecast of approximately $3.7 million. As with any transition, we expect some impact to near-term growth with the introduction of new management and systems but still expect this portfolio to contribute meaningfully to SHOP NOI in 2026. We also completed our first SHOP acquisition, including 4 properties for $74.3 million on October 1 with Compass Senior Living as the operator. Our relationship with Compass formally began in 2024 through a $9.5 million mortgage loan with purchase options on 2 properties in Oklahoma. In the process of looking for ways to expand the relationship, Compass brought us the opportunity to acquire 2 more properties that they operate in Oregon, which led to our first SHOP acquisition. We expect the first year NOI yield on these stabilized properties to be 8.2% or 7.5% adjusting for recurring CapEx. As noted on our earnings press release, the balance of our mortgage and other notes receivable declined by $43.8 million compared to the second quarter due primarily to large paydowns on a couple of loans with limited or no opportunity for future ownership. While this may slightly weigh on near-term interest income, we are excited to be able to recycle this capital into investments with greater long-term value, including opportunities similar to the Compass deal I just described. On that note, the pipeline is active as ever with $195 million under LOI with an average yield of approximately 8.4%. This includes a mix of shop, triple net and loan-to-own opportunities all in senior housing. We expect to close these deals in the fourth quarter and first quarter of 2026. Turning to our operating performance. Total SHOP NOI increased by 62.6% compared to the third quarter of 2024 due to the transition of 7 properties on August 1. The same-store NOI on the 15 legacy Holiday properties declined by 2.2% year-over-year, which is obviously not an acceptable result for us. Occupancy declined by 110 basis points from the third quarter of 2024 and 160 basis points sequentially. We experienced higher move-outs during the quarter, key personnel changes, 15 units taken out of service and approximately $0.2 million in nonrecurring costs, all of which negatively impacted the result. We expect the out-of-service units to come back online in approximately 6 months and we have taken measures to improve the occupancy in operations. But that will take some time, which led us to adjust our same-store NOI growth for this year, we expect NOI growth for this group to return to double-digit levels in 2026. We have and continue to make investments in our asset management platform, understanding that organic NOI is our best and cheapest source of capital. As we grow the SHOP portfolio, we expect the variability in same-store portfolio will be reduced, particularly as we believe the assets we are adding are higher quality properties with more consistent growth. Across the triple net portfolio, we are generally experiencing the continuation of solid trends with no rent concessions, continued collection of deferred rents in excess of expectations and stable occupancy and EBITDARM coverages. Cash lease revenue increased approximately 12% year-over-year to $70.1 million during the quarter. Excluding approximately $3.9 million in cash rent received in connection with the Discovery lease terminations, cash revenue increased approximately 5.5% primarily due to acquisitions. On October 31, we exercised our purchase option on a CCRC in Columbia, South Carolina for $52.5 million, with an initial yield of 8.25%. This is a high-quality entrance fee community operated by our long-time partner, Senior Living Communities, and we are excited to bring this property into our own portfolio. Bickford continues to generate strong NOI. Bickford's third quarter occupancy increased by 90 basis points from the second quarter to 86.1%. Trailing 12-month EBITDARM coverage through June 30, including deferral repayments, was 1.49x. Bickford repaid $1.3 million in deferred rent during the third quarter and has an outstanding balance of $8.7 million at October 30. Due to their solid performance, we expect that we'll be able to capture more than the quarterly run rate of deferral repayments into the future base rent at the April 2026 reset with the ability to monetize any remaining deferral balances. I'll now turn the call over to John to discuss our financial results and guidance. John? John Spaid: Thank you, Kevin, and hello, everyone. I'm pleased to report our third quarter results were above our expectations. I will highlight the significant areas that contributed to our positive quarter, but first, let me begin with our third quarter results. I'll be using average diluted common shares for all our per share results. For the quarter ended September 30, 2025, our net income per share was $0.69, up 6.2% from the prior year. Our NAREIT FFO results per share for the third quarter compared to the prior year period increased 5.8% to $1.09 per share. Our normalized FFO results per share for the third quarter increased 28% to $1.32 per share compared to the prior year third quarter. FAD for the third quarter ended September 30 compared to the prior year period, increased 26% to $62.2 million. On August 1, we completed the conversion of 7 assets from lease to shop. Together with the conversion, we recognized within our Real Estate Investments segment cash rent revenues of $4.6 million, noncash rental income related to operations transfer of $1.4 million and wrote off $12.1 million in straight-line rents placebo. Upon conversion, we then additionally recognized $2 million in additional SHOP NOI from the conversion properties for the 2 months of operations during the quarter. All of these impacts are reflected in net income and NAREIT FFO. Our normalized FFO and FAD results exclude the impact from the noncash rental income related to the operations transfer and straight-line receivable write-off. During the quarter, we also received approximately $52 million in loan receivable payoffs, not in our previous guidance, which resulted in an improvement of $2 million in credit loss reserve impacting net income, NAREIT FFO and NFFO but was adjusted out of our FAD. NOI from our 22 property SHOP segment for the quarter ended September 30, increased 62.6% to $4.9 million compared to the prior year period. We expect these results to continue to rapidly grow further as we recognize NOI from our recent SHOP acquisition and continue to make additional SHOP investments in the coming quarters. Our 15 property same-store SHOP portfolio saw NOI decline 2.2% to $3 million from the prior year period. Same-store SHOP revenues and expenses grew 2.1% and 3.3%, respectively, resulting in a 90 basis point margin decline to 21.1% year-over-year. Interest expense for the quarter was down 8% year-over-year, while weighted average common diluted shares were up 8.3% to 47.6 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. Sequentially, compared to the second quarter, cash G&A increased 5.4% to $5.3 million, while legal expenses declined $1 million. During the quarter, we did not close any new investments but did continue to fulfill our existing commitments. In October, we closed on new investments totaling $126.8 million which includes $46.7 million of previously deployed loan receivable capital. At the end of September, we issued $350 million in 5.35% coupon bonds resulting in net proceeds of $340 million after original issue discounts and bank fees. The bonds mature February 1, 2033. During the quarter, we settled approximately 155,000 common shares from our Q1 2025 forward ATM activity and an adjusted forward price of $73.96 per share after fees and forward costs, for proceeds of approximately $11.4 million. At September 30, 2025, we have remaining escrow forward equity proceeds of approximately $90.6 million available to us in exchange for the future delivery of 1.3 million common shares at an average price of $70.47 per share. We ended the quarter with $81.6 million in cash on our balance sheet and $600 million in revolving capacity after paying down the bank term loan of $75 million at the end of the quarter. Subsequent to the third quarter, we extended the maturity of our $125 million term loan for 6 months to June 16, 2026, retired a $50 million private placement loan and amended our bank credit facilities to remove a 10 basis point credit spread adjustment to our SOFR interest rate. Our balance sheet ended the third quarter in great shape with improvements in our leverage ratios and liquidity. Our net debt to adjusted EBITDA ratio was 3.6x for the quarter, and our available liquidity was approximately $1.1 billion attributable to the cash on our balance sheet, excess revolver, forward equity and additional ATM capacity. Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for shareholders of record December 31, 2025, and payable January 30, 2026. We also adjusted our full year 2025 guidance, which includes increases to all our per share metrics. Our guidance includes the impacts from our SHOP conversion, announced subsequent events and our other expected results. Compared to 2024, NAREIT FFO guidance at the midpoint is $4.64 or an increase of 2%, and normalized FFO at the midpoint is $4.90 or an increase of 10.4%. Compared to our original February full year guidance, we increased normalized FFO guidance $0.27 per share. Our guidance for FAD at the midpoint is $232.6 million, up from our original February guidance of $221.7 million, and represents a 13.9% increase in FAD over 2024. Our guidance includes same-store SHOP NOI growth in the range of 7% to 9% over 2024. We are also providing guidance on our conversion plus new investment SHOP NOI for the full year of between $5.8 million and $6 million. Guidance also includes the continued collection of deferred rents and the fulfillment of our existing commitments. Our updated 2025 guidance includes $75 million in additional new unidentified investments and an average yield of 8%, which is an increase in our investment guidance as this is in addition to investments announced subsequent to our third quarter. Our guidance does not include any additional impacts in 2025 for selling additional forward equity although some settlement is likely to occur prior to our December [ x ] dividend date. Our actual equity settlements will be dependent upon the volume and timing of additional new investments. Once again, thank you for joining the call today, and that concludes our prepared remarks. So with that, operator, please open the lines for questions. Operator: [Operator Instructions] Our first question is coming from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Hoping to dig a little bit deeper into SHOP. You kind of made reference in the release in the opening remarks about some efforts to remediate things. So hoping you could talk a little bit about what that exactly means? And as part of that, I guess, the back story on why some units were taken offline, I guess, why now and what's the scope of work there? Kevin Pascoe: Sure. Juan, this is Kevin. One thing I guess I'd like to point out is that when we're talking about our same-store portfolio, that's the Holiday portfolio, which has been noted difficult by some of our peers. It's definitely not had the trajectory that we would have liked that's a little more linear. But here we are. As it relates to the remediation, a lot of it is going back through the portfolio, making sure we have our units priced appropriately. We have the tour pass done right, a lot of the basic blocking and tackling. We really have probably 3 or 4 buildings that we're focused on occupancy that were the laggards that dragged our performance down. So making sure that we have the right people in place, all that has taken place. I think some of the good news here is that our lead volumes are still very good. It's a matter of just converting and making sure we have the right incentives in place for the people on the ground. So as we go through our budget processing right now, we're evaluating all those to make sure that we have the right incentives and again, the right pricing, being able to put the right programming in place and having the right resident engagement. So those are all things that are in process to feel like a lot of the corrective measures have been put in place. So as we discussed on the call, we'll be looking to get additional growth out of the portfolio next year. As it relates to the units that were taken offline, we have a building in California that had some earth movement a couple of years ago. But we found out over time that we had some issues on the bottom floor with some of the plumbing. And the initial scope of the project was less than we had it in our forecast. So we knew about it, but it ended up being that we had -- we needed to take all of the first 4 units off-line, so we made the tough decision to do the right thing and do the project in full scope versus trying to just piecemeal it and -- so get it right the first time. So it was a decision we made to go ahead and make it a little bit bigger projects. So that way, it was done right for the community. Juan Sanabria: And just to confirm, there's no tangent operators or one change contemplated? I know you've had some movement with Discovery and their remaining operator would SHOP and no longer triple that? Kevin Pascoe: So -- correct. Discovery, as it relates to SHOP, Discovery and Merrill are our operators, our managers on those. We're working with them very closely to make sure we -- again, we have all the right people in place. I think as good stewards of the portfolio, we always have to keep in mind what's best for the portfolio. So -- but as it stands, we're working with them to go through the portfolio, make sure that we have all the right pieces in place to make sure that we get back on track from a performance standpoint. Juan Sanabria: Great. And then just a second question on NHC. Just curious on where we stand. I know the lease was put into default and NHC kind of came back. And then they sent you a renewal notice, but then there was a comment in the prepared remarks about analyzing the legality of that notice. Just curious on, I guess, the technicality of where we stand today and why you said examining that legality of the renewal notice? D. Mendelsohn: Juan, this is Eric. Yes, that wording was artfully crafted. There could be a question about whether or not they're in default. And if they are in default, whether or not they're able to exercise their renewal option. The lease is pretty bare bones as you know, but it does say that if they're in default, they don't have the right to renew. So all of that could be subject to arbitration or litigation or legal interpretation. So that's what was meant by that comment. Operator: Our next question is coming from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Just going back to the NHC question there a moment ago. I guess I was curious if the renewal option did prove to be legal, would that still be at the fair market rent? Or would it be at the current rent level? And I guess how else could that change NHI's negotiating position with respect to the adjustment to fair market rent? D. Mendelsohn: Austin, recognizing that NHC is and their counsel are listening to this call, I will just say that all of that is on the table. If the renewal is determined not to be valid, then it's a wide open negotiation that could include third parties. If the arbitration or litigation does hold that the renewal is valid than the terms of the lease say that the renewal should be at a market rate, which is also a wide open interpretation. And as you know, we've hired Blueprint Advisors to help us survey the market and get touch points on lease rates and cap rates in the markets where these buildings reside. Austin Wurschmidt: That's helpful. And then Eric or Kevin, the pipeline of investment opportunities sounds very active. But it did appear like when some assets moved into the under LOI bucket and therefore, that investment pipeline was relatively stable. How far along are you in ramping that pipeline that you quote? And I'm just wondering if you guys are spending more time today on larger portfolios that maybe wouldn't go into the pipeline? Or are you more focused on deals that should over time tuck into the quoted investment pipeline as they move forward? Kevin Pascoe: Austin, this is Kevin. I guess the way I would say is you definitely touched on an element of what we're looking at in the pipeline. In terms of the full scope of the pipeline, it's well over $1 billion. But we're not going to report to you a number that is we don't think is achievable. So there are some larger portfolios. Anything over $100 million, we're not reporting in our numbers because I think the percentage hit rate on those is going to be a little lower. So we want to make sure it's signed up before we would report that in terms of what we have under LOI or in our pipeline. So I think that's just a function of what we're looking at in a mix of the pipeline at the moment. So I would say it's as robust as it has been, if not more. It's been an extremely busy year here, and it continues to be. So I don't really have any hesitation on where our pipeline sits right now. Operator: Our next question is coming from Farrell Granath with Bank of America. Farrell Granath: I had a quick question about the guidance increase. I was wondering if you could bridge between the old and the new guidance. What in there is including term fee as well as any additional -- was there incremental positivity and outlook or just having better confidence? Just wondering if you could go through a few of the items. John Spaid: Yes. Okay. Let me -- this is John Spaid. Let me see if I can start from the top. In August, we had to make a lot of assumptions regarding the conversion activity that we recognized in the third quarter. That activity was -- came in much better than expected. There's a couple of things that were -- onetime items that came in better than expected. There was also better than expected NOI that we recognized from the conversion SHOP portfolio. So that all influenced the raise. We also additionally saw a fair amount of loan receivable payoffs that occurred during the quarter. And oftentimes, what happens there is twofold, depending on what we're -- what's being paid off, we would then recognize credit loss reserve reversals, which flows through all of our metrics, except for FAD. So that was a significant change in our forecast. Interest income will also change, both for the third quarter as recognized as well as the fourth quarter because our mortgage investments now have declined. But when we saw those mortgage payoffs, we collected some accrued interest that was accruing but not recognized, and we also had some exit fees as well. And then I guess, finally, the same-store SHOP portfolio, we had to change that. We used to have a range of 13% to 16%. That's now 7% to 9% for the year. So I think those are the biggest factors. Farrell Granath: Okay. And also going back to the SHOP portfolio in -- or in the acquisition pipeline. I was curious if you could add a few comments on how you're viewing with the competition in the market, you made the comment about the hit rates on the larger portfolios and across a lot of broader peer sets, we've been seeing an increase in SHOP activity as well as looking to buy full portfolios of SHOP. Just curious if you could just comment on competition. Is that impacting pricing? Is it leading others to pay above what you're underwriting for the pricing? Kevin Pascoe: Sure. This is Kevin. The competition in the marketplace has definitely ramped up. That said, I feel like we have very strong ties with our operating partners that we were getting looks on properties that would be more off market. What you've seen close is indicative of that where we get a direct from our manager or operating partner and then also a function of our -- what we describe as our loan-to-own program. That's worked out really well for us. So it is a much more competitive environment. I think those are the deals that we try to exclude from our pipeline just because there are more groups that are looking at it. A lot of it is our REIT peers. When we look across the landscape, there's a little more private equity entering the space as well. The uniqueness that we have and our peer share is that we don't have financing contingencies. So we're actually able to get a little bit better pricing versus what I would consider the top bid because they know we can close. So -- we'll continue to pursue those marketed deals as well, but we're really focusing on making sure we have the right relationships and being able to pull in stuff at a better value. Operator: Our next question is coming from Rich Anderson with Cantor Fitzgerald. Richard Anderson: If we could just kind of close the circle on NHC for now. Can you remind the basics behind the whether or not they're in default. I know it's been said, but I just want to make sure we got that clear about your point of view on that topic. D. Mendelsohn: Rich, this is Eric. So when we made the announcement that we sent them a notice of default, we said that there were nonmonetary provisions that they were not adhering to. That was certain audit requirements, that was certain reporting requirements, that was certain insurance requirements and CapEx requirements. We had done an inspection of all the buildings and found maintenance and level of CapEx to be lacking. So we put that in a letter and sent it to them. And then, of course, as I said earlier, under the terms of the lease, if they're in default, then they're not able to renew the lease. So that's kind of where we are. There's provisions that allow for arbitration. There's a question as to whether or not the lease renewal rate is subject to arbitration, so that's something that is a question mark that I can't really address. And... Richard Anderson: But there -- this renewal offer from them is for the entirety of the portfolio. There's no cherry pick... D. Mendelsohn: Correct. Correct. It's all or nothing. Richard Anderson: Okay. I understand the hiccups during the quarter on the SHOP. I know it's small with -- relative to the rest of the portfolio. But -- Kevin, you want to put the right people in place and you kind of went through that whole response to Juan's question. But -- what -- I guess my question is this is not like you had this stuff in place yesterday. You had -- you've been in this portfolio for some time now. Like what is it do you think that suddenly hiccup on you with this portfolio, you mentioned higher move-outs. It just seems a little sudden given the fact that this is not a new portfolio to you. Kevin Pascoe: Sure, this is Kevin. I understand your question. I would say we also telegraphed this last quarter that we saw. This was -- we knew that the third quarter was going to be softer than the second because of the things that we were seeing in the portfolio. So I don't think it crept up on us. I think it was a matter of -- we saw it coming. We telegraphed it. I would say the result was more -- was lower than what we would have liked to see. So we're trying to make the corrective measures that I described. I also think that this is a function of operations. We're looking at, as you've already said, a small portfolio, and we're drilling into a handful of buildings that are driving the result. As we continue to grow and we diversify our investment, that's going to be the key for us here in SHOP. Richard Anderson: Right. Okay. Fair enough. Like a couple can really move the needle at this point. And then, John, if you could just -- you mentioned the new guidance, and you mentioned some better-than-expected onetime items. Can you just quantify the onetime items in the third quarter that contributed to the guidance raised just in dollars, so we can have that in our model? John Spaid: Sure. Yes. This is John again. In my prepared remarks, I mentioned $4.6 million of cash revenues that came in under the converted properties. So that number included everything we collected, including 1 month's rent. We then recognized a $1.4 million, what we call it, a noncash rent revenues on operations transfer. And then we also recognized the $12.1 million straight-line receivable write-off. So when we recognize the cash rents, which flows all the way down through FAD, at the same time, we converted the SHOP and we recognized $2 million of NOI. So there's a little bit of doubling up there as a result. The other big onetime item I just want to point out is that when we have significant, particularly mezz type loan payoffs, we'll have a reversal of the credit loss reserves, which flows through all of our metrics, including FFO and not FAD. And as a result of all of these sort of changes, including the Fed results, we've also seen some nice reductions in our interest expense. And that also was another topic I didn't really mention in my prepared remarks too forcefully, but we're seeing some benefit there because we have some variable rate interest expense. And we are also to get -- we're able to get out that bond at a 5.35% coupon. I wasn't sure we could do it quite that nicely as we did in the third quarter. So the forecast is always kind of reflected a little higher expectation for interest rates for the year. Does that help? Richard Anderson: Yes. That's good. Operator: [Operator Instructions] Our next question is coming from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Quick question on -- you put an 8-K out yesterday, you were going to be losing 2 Board members by sometime in 2026. I know there's been a lot of board change in general at the company. But for these 2 particular roles, just talk a little bit about how the Board may potentially be thinking about replacement? Whether -- what particular type of skill sets of background you're looking for, whether it's someone who has Senior Housing operating experience? Just kind of curious what we may see that could help further bolster the Board going forward with these 2 opportunities? D. Mendelsohn: Sure, Tayo. This is Eric. Yes, we made that announcement yesterday that 2 Board members will be rolling off. And as you will recall, we had an activist campaign earlier in the year, and we addressed Board refreshment as part of our strategy to address the activists. So here we are. We're conducting a search using Ferguson Search firm. Ferguson has helped us in the past with some Board members, and we're currently interviewing Board members and you're absolutely right. They will have some senior housing and operations exposure and stay tuned for announcements in that regard. Omotayo Okusanya: That's helpful. And then just going back to SHOP, and I think maybe this one maybe a little bit more for Kevin. But again, just given your experience with kind of with the Holiday portfolio and again, some of the changes you've made on the Discovery side. Just kind of talk about this idea of a SHOP moves from 5% to 10% to 20% of your portfolio, kind of like this next evolution kind of -- what are the kind of key things you're looking for from the operators to kind of prevent some of this kind of one step forward, one step back that you've kind of dealt with through, through your current experience with the same-store portfolio. Just -- what are you really looking for going forward that kind of says, this is the operator we want to deal with, and there's an operator we don't want to deal with? D. Mendelsohn: Tayo, this is Eric again. I'm going to take this one. You're absolutely right. You'll recall that we kind of backed into the Holiday conversion of SHOP. The history of that portfolio, was a lease with Fortress and Holiday was the operator. The Holiday got bought by Atria and Fortress sold its portfolio to Welltower. And the entity that was our tenant to Welltower, and you'll recall that we had litigation with Welltower as a result of that. And it was a good opportunity for us to turn lemons into lemonade. Our Board had been on the fence about whether or not to engage and shop and operations, and this kind of forced the issue. So it was a science experiment. And generally, we're happy with the way it turned out. Last year's growth on the portfolio was 30%. Last quarter, we had good growth in holiday of 15%. We'll be chasing those numbers and working to get those back again. We've added new talent to our bench. You look on our web page, you'll see we have a new SVP of Asset Management. We have new VPs of Asset Management. We're very highly skewed towards operations now. And we're very savvy about what it takes to run an operating platform. Recall that both John and I -- came from Emeritus, a large operator. So I'm comfortable with this new footing that our company is engaged in and I'm excited about the opportunity to grow the new store. We converted 7 buildings this quarter, and we bought 6 buildings, and we bought 2 more from Compass and we converted a loan for a total of 4. So we are growing SHOP quickly. And I can tell you the majority of our pipeline is SHOP. So we're committed. Operator: Our next question is coming from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just piggybacking on Tayo's question. Curious if you could provide any high-level thoughts about G&A with the additions of personnel and doubly down on asset management capabilities. D. Mendelsohn: Sure. If you look in our supplemental, we address our G&A as a percentage of assets under management. And I would still pause it to you that we're cost-effective and very low compared to our peers. Looking at year-to-date, exclusive of stock comp at 0.56%. So that's a good metric. John, do you have anything? John Spaid: Yes. Juan Sanabria: Just looking more for growth parameters, just given the investments in people and systems for next year. Is there any early thoughts? John Spaid: Well, one way to think about it is -- and the way I think about it is revenues per employee. So I'm kind of working off of right now a metric of about $11 million of revenues per employee. I think that's probably something that might be a little bit heavy in terms of G&A for us as we move forward, but I'm thinking that way. And as I issued guidance, my guidance is including our expectations to grow internally as we take on more and more SHOP. So you can -- I'll give you a forward number here. If you think about our SHOP this year, we've grown it in terms of revenues, almost 60%. If you just look at what we've announced to date, excluding any new unidentified investments, our SHOP revenues year-over-year will probably be up in that 60% plus range, again before we talk about new investments again. So there you go. There's a couple of numbers you can work off of. Juan Sanabria: Okay. And then just for Bickford. Just curious if you can make any comments on their financial health and how we should think about the range of potential outcomes for that revenue set next spring? Kevin Pascoe: Sure. Juan, this is Kevin. From a financial health standpoint, we disclosed our coverage ratios. The lease is doing very well. Again, somewhat similar to my comments about SHOP and our managers, we need to evaluate our entire portfolio, including Bickford on a continuous basis in terms of -- is there -- are there properties that need to go to a different home or to be sold, what have you. We'll be doing that exercise as we approach the reset to make sure that the properties we have are the most effective for the portfolio. But I feel good about our relationship with them, the coverage we have on our lease in terms of their overall health, they have some more capital planning. They need to do. We've talked about that in the past in terms of just getting some long-term debt in place. So we're not dealing with some of these or they are not dealing with some of these issues that they have, that has been a work in progress. They've made some decent progress on moving some of their owned assets to HUD. So that is long-term fixed capital for them. They need to do some more work there. So I feel like they're making progress. We still have some more -- or they have some more work to do. We'll be monitoring that very closely to make sure that work gets done. But overall, they've done what we've asked them to do. It's improving, but it's probably a little slower than we would have liked. Operator: As we have no further questions in the queue at this time, I would like to hand the call back over to Mr. Mendelsohn for any closing remarks. D. Mendelsohn: Thank you all for your time and attention today, and we look forward to seeing you at NAREIT. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to the Ring Energy Third Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I will now turn the call over to Al Petrie, Investor Relations for Ring Energy. Al Petrie: Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We'll begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the third quarter of 2025. We will then turn the call over to Rocky Kwon, Ring Energy's VP and Interim Chief Financial Officer, who will review our financial results. Paul will then return with some closing comments before we open up the call for questions. Also joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP and Chief Operations Officer; James Parr, Executive VP and Chief Exploration Officer; and Shawn Young, Senior VP of Operations. [Operator Instructions] You are welcome to reenter the queue later with additional questions. I would also note that we have posted an updated Corporate Presentation on our website. During the course of this conference call the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Ring Energy disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in our filings with the SEC. These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally, as a reminder, this conference call is being recorded. I would now like to turn the call over to Paul McKinney, our Chairman and CEO. Paul McKinney: Thanks, Al, and thank you, everyone, for joining us today and for your continued interest in Ring Energy. We are pleased to announce another strong quarter. During the third quarter, we were able to achieve or exceed our goals despite the volatility and challenges associated with commodity prices. We were able to do this because we continue to focus on the operational and financial items within our control to maximize adjusted free cash flow. We also benefited from our historical efforts to optimize and build an asset portfolio defined by high margins, shallow declines and long reserve life, the virtues that lead to resilience and sustainability no matter where we are in commodity price cycle. So let's get into the numbers. Our oil sales were 13,332 barrels of oil per day, which was slightly below the midpoint of our guidance. And our total sales were 20,789 barrels of oil equivalent per day, which was above the midpoint of our BOE guidance. Production from our recently acquired Lime Rock assets as well as the new wells drilled so far this year continue to perform better than expected and continue to help mitigate the natural decline of our legacy assets during this period of capital discipline. We deployed $24.6 million in capital spending during the quarter, which was near the low end of our guidance range and allowed us to drill and complete the necessary wells to achieve our production targets. As we have shared in the past, our discipline in this regard is focused on striking the right balance of maintaining modest year-over-year production growth and liquidity with managing our leverage ratio and paying down debt. Another item associated with our focus on maximizing adjusted free cash flow is our cost-cutting efforts in the field, which continue to yield great results. Our lifting costs during the quarter were $10.73 per BOE, which was below the low end of our guidance range for the second consecutive quarter and only 3% shy of the lifting costs recorded last quarter. Our lifting cost reductions have been driven primarily by reducing the number of operators in the field required to operate our wells, lower chemical expense, reducing well failures and the costs associated with well repairs and production efficiencies gained through longer run times and proactive well interventions. Our third quarter results demonstrate that Ring Energy is successfully executing on our operational plans and managing the important issues within our control. Despite weak oil and natural gas prices, Ring generated $13.9 million in adjusted free cash flow during the quarter, which was primarily driven by the operational items we just discussed. Our operational performance enabled Ring to reduce debt by $20 million, which was $2 million more than we guided for the quarter. Our continued and unwavering focus on improving our leverage ratio will continue into the foreseeable future, and we intend to maintain the momentum of the successes from the first half of this year as we finish out 2025 and enter 2026. As we stated in our earnings release, if we encounter higher oil and natural gas prices in the future, we will continue with our capital discipline to prioritize reductions and improving our leverage ratio to competitive levels with our peers. Having said all this, I would like to turn this call over to and introduce you to our Vice President and Interim Chief Financial Officer, Rocky Kwon. He will share the highlights and details of our third quarter financial position. Afterwards, I will return to share more about the priorities and our outlook for the future. Rocky? Rocky Kwon: Thanks, Paul, and good morning, everyone. The takeaway for the quarter is that Ring continues to successfully execute its plan to reduce costs, maximize free cash flow generation with a focus on further debt reduction. In Q3, similar to Q2, we paired strong sales volumes with disciplined capital deployment and a focus on cost reduction. The combination of these actions resulted in adjusted free cash flow of $13.9 million, which enabled us to pay down $20 million of debt. As we have said every quarter, balance sheet improvement has been and will remain a top priority for the company. Turning now to the metrics for the quarter. It's clear that the team is executing the operational plan effectively. Starting with sales volumes. We sold 13,332 barrels of oil per day, just below the midpoint of our guidance and 20,789 BOE per day above the midpoint of guidance. Third quarter 2025 overall realized pricing decreased 4% to $41.10 per BOE from $42.63 in the second quarter. Driving the overall decrease was a 16% reduction in NGL prices to $5.22 for the quarter. This was offset by 3% higher realized oil prices of $64.32. Realized gas price remained at a negative value of $1.22. However, that was an improvement from a negative $1.31 in the second quarter. Plant processing fees continue to reduce realized pricing for both NGL and gas. Our third quarter average crude oil differential from NYMEX WTI futures pricing was a negative $0.61 per barrel versus a negative $0.99 for the second quarter. This was mostly due to the Argus CMA role that increased $0.76 per barrel, offset by the Argus WTI WTS that decreased by an average of $0.41 per barrel from the second quarter. Our average natural gas price differential from NYMEX futures pricing for the third quarter was a negative $4.22 per Mcf compared to a negative $4.67 per Mcf for the second quarter. Our realized NGL price averaged 8% of WTI compared to 10% for the second quarter. The result was revenue for the third quarter of $78.6 million despite the weakening prices. We continue to target higher oil mix opportunities as oil accounted for 100% of our total revenue, while it was only 64% of total production. Overall, our sequential revenue decreased by 5% from the second quarter, which was driven by a negative $5.8 million volume variance, offset by a positive $1.8 million price variance. Moving to expenses; LOE was $20.5 million or $10.73 per BOE compared to $20.2 million or $10.45 per BOE in the second quarter. We were pleased to see the trend of lower LOE on a BOE basis over the last two quarters, which was well below our guidance of $11 to $12 per BOE. Cash G&A, which excludes share-based compensation, was $6.5 million compared to $5.8 million for the second quarter. The slight increase was primarily driven by an increase in salaries and bonuses related to the separation of a former executive. Our third quarter results included a gain on derivative contracts of $0.4 million compared to a gain of $14.6 million for the second quarter. The third quarter gain included a $2.1 million unrealized loss and a $2.5 million realized gain. As a reminder, the unrealized gain loss is simply the difference between the mark-to-market period-to-period. For Q3, we reported a net loss of $51.6 million or $0.25 per diluted share, which includes $72.9 million of noncash ceiling test impairment charges compared to the second quarter net income of $20.6 million or $0.10 per diluted share. Excluding the estimated after-tax impact of pretax items, including share-based compensation expense, noncash ceiling test impairment and noncash unrealized gains and losses on hedges, our third quarter 2025 adjusted net income was $13.1 million or $0.06 per diluted share while second quarter 2025 adjusted net income was $11 million or $0.05 per diluted share. We posted third quarter 2025 adjusted EBITDA of $47.7 million compared to $51.5 million in the second quarter, with most of the difference attributed to lower oil revenue and higher cash G&A offset by higher realized hedges. During the third quarter, we invested $24.6 million in capital expenditures, which was below the midpoint of guidance of $27 million. Adjusted free cash flow was $13.9 million compared to $24.8 million for the second quarter, with a net decrease primarily associated with approximately $7.8 million in higher capital spending, combined with $3.7 million lower EBITDA compared to the second quarter. We ended the period with $428 million drawn on our credit facility after a $20 million paydown. With the current borrowing base of $585 million, we ended the quarter with $157 million in availability with a leverage ratio of 2.1x, which includes the $10 million deferred payment related to the Lime Rock acquisition due in December of 2025. Moving to the hedge positions. For the last three months of 2025, we currently have approximately 0.6 million barrels of oil hedged with an average downside protection price of $62.08. This covers approximately 53% of our oil sales guidance midpoint. We also have 0.6 Bcf of natural gas hedged with an average downside protection price of $3.27, covering approximately 33% of our estimated natural gas sales based on the midpoint of guidance. For a breakdown of our hedge positions, please refer to our earnings release and presentation, which includes the average price for each contract type. We updated our guidance for the fourth quarter and the full year 2025. Full year production guidance is now 13,100 to 13,500 barrels of oil per day and 19,800 to 20,400 BOE per day. Guidance for the fourth quarter total sales volumes is now 19,100 to 20,700 BOE per day and oil production ranges between 12,700 and 13,600 barrels of oil per day, resulting in a 66% oil mix. On the cost side, we updated guidance to $10.75 to $11.75 per BOE for the fourth quarter and $10.95 to $11.25 for the full year of 2025. Please refer to our third quarter earnings release and company presentation for full details by period. As in the past, we retain the flexibility to react to changing commodity prices and market conditions while also managing our quarterly cash flow. So with that, I will turn it back to Paul for his closing comments. Paul? Paul McKinney: Thank you, Rocky. Ring Energy's value proposition is clear. Our enviable portfolio of oil-rich assets with shallow declines, long reserve lives and higher margins allow for resilient cash generation. Our focus on building an inventory of drilling opportunities with low breakeven costs provides flexibility and optionality to maintain our production levels and liquidity. Together with our capital discipline, flexibility and focus on maximizing adjusted free cash flow generation to manage our leverage ratio and improve our balance sheet emphasizes the virtues of our value-focused proven strategy and the potential for strong revenue and earnings growth when higher commodity prices return. Ring stockholders have observed two consecutive quarters of disciplined capital allocation and improvements in capital and operational efficiencies that led to strong cash flow generation and debt reduction during these post Liberation Day commodity prices. We intend to remain on course with these priorities regardless of future commodity prices and intend to do so until we drive our leverage ratio down to competitive levels with our peers. Regarding acquisitions, it is challenging in my mind that Ring would acquire producing assets of any reasonable or significant size with our leverage ratio being what it is today and our stock, in my opinion, being as undervalued in the marketplace as it is today. Having said that, though, there are attractive opportunities out there that would make great additions to our portfolio because they meet our strict criteria. So I feel compelled to say that we are and will continue to evaluate available opportunities to acquire, but -- and until some of these individual and macro level issues change, it is unlikely that we could or would do anything in this regard of any significant size. Regarding divestitures, as many of you know, we have a small package on the street of quality non-operated working interest. We are testing the market to see if we can repeat the performance achieved in the past when we were able to sell assets at valuations accretive to our trading multiples. The proceeds from future asset sales will be allocated to debt reduction. Regarding implementing a stockholder capital return framework, we currently do not pay dividends and have not pursued a stock buyback program. With all things considered and having had conversations with many of our large stockholders, we believe prioritizing debt reduction and improving our leverage ratio is our most important focus. We also believe that achieving a more relevant size and scale in the marketplace is also important. With respect to growth, until we achieve leverage ratio competitiveness, our focus will be on reserves and inventory growth. As you may recall, we did not complete any acquisitions during 2024, yet we grew our production and reserves through organic means. Having more ways to grow today is important, and we no longer have to rely on acquisitions of producing assets to achieve our growth ambitions. By focusing on reserves and inventory growth during these times of challenging commodity prices, we can continue our focus on improving our balance sheet and prepare ourselves for the future when our leverage ratio, debt levels and commodity prices provide the opportunity and the flexibility for significant growth. With that, we will turn this call over to the operator for questions. Operator? Operator: [Operator Instructions] The first question comes from Noel Parks with Tuohy Brothers. Noel Parks: One thing I was wondering about is on the balance sheet, it's something I don't know if I've asked about recently. Any thoughts about possibly terming out the revolver since we're kind of in this transitional interest rate environment and it seems like there are some folks out there who think we might not see a lot further down move in longer-term rates. So just wondering if that was on the table these days. Paul McKinney: Yeah. Noel, that's a really good question. And to be quite frank with you, everything is on the table, right? And so yes, we are looking at not only that, but all other opportunities that we have to strengthen the balance sheet. What are the ways to reduce risk out there in the marketplace? And so there are advantages and disadvantages associated with various different financing alternatives. The credit facility that we currently have in the reserve-based loan still does stand at the lowest cost of capital for us, and that's where we are right now. But as markets change and as risks change going forward because you got all kinds of things moving. You got interest rates that are moving, you have energy prices that are moving. Everything appears to be very volatile. So yes, we do our best to try to stay abreast with all these changes. And what does that mean in terms of the best way to finance our future growth and the debt that we have on the balance sheet. Rocky, is there anything else you can say? Rocky Kwon: No, I just want to echo that comment, Paul. All options are on the table. We are exploring all opportunities to strengthen our balance sheet, especially when it comes to our debt levels. So we are exploring opportunities, and we are continually keeping abreast to all our options out there. Paul McKinney: Yeah. So the only thing I can say is that although we're evaluating, we're not in a position right now to announce any kind of a change or anything like that. But I think every company out there, just including us, especially those that are in the public space, you have to stay abreast of these types of changes. But yeah, that's a very good question. We don't have any -- we're not anticipating any kind of changes in the near-term, but we are looking at all of those things continually. Does that answer your question, Noel? Noel Parks: Sure does. And another thing I was wondering is, in this environment, we've had some relative weakness in crude compared to where we've been. So would you say it's safe to assume looking into next year, flattish service costs kind of at worst heading into next year? Paul McKinney: Yeah. So if you've got a crystal ball on what future energy prices are, that would be probably the best prognostication you could have, I guess. And I'm going to turn this over to my operational guys. But there has been changes in the cost for services that we've seen since post Liberation Day. Shawn, I don't know if there's anything more you can say in that regard. Shawn Young: Yeah. Obviously, with the activity levels and commodity prices where there are, there's continued pressure on service costs. And I'm not sure we've seen the bottom yet. So we're continuing to work with our vendors and continuing to negotiate the best cost we can. But yeah, it's -- hopefully, we do see some improvement in commodity prices and maybe that does keep service costs relatively flat. But right now, we are still continuing to take advantage of some savings that we're able to negotiate. Paul McKinney: Yeah. And we're anticipating a few more here in the near term. Yeah. That's good. Good question, Noel. Operator: The next question comes from Jeff Robertson with Water Tower Research. Jeffrey Robertson: Paul, in your opening remarks, you talked about the stock price, and you talked a little bit about it on the August conference call. Can you just share any thoughts with 90 days later, how you think Ring is relatively positioned as you look out into 2026? Paul McKinney: Yes. I mean if you look back at where we were this time last quarter, there are a couple of things that have changed. The most significant change is that Warburg has since completely exited their position in Ring Energy stock. And we also believe all of the institutional repositioning associated with the Russell 3000 is also over. So from my perspective, Ring Energy is now free from what has been described by others as an overhang or additional selling pressure against our stock. And so I'm really excited about that. Now where we are trading today, I still believe we are at a discount to our peer companies. And I believe that our performance is very competitive versus that peer group. And so I believe that we will see a gradual increase in our stock price performance versus our peers just because I believe that's the rightful place where we should be. And if we continue to deliver to our stockholders quarter-over-quarter, I don't know how long it will take for us. But if you look back in history, if you look at the history of our stock price and performance versus our peers, we've suffered three years of additional selling pressure that really put us at the lower end of that peer group when our operational and financial performance during that time period was at the higher end. And so I believe we're going to get there. What does that mean? It's kind of hard to say. But if you just look at the trading metrics, we're just not trading where many of the other peer companies are and yet our performance is superior. So I think that there's a bit of a re-rating that can occur there. Jeffrey Robertson: With the emphasis on debt reduction, I think Rocky you mentioned the $10 million deferred payment [indiscernible] Lime Rock during the fourth quarter. Paul, can you talk about what the scenarios that you think about for 2026 for further debt reduction? And should we take the slide that you all have, I think it's the bottom right panel on Slide 7 as an indication of what might be possible for debt reduction in 2026? Paul McKinney: Yeah. Yeah, another good question, and that was intentional. And Rocky will jump in here shortly as well. But before getting into any of the numbers, though, I think we need to emphasize to our investors that there are several variables between now and the end of the year with regarding that will impact our debt as we exit the year. But having said that, we believe, based on our current projections of operational performance and also the assumptions associated with commodity prices remaining at current levels, of course, we can't forget that, right? We should be able to pay down somewhere in the $10 million range in the fourth quarter. Rocky, is there anything more you want to say? Rocky Kwon: Yes, there is. I'd just like to reemphasize the uncertainties that we have the potential to pay down and that would affect the number -- the $10 million number that you just shared, Paul. Some of these issues can improve the amount and one or two of these could actually reduce the amount, but I just want to emphasize the uncertainty of that nature. But importantly, I think it's worthwhile to note again that we do have a $10 million deferred payment due in December. So if it wasn't for the $10 million deferred payment from the Lime Rock acquisition, that repayment, that reduction would actually be approximately $20 million. But again, I just want to reemphasize the uncertainty of the nature and there's -- it could improve or it could reduce the amount. Paul McKinney: Yeah. So going back to that, I mean, we just paid down $20 million worth of debt in the third quarter. If it wasn't for that deferred payment, thank you for mentioning that, Rocky. We would be paying down another $20 million next quarter. All of these changes that we've made in terms of how we're allocating capital, the priority associated with debt reduction. I think if anything, we've learned from Liberation Day that the leverage ratios that we currently have really need to be lower. We need to position ourselves so that we have more flexibility and more optionality, especially with our dealings with commodity hedges and everything else. And so we're not going to lose focus on paying down debt. And so if it wasn't for the deferred payment, we'd be paying down more next quarter. But hey, we still have a couple of things up our sleeve. We might be able to exceed that. But I think $10 million is a good number. [ Al ]? Alexander Dyes: Yes. And one more thing, hi, good morning, Jeff. And as Paul mentioned on the call just earlier, we are looking at rationalizing our portfolio. So we are also looking at noncore divestitures specifically a non-op divestiture. So that asset class is tending to trade at better multiples than us. And so if we can potentially sell it at a premium like we did last year where we sold an asset, we'll try to do that, too. Paul McKinney: So that's another potential that could increase our debt reduction. So put it this way, Jeff, we're going to -- we're very, very focused on debt reduction. And back when oil prices were $75, $80, we could continue to pay down debt and also pursue organic growth or growth. But at these prices, we're squarely focused on paying down debt. So I think $10 million is a good number to go with. And so we'll see how things turn out. Does that answer your question? Jeffrey Robertson: Yes, it does. Operator: [Operator Instructions] The next question comes from Poe Fratt with Alliance Global Partners. Charles Fratt: Just to follow up on that $10 million debt reduction number in the fourth quarter. Can you give us a range? Rocky, you talked about some good things and potentially some bad things. What's the best case scenario for debt reduction in the fourth quarter? Paul McKinney: Poe, come on now? Charles Fratt: And what's the worst case? I mean just how tight is that range? Rocky Kwon: Again, thanks for the question. That's a really tough question to quantify any ranges due to the uncertainty of the nature, commodity prices, several aspects that we are working on in-house such as the non-op divestiture piece that we have out there. And again, the $10 million deferred payment that we have. So if you strip that out, we're looking at approximately a $20 million paydown. But again, the uncertainty of the nature, I can't go into too much and put out a range. Paul McKinney: Yeah. And so Poe, the reason why I really wanted Rocky to answer that question because I know that he would give you a much more conservative number than I might. But I'll put some quantification. I mean it's going to be at least $8 million. But if you go back to what Alex mentioned, there's a potential to pay down $12 million, $13 million or $14 million. And so, is that the high end of the range? It's kind of hard to say because we are still making progress. And some of the big surprises that I've had as a CEO really is the progress that our field guys are making in terms of reducing operating costs out there and then our drillers and guys completing our wells. They're continuing to find ways the capital that we're planning to spend in the fourth quarter, we're finding ways to reduce that -- those costs, and that will go straight to debt reduction. And at the same time, any more progress we make on reducing operating costs, that's going to go towards paying down debt as well. And so it's kind of hard to put a range on it, but that's probably the best we can give you, Poe. Is that all right? Charles Fratt: No. From what I think I heard, the high end of the range potentially includes the sale of the non-op working interest. So should I be thinking about the potential proceeds from that sale of -- in the $3 million to $5 million range? Is that sort of a reasonable expectation? Paul McKinney: Well, it's kind of hard to say there because if you look at the range out there in the marketplace, it could be considerably higher than that. That's part of the reason why I said we're testing the markets with this. If we don't get what we think is the right value, we won't sell it at all. So then there won't be any benefit to that. So it truly is a test in the marketplace. We expect to get a very strong trading multiple out of the sale of those assets. Otherwise, we won't sell them. So that's a real risk that we just actually don't close on a deal in the fourth quarter, and we don't apply that to paying down debt. Charles Fratt: Yeah. What did the working -- non-op working interest contribute in the third quarter as far as production? Paul McKinney: Yeah, it's less than 200 BOEs a day, yeah. Charles Fratt: Okay. So yeah, on the margin, it's not going to move the needle significantly on your debt reduction program. Okay. And then I noticed this may be a little nitpicky, but I noticed the third quarter production, the oil cut dropped. Is there anything that drove that or is that -- it sounds like it may be temporary from the standpoint of looking at your fourth quarter guidance, oil cut rebounded to 66% from 64%. But anything going on there? Paul McKinney: Yeah. I mean, actually, you're digging into the numbers and you're identifying a lot of things that we don't spend a lot of time talking about. But prior quarters, we had -- and we had this consistently. We have -- some of the gas gatherers are systems that are a little on the older side. And so the reliability of those gas gathering systems. When these plants go down or there's a line leak and they got to replace a line, oftentimes, we find our gas not going to sales. And so that is the swing typically that you see in our ratios from one quarter to the next. And it's more a reflection of the takeaway capacity and whether or not they're actually taking. Shawn, is there more you can share there? Shawn Young: Yeah. So yeah, Paul hit it right on the head. In the second quarter, we did have a lot more downtime associated with gas takeaway. And so our gas volumes were not as strong in the second quarter versus where we were in the third quarter, and that's what's making the splits there change. Charles Fratt: Okay, great. And then if you look at the midpoint of your CapEx guidance for the fourth quarter, can you give me an idea of the mix between vertical and horizontal wells that you're going to drill? Shawn Young: Can you repeat that question? Paul McKinney: You want to know the mix between horizontal and verticals in the fourth quarter [indiscernible]. Alexander Dyes: Yes, I think we've got 3 horizontal wells and 1 vertical well planned for the fourth quarter, so. Charles Fratt: Great. And then Jeff talked about Page 7, the lower right box. Is that your current working guidance for 2026 or how should we look at that? Is that more of a hypothetical at this point in time or should we view that as the guidance for '26? Paul McKinney: It's actually hypothetical. It's basically assuming that we continue with the same capital spending levels that we have. We are looking at and actually in the final throes of assembling our budget for next year, and we intend to review that with our Board of Directors to get approval for that. And so then we'll come out with official guidance once we've got that pinned down. And so yeah, there's a lot of moving parts in that regard right now because I think it's probably safe to say at this early stage that unless something changes, $60 will probably be the price assumption, a flat $60 case going into next year associated with our projected cash flows and all this kind of stuff. And if you use that as a basis, that's going to affect the capital spending levels. And again, we're going to continue our preference for paying down debt and strengthening the balance sheet through a stronger leverage ratio. And so we'll be managing all of that. But at this point, it is the tail projections from basic assumptions that were designed for 2025. That tends to get updated and will be updated here before we exit the year, and we'll be reviewing that with the Board immediately after the New Year. And so when we come out with our fourth quarter results, we'll have clear guidance at that time. Charles Fratt: Okay. Just wanted to make sure that, that was hypothetical and that we really shouldn't be looking at those numbers unless oil prices change from where they are now, right? Paul McKinney: Yeah. And so -- but if you look at -- I will say this, the assumptions that went into that, even though it's a hypothetical, those assumptions in this current price environment are not going to be a whole lot different than what was used to put that together. So it could change. Alex, is there any more you want to say there? Alexander Dyes: Yeah. So as Paul was alluding to here, it's more of -- if you look at what the realized oil price this year, it's about $64 to $65. So this base model for '26 outlook was based on that. If we really do remain in the $60 price environment, then we will look at pulling back our capital some to try to still maintain production, but the reinvestment rate would obviously be -- we're trying to stay pretty level around that 50% to 55%. Paul McKinney: Yeah. And so the reinvestment level is important. And again, because we're not going to lose sight of debt reduction, you can't lose sight of leverage ratios either. And so it's a balance. It's a mix. But yeah, so that would imply a slightly lower capital spend, and that would affect EBITDA and same with the oil price assumption, too. Charles Fratt: Okay. Sounds good. And then, Rocky, just a nitpicky one on G&A expense. You had mentioned Travis leaving that hit the G&A expense line this quarter. Will it bleed into the fourth quarter or will G&A fall back into the sort of the second quarter range? Rocky Kwon: No. So G&A will kind of be back in line. That was a onetime recognition of the costs related to the departure of our executive. Based on the rules, we had to take the -- we had to recognize all the costs within the period that it incurred and it was in the third quarter. Operator: [Operator Instructions] We now have a follow-up from Jeff Robertson with Water Tower Research. Jeffrey Robertson: Paul, you talked about organic growth in the past. But if you're not in the acquisition market just because of dynamics, what do you do with the existing asset base to try to categorize or catalog organic growth opportunities that you can take advantage of in the future? Paul McKinney: Yeah. And so I'm going to allow James Parr to jump in on this. But again, it goes back to the price environment that we are. If we're in a higher price environment, you can focus on more than just one endeavor that leads to share price appreciation, right? And so in the past, when we're in the $75 price range, we were paying down debt and also seeking to grow. Right now, we're focused on debt repayment. And so what are the other things you can do? So if you go back to 2024, we were very successful in terms of growing the company through organic means. And so that's acquiring additional leases within our cash flow and drilling wells identified through organic means. And we not only grew our reserves, but we also grew our production. Right now, we don't intend to grow our production. And so by focusing on reserves and inventory, building your undeveloped inventory, we'll position the company so that when energy prices return and then our balance sheet is in a strong position, our leverage ratio is where we want it, then we have the optionality to actually pull -- take advantage of the built inventory and deliver significant growth. That could be in significant production, revenue and EBITDA growth. And so right now, I think we're focused in the Central Basin Platform and the Northwest Shelf in terms of identifying the opportunities. I think, James, I mean, I'm sure there's a lot you can say here. James Parr: Yeah. No, great question, Jeff. In tight times, how do you continue to maintain the company and pay down the debt. So I'm excited by the multiple organic opportunities that we've got across most of our assets that we've purchased through previous deals that we've got. And for instance, down in Crane County, [ offset ] operators have successfully drilled and derisked additional stratigraphic intervals that extend on to our acreage. So pursuing these deeper targets in the future will enable us to have more of a horizontal well program going forward, replace and grow our reserves organically and increase our capital efficiency through the shared cost of the facilities we have, drill longer laterals, et cetera. So these deeper benches that are across our acreage holdings give us a really robust future inventory to replace production, pay down debt and grow prices even in this -- grow the company or maintain it even in this depressed price environment without resorting to an acquisition. So we feel good about what we've got ahead of us, and there's a lot of potential. Paul McKinney: Yeah, [ Joe ], I mean, organic developed opportunities typically are considerably more economic than the opportunities that you buy in the marketplace when you make an acquisition. And so -- and we proved that to ourselves last year. That was also part of the reason why we hired James, and we have continued -- we call it adding more tools to the toolbox. We want more ways to win in higher prices than in the past, without the staff necessary that was necessary to identify these types of opportunities, you grew through acquisitions. But just because we're in a position right now where acquisitions are less likely, that doesn't mean we're not growing and growing reserves and growing our undeveloped inventory is the best thing we can do during these times so that when oil prices do return and our balance sheet is stronger, then we can really pour it on and we can deliver growth through organic means. And so getting back to what James said, we do have several operators, and he mentioned Crane County, there's an operator down there, a private operator that's just doing a great job, a great organization, and they've proved many of the zones that go across our acreage. And so we're going to test and we're going to try some of these. We're going to build those -- that inventory so that when prices are right, we'll be able to get after it. And so that represents a great opportunity for investors. When you look at a company like Ring, that growth could be very significant, especially when you consider our current size and how meaningful that could be. So can we see significant multiples in terms of our future production and revenue growth? I believe it's possible, and that's the best thing you can do during times like this when we're just paying down debt. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Paul McKinney, Chairman and CEO, for any closing remarks. Paul McKinney: Yeah. Thank you. On behalf of the entire team and Board of Directors, I want to once again thank everyone for listening and participating in today's call. We are pleased to have posted solid operational and financial results for the third quarter of 2025, and our outlook for the remainder of the year remains solid despite the current price environment. We will continue to keep everyone appraised of our progress and thank you again for your interest in Ring Energy. Have a great weekend, everybody. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Eventbrite, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Finance Manager, Paul Bach. Sir, the floor is yours. Paul Bach: Good afternoon, and welcome to Eventbrite's Third Quarter 2025 Earnings Call. With us today are Julia Hartz, our Co-Founder and Chief Executive Officer; and Anand Gandhi, our Chief Financial Officer. As a reminder, this conference call is being recorded and will be available for replay on Eventbrite's Investor Relations website at investor.eventbrite.com. Please also refer to our Investor Relations website to find our press release announcing our financial results, which was released prior to the call. Before we get started, I would like to remind you that during today's call, we'll be making forward-looking statements regarding future events and financial performance. We caution that such statements reflect our best judgment as of today, November 6, based on the factors that are currently known to us and that actual future events or results could differ materially due to several factors, many of which are beyond our control. For a more detailed discussion of the risks and uncertainties affecting our future results, we refer you to the section titled Forward-Looking Statements in our press release and our filings with the SEC. We undertake no obligation to update any forward-looking statements made during the call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. During this call, we'll present adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and have limitations as an analytical tool. You should not consider them in isolation or as a substitute for analysis of our results of operations as reported under GAAP. A reconciliation to the most directly comparable GAAP financial measure is available in our investor presentation, which is available on our Investor Relations website. We encourage you to read our investor presentation, which contains important information about GAAP and non-GAAP results. And with that, I'll now turn the call over to Julia. Julia Hartz: Thanks, Paul, and thank you all for joining today's call. In Q3, we delivered revenue in line with our outlook. Net revenue was $71.7 million, and we saw a solid sequential improvement in paid tickets, down 3% year-over-year versus down 7% last quarter. Eventbrite Ads revenue grew 38% year-over-year and paid events grew while paid creators were essentially flat, reflecting meaningful stabilization after several quarters of volatility. We also executed with discipline. The adjusted EBITDA margin was 11.7%, well above our 7% guidance as structural cost actions flowed through while we continue to invest in line with our growth plan. The cost actions we took this year are structural, and we're allocating a portion of that benefit to areas where Eventbrite has clear advantages, including creator acquisition, event discovery, and key verticals to set up both revenue and margin expansion in 2026. As we enter the fourth quarter, our outlook reflects the steady operational progress we've made this year, balanced against a few near-term factors that modestly temper top line growth. The ongoing mix shift towards smaller creators continues to serve as a modest revenue headwind. Even so, engagement, paid creator acquisition and paid event activity are strengthening, underscoring the improving health of our marketplace. We remain focused on disciplined execution and expect this foundation to support renewed revenue growth and margin expansion as we move into 2026. Turning back to this year. We entered 2025 with a clear objective to stabilize paid ticket volumes and creator activity. Our third quarter results show the progress we've made. We've strengthened reliability, reporting, and foundational systems, and we've made real gains in creator retention by improving user experience, support, and success tools. At the same time, we've launched a refreshed consumer app and brand, advanced trust and safety through stronger authentication and fraud protection, and reignited our sales engine with a larger category-focused team. Encouragingly, the work we've done over the course of this year has resulted in a nearly 4% increase in new paid creator acquisition in Q3, while meaningfully improving creator retention over the same time frame. Together, these efforts form a strong foundation that positions Eventbrite to capture even more of the opportunity ahead as we move into next year. To build on the momentum we are generating in the second half, we're shifting from rebuilding to laying the groundwork for growth. On the consumer side, we're making Eventbrite the go-to destination to discover live experiences by improving discovery and search and by connecting more consumers with the creators they love. For creators, we're simplifying our event creation tools, so it's easier to publish and promote events. We believe these initiatives reinforce our position at the center of the experience economy and set us up for success in the year ahead by delivering for creators, offering experiences consumers love to attend and continuing to bring people together through live events. Eventbrite sits at the heart of the thriving experience economy where generations of event goers are choosing connection, creativity, and community. With 92 million average monthly users in Q3, consumers and creators across 180 countries and nearly 5 million events each year. Eventbrite is the platform that democratizes live experiences at scale. As our communities continue to grow, we will continue to invest in our platform to ensure that Eventbrite remains the go-to global marketplace, empowering millions of creators to transform their passions into real-world experiences from wellness and culinary gatherings to music and cultural events, fueling a movement that celebrates belonging and discovery. To reaccelerate growth in the year ahead, we plan to build upon the foundation we've laid this year by executing targeted strategic initiatives designed to empower creators, engage consumers, and expand our market. For years, we've been recognized as a powerful and innovative platform for creators, and we're continuing to raise that bar by investing in our platform. Our work focuses on helping creators sell more tickets, operate more efficiently and grow their businesses by improving the conversion of their listings and leveraging our deep insights to inform how they market their events on our and our partners' platforms. In 2026, our product road map is designed to drive creator success by increasing visibility, enhancing conversion, and achieving better outcomes across the Eventbrite marketplace. For example, we'll integrate AI-powered recommendations throughout the event creation journey, leveraging our unique insights into consumer purchase behavior to help creators craft more impactful listings that drive higher ticket sales. We're also applying AI to our rich data set to deliver deeper insights and expand analytics that improve marketing performance and ROI for our creators. Expanding our offerings for our larger and most prolific creators will be a top priority for 2026, and the reason is simple. Today, 13% of paid creators drive nearly 60% of paid tickets and about half of gross ticket fees. Importantly, these creators have the potential to meaningfully improve tickets per creator in the year ahead. To strengthen our product market fit for this segment, we're investing in a more cohesive, modern Eventbrite experience, simplifying product flows, unifying design and navigation and improving mobile ticket access. We're enhancing support through AI-powered automation and reinforcing security with advanced authentication, and we're continuing to enhance core features like waitlist, reserve seating, and timed entry to help large creators operate seamlessly at scale. These initiatives will help high-volume creators sell out faster, expand audiences, and deliver exceptional attendee experiences, further positioning Eventbrite as the trusted platform for their biggest and most ambitious events. And as these creators grow, they power the marketplace flywheel, fueling growth in key categories like music, immersive events, food and drink and festivals. That leads directly to how we plan to engage consumers in the year ahead. Our consumer initiatives are designed to leverage our marketplace flywheel and drive consumer lifetime value by efficiently attracting new attendees and increasing repeat ticket purchases. To grow our consumer audience, we're refining our performance marketing strategy to focus on smarter targeting, stronger campaign optimization and higher quality acquisition. Early results this quarter are encouraging, showing that we can achieve both efficiency and growth. Consumer paid orders driven by performance marketing grew 28% quarter-over-quarter while optimizing for our acquisition cost to keep a positive ROI. Together, these efforts will expand our reach, deepen loyalty and increase the lifetime value of consumers on our platform. To drive repeat purchases, we're taking the consumer experience to the next level. Building on the discovery features we introduced this year, we'll deliver more personalized recommendations and make finding and engaging with relevant events and creators faster and easier. We're also working to optimize our unique event inventory for Agentic tools, paving the way for smarter, more dynamic ways for consumers to connect with the events they love. As our strategy continues to gain momentum, we're identifying and pursuing opportunities to further expand our market share. Our ambition is to achieve this by expanding the power of Eventbrite globally. In the year ahead, we plan to strengthen our foothold in markets with strong creator and consumer demand while increasing localization and monetization in our existing regions through the addition of more payment options and expanded creator tools. We will also continue to expand the reach of our successful Eventbrite ads offering to more countries while enhancing its effectiveness and return on investment for creators. As we advance our strategy, we'll continue to execute with focus and discipline. In the year ahead, every dollar we spend will be intentional, aimed at strengthening leverage, efficiency and our long-term financial foundation. Our significantly improved structural economics will better enable us to drive lasting value for our creators, consumers, and shareholders as we capitalize on the momentum ahead. We're entering an exciting year with building momentum and a solid foundation. Our core business continues to demonstrate resilience and opportunity, and we're executing with focus in the areas where Eventbrite has clear advantages. The work we've done this year positions us to scale our strength and accelerate growth, supported by a clear road map for 2026 that will drive both expansion and efficiency. I would like to thank our Brightlings and shareholders for your continued commitment and confidence. Together, we're shaping the future of live experiences, and I look forward to sharing more as we build on this momentum in the year ahead. And now I'll turn it over to Anand to review our financials. Anand Gandhi: Thanks, Julia. In the third quarter, we delivered top line results in line with our outlook and once again exceeded expectations on the bottom line. We delivered meaningful trending improvements in paid tickets, paid creators, and paid events. At the same time, we made solid progress on our key strategic initiatives, which position us well for growth in the year ahead. I'll walk you through our Q3 results and then discuss our outlook. Note that all comparisons refer to year-over-year changes unless otherwise indicated. In Q3, we delivered net revenue of $71.7 million, down 8% as expected, driven by lower ticketing revenue as well as the continued impact from the elimination of organizer fees. These were partially offset by a 38% increase in revenue from Eventbrite ads. Paid ticket volume totaled $19.1 million, down 3%, reflecting a 400 basis points improvement from the 7% decline in Q2. This represents our fourth consecutive quarter of year-over-year trending improvement. We also saw meaningful inflection points this quarter with new paid creator acquisition and total paid events both returning to year-over-year growth. Gross margin was 67.9%, down 60 basis points year-over-year as expected due to the elimination of high-margin organizer fees. Sequentially, this was a 40 basis points improvement from Q2, driven by the growth of high-margin Eventbrite ads. On the cost side, operating expenses were $49.6 million, down 20% year-over-year. Note that the prior year included $5.4 million of reduction in force costs. Excluding this, on a non-GAAP basis, operating expenses were down 13%. Notably, Q3 operating expenses were our lowest in 4 years with double-digit reductions across the board. Product development expense was down 26% sales, marketing and support down 17%, and G&A down 16%. Overall stock-based compensation was down 42% year-over-year due to disciplined management of equity awards. As Julia noted, these expense reductions have improved the structural economics for the business going forward and also serve as a source to fund growth investments for the future. Q3 net income was $6.4 million, up from a net loss of $3.8 million last year. Note that Q3 benefited from a gain of $5.8 million on the early paydown of $125 million of our 2026 converts. We delivered adjusted EBITDA of $8.4 million, up 58% year-over-year, representing an 11.7% margin. The current and prior year quarters included adjustments to annual incentive compensation. This provided a $1.5 million benefit this quarter and a $3.7 million benefit in Q3 last year. Now turning to the balance sheet. We ended the quarter with $511 million of cash, cash equivalents and restricted cash. Available liquidity was $196 million compared to $248 million at the end of Q2. $60 million related to our term loan will be held in escrow until we retire our remaining converts outstanding. The quarter-over-quarter decrease in available liquidity reflects the repurchase of $125 million of our 2026 converts, reducing our total debt to $175 million, down from $241 million at the end of Q2. We plan to retire the remaining $30 million of our 2025 converts this December and the remaining $88 million of our 2026 converts by next September, at which point, our only debt outstanding will be the $60 million term loan maturing in 2029. Now turning to our financial outlook. We have delivered meaningful trending improvements over the past 4 consecutive quarters. And in Q3, as Julia noted, we made strong progress in acquiring new creators and improving creator retention. These clearly demonstrate the operational momentum we're building, and we expect the revenue and retention of these new cohorts to continue to build over the coming year. At the same time, as we noted in Q2, average tickets sold per creator has been slower to recover. Hosts of smaller events and lower volume creators are still growing faster than larger ones, and the resulting mix shift continues to serve as a modest headwind relative to our expectations. Accordingly, we're slightly adjusting our guidance for the remainder of 2025. For Q4, we expect to deliver net revenue between $71.5 million and $74.5 million and adjusted EBITDA margin of 8% to 9%. Based on this Q4 guidance, for fiscal year 2025, we anticipate net revenue between $290 million and $293 million and adjusted EBITDA margin of 8% to 9%. We now expect to return to monthly year-over-year paid ticket volume growth within the first few months of 2026. And by Q2 of 2026, we project to return to quarterly year-over-year growth for paid tickets, ticketing revenue, and total net revenue. With 4 consecutive quarters of solid recovery and strong execution across the business, we're well-positioned to drive durable revenue growth and margin expansion in 2026 going forward. And now the operator will open it up for questions. Operator: [Operator Instructions] Your first question is coming from Justin Patterson from KeyBanc. Justin Patterson: You've made some really nice progress this year with stabilizing creators and improving the cost structure. As you look ahead, how are you thinking about the right level of investment to build upon that and drive that return to growth you just outlined in 2026? Anand Gandhi: Thanks, Justin. I appreciate the question. As we're looking at the year, we're -- as you know, we're focused on bringing down OpEx in a very disciplined and consistent way. And part of that is really to focus on getting the most return on where we choose to allocate those dollars. So the goal isn't purely just to continue to bring down OpEx by itself. It's also to reallocate some of those funds in areas that we find can drive growth. So part of this is through experimentation, like Julia mentioned, performance marketing, we've seen some strength and others are tied to product features in different areas that we have a lot of faith that meet what consumers, creators are looking for. So overall, it's a balance, and we do believe that we can continue to keep operating expenses in line and potentially continue to reduce them over time while still having enough to fund areas for growth. So it's a balance. It's something that we're focused on closely, but we'll continue to always be focused on that balance, but we feel pretty good about right now where we're positioned. Justin Patterson: Got it. That's helpful. And if I could squeeze in one more, just a product question for Julia. You outlined some really compelling initiatives for 2026. If you just step back and consider a lot of the changes we've seen around GenAI, how do you think that influences just the pace of product innovation you're doing for both creators and consumers? Julia Hartz: Great question. Thank you so much. When we think about the investments for 2026, they're really in four different areas. The first is premium tools for larger creators. We think that the market is shifting, and there's an opening for us in 2026 in particular, to go upmarket and actually address the needs of these creators that are either not being well served by technology platforms today or aren't able to access the transparency and independence that a tool in a marketplace like Eventbrite can offer them. So it's a pretty hefty undertaking for us to think about how we can help these creators expand their market share, but we're really excited to do that. So things like, first and foremost, helping them run their businesses more efficiently, increasing the functionality of the ticketing tools that we offer today, but also introducing some really interesting tools for them to be able to make smarter choices like dynamic pricing, for instance. The second thing is that we're thinking about how we can help use AI to drive creator success. So where they're spending their marketing dollars, how can we help them lean in even more to create greater success from any type of marketing budget. Today, our largest creators that are using our ads product are seeing an over 200% ROAS through Eventbrite ads. And we want to lean in and make them even better and smarter and more effective. So we're looking at marketing performance. We're looking at listing quality and conversion, all areas ripe for innovation through our product and the use of AI. The third thing that we're looking at is consumer engagement and personalization. So advancing discovery of the great inventory that's in our marketplace and making sure that we're putting the right event in front of the right person at the right time and really balancing both sides of that marketplace. So we're helping not only consumers find the exact right event and suggesting those events to them, but also helping our creators increase the conversion of their events through content coaching and really helping in a way to create a better event listing in a very interactive way as they're building out their events. And then the fourth area is really around global and monetization expansion. We know that Eventbrite is used in 180 countries every year. We want to lean into the globalization opportunity once again and really help elevate the experience within markets that we're really not focused on today. And we know that AI has given us this wonderful breadth of tools to use to efficiently be able to expand our offering, but then also be able to go deeper in really important markets and make sure we're meeting our creators where they are to help them expand their businesses and be able to create more events. So I think we're able to make these investments because our cost structure is stronger and more efficient than it's ever been. I'm sure you've noted that our operating expense is the lowest it's been in 4 years, and that's structural. That's really focused on helping us be the strongest, most sustainable business, but also be able to innovate in both product and service and operate with discipline and leverage. Operator: Your next question is coming from Cameron Mansson-Perrone from Morgan Stanley. Cameron Mansson-Perrone: Julia, there's been obviously a lot of discussion this week about the ticketing industry, the last couple of months around the ticketing industry following the FTC lawsuit, which obviously focuses more on secondary ticketing, so a little bit of a different area of the industry. But I'd still appreciate your thoughts on kind of where you see Eventbrite fitting into this conversation around the ticketing ecosystem and whether some of these potential changes have any knock-on effects for your business that investors should be aware of. And then as part of that, just wondering kind of how you approach Eventbrite's philosophy around balancing monetization of the platform and also being transparent and consumer-friendly. Julia Hartz: Absolutely. Thanks so much for the question. At Eventbrite, our founding principle is to democratize the ticketing industry. And over the last 20 years, we have shown that we can be the most broad-reaching accessible, transparent, and fair ticketing partner that is out there, just full stop. So when we look at the market across the board, we think that the consumer deserves fair prices. They deserve transparency, and we work with our creators to make sure that we're helping them bring to market unique live experiences that are priced fairly and transparently. So we have been a part of different movements to drive transparency in ticketing fees and have advocated for fair pricing practices across the board in the primary ticketing space. In terms of the future, I think that our customers, especially on the creator side, they deserve to have fairness and choice. They deserve to have flexibility and transparency. And they deserve to have the best technology that will help them build their businesses over time. And that's really what we're focused on. So as the industry evolves and the market becomes more fair in competition, we look forward to really being able to go into bigger venues where we've previously played and helping those business owners grow their audiences, fill their rooms and be able to continue expanding their businesses through adjacent revenue opportunities. And regardless of outcomes of different lawsuits, our strategy doesn't change. We are going to invest in premium creator tools. We're going to be continuing to push transparent high conversion checkout for our creators and consumers. And competitive openings is really for us an opportunity to be able to better serve customers that we know will thrive on Eventbrite. Cameron Mansson-Perrone: I appreciate the thoughts. And one housekeeping one for Anand, if I can. On the sequential gross margin improvement this quarter, you called out the ads benefit. I was wondering if you could provide some color around kind of sequentially thinking through the end of the year and whether that momentum can continue and just whether we should think that the guidance reflects the opposite. So trying to marry the unit economic improvement with the adjusted EBITDA guidance for next quarter. Anand Gandhi: Thanks, Cameron. Good to chat again. So just to clarify, for the -- it sounds like two pieces, the gross margin piece and then the OpEx piece. Is that right? So growth... Cameron Mansson-Perrone: No, just -- yes, I mean if you're -- I don't know if 40 bps is like if there's other stuff going on there. And so maybe extrapolating that sequential momentum is not what we should do. But if you were going to get another 40 bps of gross margin, it just trying to make sense of that with the downtick in adjusted EBITDA margins. Anand Gandhi: Got you. Got you. I think that's a good question. So we do expect to have, I guess, modest continued improvement sequentially on gross margin, particularly just as you call out, as the ads revenue increasingly ticks up and drives a greater share of our overall revenue, that is higher margin. So I would say that we do expect that trend to continue. We're not guiding exactly on how many basis points that is. But yes, it's going to improve proportionately as ad revenue proportionately contributes more and more of our total revenue. Operator: [Operator Instructions] There are no further questions in the queue. And thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to NFI 2025 Third Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Stephen King, Vice President, Strategy and Investor Relations. Please go ahead. Stephen King: Thank you, Michelle. Good morning, everyone, and welcome to our conference call. Joining me today are Paul Soubry, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer. On today's call, we will give an update on our quarterly results, highlighting the continued improvement in our overall margins and unit economics, as we convert our strong backlog. We'll also provide an update on the nonrecurring battery warranties that impacted the quarter and recap our outlook. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that can be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number. On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details. In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call. A reminder that NFI statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. Slides 3 and 4 provide a brief overview of our company. NFI is a global independent bus and motor coach mobility solutions provider. We offer a wide range of propulsion-agnostic buses and coaches on proven platforms, and we hold leading market share positions in transit and coach markets. More detailed information is available on our website. Slide 5 provides a brief insight into NFI's product and geographic mix and other major milestones. I will now pass it over to Paul to provide an overview of NFI's results for the third quarter. Paul Soubry: Thank you, Stephen. Good morning, everyone, and thank you for joining us this morning. I'll dive right into the Q3 results on Slide 7, starting with demand. Despite the third quarter being seasonally slower, we secured 644 equivalent units in new orders, generating 108.5% LTM book-to-bill ratio and a strong 71.8% option conversion rate. The highlights -- this highlights the continued strength in market demand supported by government funding in both Canada and the United States. Our total backlog, which includes both the firm and option orders, now totals 15,606 equivalent units worth USD 13.2 billion. In Q3, we delivered a 52% year-over-year increase in adjusted EBITDA and a $12.8 million improvement in free cash flow. Liquidity increased by $240.2 million, reaching $386 million at the end of the quarter. Total leverage, inclusive of all debt, improved to 4.28x, an improvement of 1 full turn since the end of 2024. These improvements were largely driven by the continued conversion of our strong backlog into operating results with increases in the average revenue and margin per delivered unit. While there were numerous positives, the quarter was negatively impacted by a warranty provision for an ongoing battery recall. On Slide 8, we provide details of this provision. In September, we announced a recall affecting approximately 700 buses and coaches, primarily New Flyer buses. The recall relates to batteries provided by our U.S.-based supplier, XALT E that was initiated due to the potential of to sell short circuit or cell fault primarily during charging or at full state of charge. For context, we provided an overview of the components of the battery system on this slide, starting with the cell all the way through to the battery enclosure. As safety is our top priority, immediately after issuing the recall, we implemented operational guidelines and software updates to limit the state of charge and the speed of charging on the affected buses and motor coaches. This allows customers to continue operating their vehicles with the affected batteries still in use. We've now determined that ultimately, we need to replace the batteries on these buses. The campaign is expected to take 18 to 24 months in total, beginning in the first half or the early part of 2026, and we will use a different battery supplier to replace those batteries. Our plan is for the replacement to be completed in the field, and we intend to leverage our service center network for this work. While we are still finalizing our approach, we do expect this work not to disrupt our production in 2026. Reflecting the expected replacement along with future potential costs to support other legacy XALT batteries in the field, we booked a $229.9 million warranty provision in the third quarter. This reflects our best and conservative estimate of the total cost of the battery recall and related support. We are comfortable with the tentative term sheet that we entered into with XALT and expect to finalize a definitive agreement for costs associated with the recall as we move into the -- through the fourth quarter. XALT recently announced its decision to wind down their U.S. battery operations. This announcement does not change our expectation that we will achieve a satisfactory agreement on the recall cost that meets our needs and those of our customers. We do also not expect this wind down to have any impact on New Flyer's production. We had previously moved most of our electric bus battery supply to an alternate U.S.-based supplier. We will use those different batteries on the buses going forward. We are currently -- we currently use the XALT battery on our fuel cell electric buses, and we expect all of the batteries needed for our 2026 production will be provided by XALT before they wind down operations. The batteries on the fuel cell buses are different than the batteries on the electric buses. Long-term, we'll be moving our fuel cell bus battery supply to an alternate provider. Recognition of the warranty provision for the battery recall impacted numerous financial metrics in the quarter. And given the nonrecurring nature of this event and the ongoing negotiations on an agreement for related costs, we have normalized adjusted EBITDA and adjusted net earnings calculations. This morning, we will call out a few other areas where the recall had a meaningful impact. And on Slide 9, we outlined some of these impacts. Without the battery recall, manufacturing segment gross margin would have been 10.2% with a gross profit per equivalent unit of $66,300, a 58% improvement from the third quarter in 2024. Manufacturing net earnings would have been $26.7 million. Reported working capital of $248 million was positively impacted by the provision and would have been $464 million without it. The graph on the right bridges net loss to adjusted net earnings with the battery recall and the associated tax impact being the largest bridging items. This is our third straight quarter of positive adjusted net earnings. I'll now turn the call over to Brian Dewsnup, our Chief Financial Officer, to provide a supply chain update and discuss our financial results in more detail. Over to you, Brian. Brian Dewsnup: Thanks, Paul. Picking up on Slide 10, we provide an update on our supplier risk profile. We currently have just 3 companies that we consider high risk/high impact, down from 50 in the peak of 2022. This improvement reflects the ongoing work of our sourcing, procurement and supplier development teams are actively working directly with suppliers to improve delivery performance. While there's been recent disruption in automotive supply chains, we largely have not seen any significant impact. It's a situation we'll continue to monitor. We don't have much of an overlap with automotive, but there could be cascading effects that may impact our supply base. Slide 11 highlights our recent strategic investment to strengthen our supply chain through our joint venture assumption of American Seating assets with GILLIG. We expect this partnership will drive financial stability and operational performance at American Seating. This will benefit improved performance for NFI, also the broader industry. Financial terms were not disclosed, but the transaction is not considered material. While we are now investors in American Seating, it's critical that we maintain a diversified supply base for seats and are continuing to work with other seat suppliers. The number of new Flyer buses built, but yet -- built, but they're still missing seats remained relatively flat since our last update. We did see an increase in August and September, followed by a reduction in October to 50 equivalent units. This impacted Q3 deliveries, and we remain focused on bringing this number down prior to the end of the year. We have lower production with American Seating in the fourth quarter, which should free up capacity for them to prioritize deliveries for seats on these essentially complete buses. On Slide 12, we recap quarterly deliveries. Transit deliveries were up 14% year-over-year, driven primarily by the North American business. This increase was achieved despite some zero-emission bus customer acceptance delays and seat-related disruption. Coach deliveries were down in the quarter due to lower private sector deliveries, although we anticipate a strong recovery in the fourth quarter, consistent with the seasonal nature of the business. Reflecting the strength of our backlog, we achieved 19% year-over-year increase in the average selling price for both heavy-duty transit buses and motor coaches. We also delivered a record 217 low-floor cutaway buses in the quarter. This is up 36% year-over-year, and the average selling price was up by 21%, reflecting continued strong demand. Turning to Slide 13. Aftermarket gross margin was essentially flat quarter-over-quarter and down year-over-year. This reflects sales mix, reduced program revenue from large midlife projects in North America and the impact of tariffs. In the Manufacturing segment, gross margin, excluding the impact of the battery recall was 10.2%, consistent with the second quarter. This reflects timing-related impacts in the third quarter and sales mix. The year-over-year improvement in gross margins highlights our improving backlog profile flowing through quarterly results. Slide 14 walks through year-over-year changes in adjusted EBITDA within our reporting segments. Manufacturing EBITDA was up by $36.1 million, driven by higher deliveries, favorable sales mix and improved pricing. Corporate adjusted EBITDA declined by $2.2 million, primarily due to negative impacts of foreign exchange, including a lower U.S. dollar. Slide 15 shows LTM adjusted EBITDA performance for both Manufacturing and Aftermarket segments from 2022 to 2025. Our Manufacturing segment continued its strong upward trajectory, achieving $174 million on an LTM basis, which is an increase of $114 million year-over-year. Slide 16, quarterly free cash flow was positive with a strong increase driven by the higher adjusted EBITDA and lower interest expenses. There was a significant positive impact from working capital in the quarter, but this was largely due to the battery recall increasing provision balances. Excluding those impacts, free cash flow, combined with changes in working capital would have been $35 million. This represents a $68.9 million improvement from the prior third quarter of 2024, reflecting lower inventory balances and our milestone payment structures. On Slide 17, we look at our total leverage, liquidity and return on invested capital. We continue to execute our deleveraging strategy and reduced total leverage to 4.28x on an LTM basis. Note that this calculation includes first lien, second lien convertible debentures and lease obligations. For banking purposes, which exclude convertible debentures and leases, total leverage was 3.37x. Liquidity was up approximately $241 million year-over-year and up by $59.3 million from the second quarter. This reflects our positive cash generation and debt repayment. ROIC has continued to trend positively supported by improved adjusted EBITDA and lower total invested cost base. I'll now turn the call back over to Paul to discuss the outlook. Paul Soubry: Thank you, Brian. As you look into the fourth quarter and our plans for 2026, we expect that NFI will continue to grow revenue, gross profit, adjusted EBITDA, free cash flow, return on invested capital and net earnings. I'll walk through the drivers behind this continued momentum and comment on the key risk factors in our operating environment. So I'm now on Slide 19. You can see the makeup of our backlog over 15,606 equivalent units, 37% of which are firm and 63% are options. Our firm orders provide significant visibility for the fourth quarter of 2025 and have also helped us fill the majority of our 2026 public market production slots. The options offer runway and visibility for our production schedules over the long-term. The black line represents the total dollar value of the backlog, which is now $13.2 billion, having grown $8.3 billion just over the last 3 years. In the third quarter, we saw higher new orders for internal combustion buses, which is consistent with our experience in the first half of 2025. As a result, the ZEB percentage of our total backlog remained relatively flat. Our improving total backlog and firm auction profile is displayed on Slide 20. The chart demonstrates the improvement in average sales price or ASP per equivalent unit across our total backlog, including both firm and option orders. Average selling price have increased for both heavy-duty transit buses in the dark blue and motor coaches in the light blue. Year-over-year, ASP for heavy-duty buses was up 1.5% and up a whopping 64% since Q3 of 2021. ASP for motor coaches was up 20% and 52% over that same time period. Now these pricing improvements are expected to continue flowing through our income statement. We saw this in the first 3 quarters of 2025, and we expect even more improvement going forward. We anticipate further gains in the fourth quarter, supporting our outlook for the highest quarterly adjusted EBITDA quarter in the company's history. The North American bidding environment remains strong as shown in our bid universe on Slide 21. We ended the quarter with active bids of 7,503 equivalent units. This includes 6,217 EUs and bids submitted, which is up 50% from the second quarter of 2025 alone. This reflects recent submissions on a large multiyear bid related to upcoming major sporting events that are being hosted over the next couple of years in the United States. The black line in the chart shows new awards. We saw some decrease from the previous quarter, primarily due to timing delays on new orders. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black with a lag of a few quarters from submission to award. Over our 5-year expected bid universe, which is compiled from customer fleet replacement plans, remains very strong at nearly 23,000 equivalent units. This sustained demand is driven by increasing fleet age with nearly half of the North American public transit fleet now over 12 years of age and continued strong government funding. On Slide 22, we show our book-to-bill and option conversion ratios. NFI's option conversion ratio has improved significantly, reaching 71.8% on an LTM basis. This improvement reflects increased order activity, a higher number of exercise options and the improved competitive landscape and our competitiveness. The slight decline in our book-to-bill from the second quarter reflects slower new orders and higher deliveries in Q3. On Slide 23, it reflects our guidance ranges for key metrics for 2025. Based on our year-to-date performance and our expectations for the remainder of the year, we've tightened up a few certain ranges. We now expect revenues to be between $3.5 billion and $3.7 billion and driving adjusted EBITDA ranging from $320 million to $340 million. In the fourth quarter, we expect higher deliveries, particularly in private markets and improved sales mix drive and should deliver our highest quarterly adjusted EBITDA ever. This reflects continued improvement in our per unit economics and a strong contribution from the aftermarket business. Cash CapEx are projected to be lower than initial expectations, even as we have invested into several new facilities, including our all-Canadian New Flyer build project in Winnipeg and the Alexander Dennis plant set up in Las Vegas, Nevada. For clarity, our guidance includes year-to-date impact of tariffs and some of the smaller potential tariff impacts on fourth quarter results. It does not reflect any material changes that tariff environment could have on demand, pricing or cost going forward. This risk is somewhat offset by the fact that the majority of our remaining 2025 vehicle sales are already produced or will be finalized in November. On Slide 24, we provide our latest views on the macro tariff environment. We observed some stability in the tariff environment during the third quarter, and we relatively consistent direct tariffs on goods that we import and suppliers that have started to provide additional details on suppliers, sorry, that have started to provide additional details on tariff surcharges that have been included in their pricing. Those are indirect tariffs, ones we pay to suppliers for parts and components used and installed on our vehicles. On November 1, a new U.S. Section 232 tariff of 10% was applied to all buses and coaches imported into the United States from any jurisdiction. This is expected to lead to increased pricing and tariff surcharges to end users as there is no domestic U.S. production of motor coaches. Prior to November 1, we have moved the majority of our finished goods inventory from Canada into the United States physically. We continue to view tariffs as a pass-through to cost to customers through contractual obligations and through general price increases and negotiation. This does require negotiation with customers, and we may not be able to cover all of our costs. We have generally had success in being able to find solutions with customers so far. Longer term, we will continue to assess our geographic production schedules to try and minimize tariff exposure. We've made significant investments in the United States operations, increasing our staffing in the U.S. by 7% since the beginning of 2025. And during the last 10 months, we've opened the Las Vegas, Nevada production facility for Alexander double-deck buses, opened a new service center for MCI in California, and we acquired the Michigan-based seat supplier. We also recently put our first bus into our all-Canadian build production line that has been commissioned in Winnipeg, Manitoba. Tariff-related costs have been accrued in work in process inventory as we complete customer negotiations. Within the Aftermarket segment, we have experienced some margin pressure, primarily due to the timing between tariff incurrence and the pricing updates. Our ability to adjust pricing models quickly has helped mitigate longer-term impacts. I'm now on Slide 25, so a few closing comments. The first 3 quarters of 2025 laid a very strong foundation for continued momentum. We increased deliveries, we converted backlog into results, and we've had solid cash generation supporting debt repayment and the deleveraging plan that we set out. Our total backlog of $13.2 billion, combined with option conversion rates and strong book-to-bill ratios reinforces our confidence in our near-term and our longer-term outlooks. In the U.K., we were pleased to see active engagement and very strong support from the Scottish government and several active procurements have supported growth that we project now for 2026 deliveries by Alexander Dennis. NFI's aftermarket business is a foundational business unit with steady and recurring revenue streams, a solid margin profile and significant free cash flow generation. Calculating and enforcing tariffs are becoming more established in our operation and as part of our industry. We continue to actively track trade developments, and we will take all actions possible to ensure an appropriate response where required. While there will be some headwinds and volatility, especially with private motor coach markets, our domestic production, our nimble aftermarket pricing, our extremely strong backlog and contractual provisions lead us feeling well positioned to respond as needed to the dynamic environment. So despite headwinds related to seat supply, tariffs and now battery replacement programs, we have not changed our overall view that NFI is a very strong trajectory of growth that should see significant investments in operating and financial metrics. We are confident in the strength of our markets, our business, our product offering and our people to deliver outperformance as we head into 2026. With that, we'll now open the line for questions. Michelle, please provide instructions to our callers. Thank you. Operator: [Operator Instructions] The first question will come from Chris Murray with ATB Capital Markets. Chris Murray: If we can go back to just talk about the battery reserve and maybe some extra color on that. So I guess the first piece of that, can you maybe walk us through your confidence level on what the actual cash cost might look like to NFI and the proportions that might be covered by the suppliers and how to think about that evolution over the next couple of years? And then if you can also talk about supply chain around batteries because I know at one point, I guess, XALT had been a bit of an issue about even getting batteries, which has led you to look for a second supplier. Now that XALT is exiting the market, do we still have a supply chain issue in batteries? And how do we think about that on a go-forward basis? Paul Soubry: Great questions. Thanks, Chris. So let me start with the second one first. We've been dealing with XALT for a decade, and XALT had gone from a private ownership in the United States to being acquired by a very, very large multi-international business who invested dearly in them. Yes, there's been volatility of supply dynamics over time. And as the percentage of zero-emission buses increased in our backlog, we did it out of not a concern of supply, but of surety and competitive dynamics. So we actively went out and set up a second battery supplier, which took us about 2 years to validate and commission onto our buses, and we've now been delivering buses with those alternate batteries for about 2.5 years now. So we go to a situation now where, yes, we have a recall we have to deal with, but XALT is leaving the U.S. market and leading the battery business. We have signed a term sheet. Of course, it's nonbinding, but it recognizes both how we would do the recall, the economics associated with it as well as how product support, technical support, field support, warranty support would work going forward. So that is the process we're in the middle. We signed the term sheet about, I don't know, 3 weeks ago, and we are actively negotiating with XALT and its parent on the economics associated with that. We do not have a definitive agreement, and therefore, we can't provide the details associated with it. We are confident that the batteries we're going to put on in replace of the XALT batteries are proven and the supplier has assured us that they can handle not only our ongoing manufacturing requirements for the manufacturing demand, but also the surge demand over the next 1.5 years or 2 years, whatever it takes to finish the actual recall. So I wish I could give you more color on actual dollar cash, the economics, the timing and so forth. We don't have that completed. Therefore, it's not prudent to be able to provide any details or insight into that at this point. Brian, do you want to add some color? Brian Dewsnup: Yes. Paul Soubry: Let Brian give you a little bit more color on some of the economics associated. Brian Dewsnup: Yes. Just as we mentioned in the call, we would expect the campaign to be executed over the next 18 to 24 months. So just from a cash flow perspective, we'll start that campaign in the first half of 2026. And so we would expect there to be an effect -- round figures, half of that done in 2026 and half in 2027. And then the warranty piece of what we put in there, we would expect to be disbursed over the next kind of 1 to 4 years. So while it's a big number, that will be done over kind of 2 to 4 years in terms of the cash effect of that. Chris Murray: Okay. That's helpful. And then I guess going back and thinking about the outlook. So a big quarter coming up. And I guess, even going to the bottom of the range still of guidance still implies that there's a lot of buses that have to move out the door. Can you talk a little bit about how you're feeling about that? But also I think more broadly, how you're feeling about the manufacturing platform, where you're at as we go into 2026. And as we move beyond, I guess, some of the, call it, the problems of COVID and the echoes of COVID and supply chain, '26 feels like it's setting up to be maybe the first normal year in almost a decade. But how do we think about this as a year kind of a normal operations with good backlogs supply chain kind of, for the most part, fixed and working. What do you think the business can actually do with this? Paul Soubry: Great question, Chris. So let's start with the fourth quarter. So the guidance that we've maintained on the low end, and we've just dropped the top end a little bit to reflect that we're almost -- we're 10 months into this business for this year. The guidance range suggests the fourth quarter of 2025 would deliver an adjusted EBITDA in the neighborhood of $105 million to $125 million. While we have always expected fourth quarter to be the biggest period, it has been further supported by some deliveries that were originally planned for Q3 '25 that moved into Q4. The exit rate does provide us with increased confidence in our ability to deliver growth in 2026. We've not yet provided guidance for '26. But as we've discussed previously, as we look into '26, we expect improvement in overall deliveries for a couple of reasons. First, we increased the Canadian build. So we've got 4 to potentially 5 units a week of additional deliveries. We freed up capacity that we would have taken for in Crimson, Minnesota to build a shell in Canada, send down to the U.S. for completion, now adds more capacity in the U.S. for builds. We should be finally past the seat supply disruption, 2 issues. We're now in control of our own destiny of American seating after a very long and protracted and painful process. And number two, as you know, we've diversified the supply to effectively 2 other suppliers. Our reliance on American Seating, for example, in the third quarter is somewhere in the range of 22% or 24% of the deliveries, not 60% like it was this time last year. The U.K. market has gone through quite a bit of challenges this year. Paul Davis has done an amazing job of idling its facilities where it made sense, working with the government of Scotland on furlough schemes, but more importantly, has been able to already solicit or solidify a reasonably serious increase in volume in the U.K. and in the ABL markets for 2026. And then, of course, the other thing that is often under the radar is that our ARBOC business continues to perform extremely well. They are by far the market leader in low floor cutaways in North America. They are also now deep into the reintroduction of a medium-class vehicle that we already have sales for book for 2026. Add to that, the underlying contribution that continues from the aftermarket business. Now if you look at some of the graphs, you may see a bit of a tail off on margin. You may see the EBITDA slightly less than last year. However, that part of that business is highly volatile associated with programs. So where customers will do midlives or upgrades to their fleets, something we can't really control. That core business of aftermarket continues to grow. And John Proven, who started well over a year ago now to run that business when Brian moved to CFO, has done a really good job at focusing on growth opportunities in that space. All that stuff adds up to what we believe will be a record quarter for us in 2024 -- sorry, in the fourth quarter of '25 and a very strong performance opportunity for 2026. Sorry a long answer, but I thought all those things are appropriate. Operator: And the next question will come from Krista Friesen with CIBC. Krista Friesen: I just wanted to go back to your slide on the high and moderate risk suppliers and just comparing it to what you put out for Q2 and the numbers for July 2025. It looks like there's been an uptick in the moderate risk from 9 to 12 and high risk from 1 to 3. I was just wondering if you can give a little bit more color on those suppliers and what's changed there? Brian Dewsnup: Yes. Good question. So obviously, there's a subjectivity here in terms of how we rate things. And so we've seen kind of a nominal movement there in our medium risk. I don't -- I don't think you should really read anything into that beyond the fact that we're actively managing this, and we're sensitive to any types of disruption that we're seeing there. So I wouldn't say that things have materially changed from earlier this summer. Krista Friesen: Okay. Great. And then I also just wanted to confirm on the guidance front. Did you say that at this point in time, the guidance for the remainder of the year includes all tariffs that are in effect? Brian Dewsnup: Yes. That's -- everything we know as of right now, yes. And the November -- the early November tariffs, we don't think they'll have a significant effect in 2025. We think that will be more of a 2026 issue that we'll need to deal with. Operator: And the next question will come from Daryl Young with Stifel. Daryl Young: With regards to the replacement of the batteries that needs to be done, which personnel, I guess, are going to be doing that? Is it New Flyer people that you're going to have to pull from your current facilities? And is that going to result in a bunch of overtime and added costs and disruption to your existing supply chains or really no impact there? Paul Soubry: Really good question, and we spent a lot of time. So when we started the thinking of a recall, we had kind of 3 options. One was pull the buses back to the factory, not really practical. You also have border dynamics and so forth. Number two was to set up a third party or engage third parties maybe on the East Coast or the West Coast. And then the third option, which is the one we selected is to run those buses on a battery exchange type program in a service center. So we have service centers in New Jersey, in Montreal, Chicago, Dallas, San Francisco, Los Angeles. So what we will do is effectively because they're battery electric buses, we will have trucks, if you will, driving a battery electric bus into the service center. We will dedicate a bay or 2. We've done a heat map of all the location of all the battery buses that will need to recall. There's a high propensity of the population was in Southern California and in Northern California. We will dedicate 2 or 3 bays or whatever is appropriate at each of those service centers and run them through an exchange program. Each bus in terms of taking off the batteries, putting on new batteries, there's some cabling and some small equipment that needs to be changed and then there's software upgrades and then testing. It's not massive. Each -- we think we'll be able to do a number of buses a week at each service center. None of the people from the factory will be involved. So there will be no impact on the manufacturing operations. We may need to add a couple of extra people in each of those service centers depend on each of their individual needs. The service center will forego a little bit of third-party work that they do today to be able to assign the space and the people to do this program. So as Brian alluded to, at this point, the scheduling, the preliminary scheduling says somewhere between 18 and 24 months to be able to complete the entire campaign. The very first replacement will be done in Winnipeg at our new product development center, where we'll have all the engineers and new product development people, the supply people validating the bills materials and so forth. That will start in probably January. And then in earnest, we'll start the recall most likely right after the first quarter. So we've got to make sure the supply is right, the people are skilled and trained and then we work with the customers to allow them to get the vehicles to us. Just some color as well, Daryl, as you probably heard in the notes, we have disposed -- disposed. We have distributed software on all of those battery electric buses. We're well into that process right now to be able to allow the operators to use the buses. Yes, there's a slight degradation in the pace of charge and there's a slight reduction in the total battery capacity. But again, just the safety and caution, we've deployed that and are well into that process now. Daryl Young: Got it. Okay. And then when you flip to the sole battery supplier in 2026 for your new orders, and I know you mentioned you've been working with them since 2023, I think. Is the batteries they're going to be supplying, is that a new technology? Or is that the same old proven one that they've been building and you're going to add it to the buses and there's no design spec changes or anything like that, that need to come through? And do they have the capacity to kind of hit the ground running in terms of volume? Paul Soubry: So the cells themselves are an LG cell. They are packaged by a company called American Battery Systems that's located in Michigan. The cell -- these LG cells are cylindrical cells as opposed to the ones that are currently on there, which are pouch cells. Those batteries are in use in many applications, including vehicles, trucks, buses around the world and by some of our competitors today. So there is not a new chemistry or a new application or type cert or anything associated with those batteries. Now we have validated with that supplier that can handle both our normal production requirements, which we have for 2026, and the slots sold as well as the surge capacity to deliver the pace at which we need these recall batteries. As you can imagine, we're going to be taking off almost 700 buses worth of batteries. So we're also actively working on the recycling of those batteries, the appropriate tear down, the disassembly and working with providers to do the right thing from both an environmental, but also from a cost and a safety perspective. So we're pretty comfortable with this, which then leads into our engineering teams have already started looking for yet another battery type that would be an alternate to what we have. So what we want to be able to have is always 2 sources of batteries. Should anything like this ever come up again, we will have multiple sources. Stephen King: Yes. So -- sorry, Daryl, yes, as Paul mentioned, we largely view the replacement of batteries as plug-and-play to make it simple of the new supplier versus the XALT battery. And I just want to reiterate, as we've discussed on the call and numerous times, we continue to discuss costs associated with the recall with XALT, and we have that term sheet in place, and we're looking to get that definitive agreement in the fourth quarter. So I just really want to reiterate that as people are thinking about costs and the costs associated with this campaign. Operator: And the next question comes from Abe Landa with Bank of America. Abraham Landa: So from my understanding and going back to the battery recall question, that $230 million that you took essentially is your -- what you currently expect, your portion of the battery replacement plus the warranty cost. And correct me if that's wrong. Paul Soubry: I guess maybe -- it is. Let me just clarify that. It is the total cost of the recall plus with XALT leaving the business, it is our estimate of future warranty exposure associated with any installed buses that are not associated with the recall. So what is being negotiated and what is reflected in our term sheet is the portion or the recovery from XALT as a supplier. Abraham Landa: Okay. So that $230 million is like a gross cost, let's call it. Paul Soubry: Correct. Abraham Landa: And if you reach some sort of agreement with XALT, it could decrease from here? Paul Soubry: Absolutely. We would expect it to dramatically decrease. Abraham Landa: Now of that $230 million, I guess, can you maybe -- like what's the cadence? I mean I could do divide it by 8 quarters, and you get -- or 6 quarters, you can do, call it, $30 million to $40 million per quarter. But I guess is it going to be more front-end loaded? I guess, how does the cash layout of that, let's say, on a gross amount before any sort of recovery look like into '26 and beyond. Brian Dewsnup: So the gross number comprises 2 pieces, as Paul mentioned, it's the campaign money to go out and literally take the batteries off and put the new batteries on vehicles. That's the bulk of that accrual. And we would expect that to commence in the first half of 2026, and it will take 18 to 24 months. So round figures, that would be half of the cash flow would be in 2026 and the other half in 2027. And then the balance from a warranty standpoint would be spread, I would say, fairly evenly over the next 4 years. So the cash impact would have that kind of a profile. And obviously, as we talk about any sort of settlement, that would be highly dependent upon the terms and conditions of that settlement. Paul Soubry: And to all our listeners, we're not trying to be purposely acute or evasive. We have a term sheet. It is still not binding. We're in deep negotiations with XALT. And so it's imprudent to give any indication. We're comfortable at what the term sheet reflects in terms of the economics. The minute we get that done, we will issue a press release to clarify to the market our portion, if any, of that recall. Abraham Landa: And have you provided a split between of that $230 million, the warranty portion and the replacement portion? Brian Dewsnup: We haven't provided that. But like I said, the majority of the accrual would be the battery replacement. Abraham Landa: Okay. And then maybe going back to this is all -- that was all super helpful color. And then just going to the tariff question. Obviously, quite a few ones out there, Section 232, the 10% imported buses. I guess if we kind of think about 2026, what would be the unmitigated tariff impact if you want to give a quarterly number or annualized number before any sort of price negotiation with customers? Brian Dewsnup: Yes. So we're -- it's a little bit too early to comment on that. So I think we can give a little bit more color on that as we move forward. We're still digesting all the implications of the November 1 changes because it brought some new stuff, and it also did away with some other stuff. So we're still kind of working through that math. And we'll be more prepared to comment on kind of the high-level nature of that as we get closer to the end of the year and certainly as we talk about the full year results. Paul Soubry: Just a comment on '25. The vast, vast majority of units that we'll sell in '25 are already physically in the United States. So the real tariff dynamic that Brian just alluded to is the country tariffs, the tariffs on our suppliers as they input parts in, what we bring into Canada as opposed to what goes straight to a U.S. supplier. And now, of course, the Section 232, 10% on buses and coaches. And your question is a good one in terms of the unmitigated. We also have an awful lot of mitigation opportunities, which might mean migration of more of our work or of our supply chain physically to the United States. Abraham Landa: Okay. And my last question is, like I've read a lot of articles, maybe there's just newspapers or local kind of warning about local transit budgets, service cuts. But I guess I kind of want to know what you're hearing. I guess, when you speak to your transit customers, what are they saying regarding their budgets, their busing needs? Any sort of comments on timing or changing of timing of bus deliveries? Just that would be some helpful color. Paul Soubry: Well, it's a good one. And of course, it's not a simple answer because we have multiple business units. So let's just kind of dissect each of them very quickly for color. So Alexander Dennis, of course, sells a small amount of buses in North America. The schedule is sold out in our mind for the vast majority of '26. There's a few slots we still have to fill, but there hasn't been any changes, reductions, cancellations, anything associated with that. It will see an increase in volume in the U.K. and internationally. So we're pretty excited about after a pretty rough year for Alexander about them next year. The ARBOC business, just like when we entered into 2025, has almost all of their slots sold out for next year on the cutaways and a very healthy portion as we reintroduce the medium-class business -- medium-class buses into the United States. New Flyer, the vast majority of the schedule is sold for 2026. And if you go back to our -- you look at our backlog, both -- well, the firm portion as well as some expected auctions to conversion. We've seen some customers change an order from a zero emission to a hybrid or a diesel or natural gas. We've seen some people push out. We have not seen the option conversion drop as we showed you in the charts. We also have not seen a drop-off in any of the RFPs hitting the street or the bid universe. And so in our deck on slide -- I think it was Slide 21, we showed both a very healthy portion of active submitted and received bids, but also the continued expected buy over the next 5 years. So we haven't seen that drop off. The other area of our business is MCI. And of course, MCI is roughly 65% or 70% private customers and 35% public customers. There are only, I don't know, 7, 9 real operators in the public domain, and that's blocky in terms of they buy in certain years, they don't buy in other years. They'll buy at high volumes or recur mode. There is some risk on the MCI side associated with filling all the 2026 slots, although it's not a big, big portion of our overall business. The private market has recovered fairly well. in terms of the private operators and the overall market demand continues to be, let's call it, in recovery mode. These new Section 232 tariffs of 10% apply to us just like they apply to all of our competitors, whether it's another competitor that's in Canada or international competitors. So an extra 10% tariff, we all try and pass on to some of those private operators, it could have an impact on that demand. But when you roll all that stuff up and look at our business going into 2026 from a market perspective, from the portion of our business that is sold or secured slots, we're still, in our views, in very much an operational and execution-focused mode as opposed to about worrying where we're going to get business from. Stephen King: Yes, the only thing I'll add there, obviously, been encouraged by comments from the administration around getting America building again and investments in Surface Transportation Act. We saw the 2025 allocation for the Infrastructure Investment Jobs Act was the same as 2024, and there is another year of that funding act that goes until September 2026. And also, the FTA is still active and still actively funding projects that have been approved even during this kind of current shutdown. So our customers are still getting funding for their capital projects that have been previously approved. So all that to say to Paul's point, still feeling very confident in the government funding environment in the United States. Abraham Landa: So it sounds like the majority of your buses for public use or the build slots are essentially filled for next year? So no current change. Paul Soubry: Absolutely. Operator: And the next question will come from Cameron Doerksen with National Bank Capital. Cameron Doerksen: I just want to come back, I guess, to the bus recall and battery issue. It sounds like you've got, I guess, productive talks and some sort of agreement with XALT. I guess maybe you can sort of give us your assessment of the risk around this potentially leading to some sort of lengthy legal dispute. I guess, how do you protect yourself over the long-term if the owner of XALT, given that they're shutting the business down, decides to put that business in bankruptcy and somehow get out of the liability that they have. I'm just wondering, how you sort of assess those risks and how you can protect yourself? Paul Soubry: Well, Cam, look, there's always the risk of something turning sideways. But I have been personally and actively involved along with David White, our EVP of Supply, directly with XALT and with the owners of XALT. The owner of XALT is a very, very large global international privately held business that has a very strong reputation for responsible customer support, responsible products and so on and so forth. We signed a term sheet, which would be a normal process. I would suggest it was a very constructive and healthy negotiation. We independently hired technical experts to try and assess the cause, the root causes, the ability to operate them safely during the process of that stuff. I would characterize the negotiation as constructive, as healthy, the outlook being very positive. The economics that are in our term sheet are acceptable to us. We just got to convert that into an agreement. We believe very definitively in our technical position and assessment of the cells and the cause of -- and risk associated with the short circuits. We have done our work from a legal perspective and have worked with outside external counsel to defend and prepare our position if and when we ever had to get there, which I don't believe we will do. So -- and we've had unbelievably strong support from the Board, a, to do the right thing for the customer; and b, to prepare all avenues associated with both our negotiation and litigation if it got to that. Cameron Doerksen: Okay. No, that's helpful. Just second question, I guess, on the investment in American Seating, the JV with GILLIG. Anything you can sort of disclose as to how much capital you might have to put into that business? I think you sort of indicated that maybe there's some investment required for them. And I guess what's the intention kind of long-term. Is this, I guess, a supply that you want to have long-term in-house? Or is this something that at some point in the future, you don't think you need to necessarily have? Paul Soubry: So look, and we've talked to you and all the other analysts about how hard is this? Why don't we just change suppliers or why don't you just put pressure on. This has been a year-long or deal or nightmare for us and for GILLIG for that matter and some of the other customers of American Seating. We finally came to a scenario and given the status of their debt and the debt holders' decision and desire to get out where we could acquire the debt and then proceed with that. So job one is stability. We have changed the leadership team. We have put a turnaround firm in place to fix the business. We are actively recruiting for long-term employees to run the place and executives to operate the business. We have a joint Board of 2 from GILLIG and 2 from us. And so it's all about stabilization of operations. The investment is not material in our overall business. The pain we suffered over the last year has been ridiculous relative to just one supplier. The amount of seats that are behind is still a notable number. It got better, notably better as we got through the summer of this year and then started to return, which is why we jumped at the opportunity to take control. Seating is not a strategic element of a supply chain that we want for the long-term. And we'll deal with that in due course once this place is stable. And quite frankly, if we can have 3 suppliers in the U.S. competing and buying for that business, the quality of what we all get, the pricing effectiveness and so forth is critical. Typically, our strategy for in-sourcing, and Cam, you've been to our plants is where we own or control the drawings associated critical parts on the bus, the frame, the structure, certain electro components, fiberglass, those kind of things. We've in-sourced that. And about 10 -- more than that, about 15% of our cost of sales, we control. This is, I would say, a targeted strategic investment to ensure surety of supply for the next couple of years, and then we'll decide whether this is a long-term. It's awkward. We're doing it in a joint venture with a competitor. I will tell you they are standup people. We work cooperatively. We've put all the controls in place from an antitrust perspective. I'm comfortable we'll get this place back on track, and then we'll deal with this future as we move through '26. Stephen King: And Cameron, obviously, as Paul mentioned just there, a little different than our usual acquisitions where it's a joint venture. So you'll see it on our Q4 results as an investment in the joint venture on the balance sheet. So we'll have a bit more detail with Q4 results in March on the accounting treatment. Cameron Doerksen: Okay. No, that's super helpful. Operator: And the next question comes from Jonathan Goldman with Scotiabank. Jonathan Goldman: If we think about just the battery replacement in isolation for a layman, who doesn't know much about the industry, if you strip out the cost of the actual battery itself and all the materials, what would be the approximate cost per battery for labor, freight and overhead to change out a battery? Paul Soubry: Good question, Jonathan. It's nominal. I'm going to give you an estimate that's context, right? We're going to ship a bus from one location on a flatbed to our facility, a grad or 2. We're going to ship it back grad or 2. We're going to put 30, 40 hours of labor into each to take the old battery packs off, put the new ones on. So that part of it is not the major part of it. The vast majority is the actual battery pack replacement itself. Jonathan Goldman: That's really helpful color. I appreciate that. In the quarter itself, the sequential decline rather in transit bus ASPs, is that mostly just a mix issue? Or is there something else going on there? And then how should we think about the trajectory of ASP for Q4 and into '26? Paul Soubry: So the ASP, first of all, your intuition on that one is exactly right, mix. What we bid on that window, what we deliver in any quarter has a massive impact on the average selling price. What we put into our backlog is the bid price. So -- and between bidding, going through the final build materials reconciliation, any changes the customer makes, any additional electronics and so forth they put on there could be a material -- not material, but a notable change from what the average selling price into the backlog is compared to what the actual average selling price is when it is delivered. The other dynamic that happens, and as you can imagine, almost all of the stuff that goes into the backlog are multiyear contracts. And so we put it into the backlog at current year selling price. As those options convert, we have purchase price indices that get applied to those in the out years. So it will depend on any changes to make to the bill of materials, but also what the PPI is in those out years. And that's what drives up the ASP between point of installation into the backlog compared to what happens when we actually delivered the unit. Jonathan Goldman: Okay. That's good color. And then thinking about the repricing, time of manufacture, would that include outside of the PPI, any increases on account of tariffs or I guess, like force majeure type of events? Paul Soubry: No. Think of tariffs, if you and I were building a house, almost like an engineering change order. So we are going back to the customers. Now every customer is different, every contract is different. For the most part, here's your bus for $500,000. Here is an added charge for the tariff. And of course, the math associated with the tariff. For a while, we were able to use an average tariff application per unit. Now given some of the changes in the regs and the counts, most customers want a specific tariff calc based on what's actually in their bus. So that is an add bill or an engineering change order type dynamic as opposed to an embedded part of the PPI or any other part of the pricing. Jonathan Goldman: Okay. That makes a lot of sense. And I guess last one for me, and I guess Cam asked this earlier about the capital investment required in American Seating. But from an OpEx perspective, what level of OpEx would be required on your part to support American Seating into next year? Paul Soubry: None. I mean, at the end of the day, this is an investment we've made. We have bought the debt. We are helping with investing in the business to operate the cash flow. They are still in 2 facilities. There will be a couple of million dollar spend to rationalize those facilities into one. It is not a notable amount. And of course, the operating costs will be managed by the business itself. Operator: I would now like to turn the call back over to Steven. Stephen King: Thanks, Michelle. So we have one question from our webcast. So I'll just read it aloud, and it references similar to what we had this morning in other cases. Is the warranty provision a worst-case scenario? And does finalizing the agreement with the XALT lead to a scenario where the provisions will be reduced materially? Brian Dewsnup: Yes. So I'll take that question. So the -- what we booked is the liability side, which is our best guess today at what all the costs will be to retrofit all the batteries and support the warranty obligations on those batteries. So that's what's sitting in our financial statements right now. Stephen King: And the second part, Brian, the finalizing the agreement with XALT lead to a situation where the provisions will be reduced. Paul Soubry: Yes. So we are both motivated us at XALT to complete this agreement before the end of the year. And so we have meetings every day and every week in this negotiation. As part of us assuming some warranty obligations going forward, there's diligence on certain people and equipment and IP and software and so forth that is actively going on. So the ultimate agreement and the economics associated with it would -- if it goes the way the term sheet would be a significant reduction in the provision. And so again, we'll press release that as soon as we know. Stephen King: All right. Okay. Well, that was it. That was all of our questions. So thanks, everyone, for attending today and for listening in. As always, please don't hesitate to reach out to us with any further questions and all of the information you need is on our website, including today's presentation. Thanks so much, and have a great weekend. Operator: This does conclude today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises, Inc. Third Quarter 2025 Earnings Release. [Operator Instructions] Now I would like to turn the call over to our CFO, Kent Yee. Please go ahead. Kent Yee: Thank you, Mark, and thank you, everyone, for joining us today. This is Kent Yee, and welcome to DXP's Q3 2025 Conference Call to discuss our results for the third quarter ending September 30, 2025. Joining me today is our Chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our third quarter performance and financial results. David? David Little: Thanks, Kent, and thanks to everyone on our 2025 third quarter conference call. Kent will take you through the key financial details after my remarks. After our prepared comments, we will open for Q&A. It is my privilege to share DXP's third quarter results with you on behalf of over 3,234 DXPeople. Congratulations to all our stakeholders and a special thank you to our DXPeople you can trust. We are pleased to see end market demand and DXP's performance continue through Q3 and remain at record levels as we move into the last quarter of 2025. This allows us to achieve another quarter of both solid sales growth and 11% adjusted EBITDA margins. We are pleased to announce strong third quarter results with sales, operating income and earnings per share all up over the prior year. This is a great way to start the second half of fiscal 2025. We remain focused on serving our customers, providing products and services that help them save money, consolidate their MRO spend, manage inventory and provide solutions to solve their ever evolving needs. Being customer-driven and growing sales profitably is our goal. We continue to focus on driving organic and acquisition growth, increasing gross profit margins and increasing productivity. Our execution has resulted in fiscal 2024 and 2025 top line and bottom line growth, both organically and through acquisitions. That said, our growth strategies are working, and our acquisition pipeline should add to our results as we close out the fiscal year 2025 and go into the fiscal year 2026. We continue to be excited about the future, delivering a differentiated customer experience, creating an engaging winning culture for DXPeople, and investing in our business to strengthen our core capabilities and drive long-term growth. Year-to-date through September 30, total sales are up 11.8% and adjusted EBITDA is up 17.6%. Last 12 month sales and adjusted EBITDA were $1.6 billion and $217.1 million, respectively, with adjusted EBITDA margins of 11.1%. Moving to our third quarter results. Total DXP revenue was $513.7 million, an 8.6% increase year-over-year with adjusted EBITDA of $56.5 million. In terms of Q3 financial results from segment perspective, Innovative Pumping Solutions led the way, growing sales 11.9% year-over-year to $100.6 million, followed by our Service Centers growing sales 10.5% year-over-year to $350.2 million. Supply Chain Services declined 5% year-over-year to $63 million. In terms of IPS, our Innovative Pumping solution, it bears repeating that we have 2 broad businesses tied to capital budgets or project work, DXP's heritage energy-related project work and DXP Water. Year-to-date, DXP Water is 54% of IPS' sales versus last year at this time, it was 47%. As we grow -- have grown our DXP Water platform, we have increased both gross margins and operating income margins for the IPS segment and for DXP. Our energy-related bookings and backlog continues to show resilience and perform above our long-term averages, albeit not an all-time high. Additionally, our year-to-date average remains above our long-term average energy IPS backlog going back to 2015. What this indicates is that we continue to feel good at this point in the cycle on energy and water and wastewater-related project work. As we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that have been recognized some of the revenues in 2025 and will continue in 2026. We are quoting a lot of opportunities and working hard to convert quotes to bookings. That said, DXP's focus within IPS will be to continue to manage the demand levels we have plus finding opportunities in all markets such as energy, biofuels, food and beverage and water and wastewater and manage pricing and delivery while improving and maintaining margins. In terms of Service Centers, the diversity of end markets, multiple product division approach, service and repair and our MRO nature within Service Centers allows us to continue to remain resilient and to continue to experience consistent top line year-over-year growth. A few growth initiatives that are helping DXP grow percentages at over the last several years is technical products like automation, vacuum pumps, new pump brands for water and industrial markets, process equipment and filtration. New markets like water, air compression and data centers need pumps. They need water, power, cooling and filtration. We have added an e-commerce channel for the generation that wants to buy pumps and parts electronically. The service nature within Service Centers allows us to continue to remain resilient and continue to experience consistent sales performance and continue to find ways to add value for our customers. From a regional perspective, regions that continue to experience year-over-year growth includes South Central, California, Southeast, South Rockies, Texas Gulf Coast and Northern Rockies. We have also seen strength in our air compressor, metalworking and U.S. Safety Services division, which is also great to see. Supply Chain Services sales decreased 3.7% sequentially and year-over-year declined to $63 million. In the Supply Chain Services, all pricing is electronics, so flow to improve processes and price increases and inflation and tariffs take longer to implement. That said, SCS is adding several new customers and are currently -- they are being implemented. Historically, the latter half of the year is impacted by the holiday season and there being fewer billing days with SCS and also being subject to the customers' facility closures and holiday hours, thus, we expect mild Q4 and stronger outlook as we close out Q1 of 2026. Demand for SCS services is increasing because of the proven technology, efficiency they perform for all of their industrial customers, and we expect a strong year in 2026. DXP's overall gross profit margins for the third quarter were 31.4%, a 50 basis point improvement over 2024. Overall, I am pleased with our gross margins and our steady improvement over the last 2 years. SG&A for the third quarter increased $11 million versus Q3 of 2024. SG&A as a percent of sales increased going from 22.5% in Q3 of 2024 to 22.9% in Q3 of 2025. SG&A continues to reflect our investment in our people, increasing insurance renewals, technology investments, acquisition support and other growth strategies. As always, it is our privilege to share DXP's financial results on behalf of all our DXPeople. DXP's overall operating income margin was 8.5% or $43.7 million, which includes corporate expenses and amortization. This reflects a 14 basis point increase in margins versus Q3 of '24. We still feel there is opportunity in our operations to be more efficient, but we have chosen to invest in the business via people and our operations, and we have been focused on growth. Overall, DXP produced adjusted EBITDA of $65.5 million in the third quarter of 2025 versus $52.6 million in the same period of 2024. Adjusted EBITDA as a percent of sales was 11% for the third quarter. I am pleased with our performance in the third quarter. DXPeople continue to make great efforts and adapt as we grow and evolve DXP into a more diversified and less cyclical business. We call that the next chapter. We still have substantial work to do to achieve our efficiency goals, but I am confident that the team will continue to execute and drive sales and profitability. We are growing sales more than the market and expect that into the near future. We continue to make progress on our growth strategies and our commitments to our customers is strong. We are driving growth and improvements at DXP, and we look forward to navigating and working through the remainder of fiscal 2025. To continue to build our capabilities to provide a technical set of products and services in all of our markets, which makes DXP very unique in our industry and gives us more ways to help our customers win. Finally, I would like to thank our DXPeople for continuing to maintain 11% plus EBITDA margins, hitting a new quarter sales high in Q3. Q3 was another great quarter as we continue to have a successful year in 2025. We remain excited about the next chapter. And with that, I'm going to turn it over to Ken. Kent Yee: Thank you, David, and thank you to everyone for joining us for our review of our third quarter 2025 financial results. Q3 financial performance reflects DXP's ability to continue to successfully navigate through the market and execute and create value for all our stakeholders. Our third quarter results also reflect another new record sales watermark. As it pertains specifically to our third quarter, DXP's third quarter financial results reflect solid sales growth within IPS along with an accelerating contribution from DXP Water, record Service Center performance marked by gross margin strength and stability and a pickup in sales performance from Q2 to Q3 2025, consistent consolidated gross margin performance with year-to-date margins up 89 basis points versus last year, continued contribution from acquisitions with sales year-to-date of $74.1 million and consistent operating leverage leading to sustained 11% plus adjusted EBITDA margins. Total sales for the third quarter increased 8.6% year-over-year to a record $513.7 million and 3% compared to Q2. Acquisitions that have been with DXP for less than a year contributed $18.4 million in sales during the quarter. Average daily sales for the third quarter were $8 million per day versus $7.92 million per day in Q2 and $7.39 million per day in Q3 of 2024. Adjusting for acquisitions, average daily organic sales were $7.74 million per day for the third quarter of 2025 versus $6.95 million per day during the third quarter of 2024. That said, the average daily sales trends during the quarter went from $7.26 million per day in July to $8.9 million per day in September, reflecting a normal push in the last month of the quarter. In terms of our business segments, Innovative Pumping Solutions sales grew 11.9% year-over-year and 7.5% sequentially. This was followed by Service Center sales growing 10.5% year-over-year and 3.1% sequentially. Supply Chain Services sales declined 3.7% sequentially and 5% year-over-year. In terms of Innovative Pumping Solutions, we continue to experience strong backlogs in both our energy and water and wastewater businesses. Our Q3 energy-related average backlog declined 3.3%. This is our first decline in the backlog in 10 quarters, but continues to be ahead of all our averages. As David mentioned, and as we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that we have recognized some revenue in 2025 and will continue into 2026. We will be looking to see what happens to our Q4 2025 and Q1 2026 average backlog. The conclusion continues to remain that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. To provide a broader perspective, on a 9-month comparative basis, our native energy IPS backlog is up 56.2% year-over-year. We expect this to continue throughout 2025. We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition additions. DXP Water's average backlog is up 7% compared to Q2. In terms of our Service Centers, our Service Center performance reflects our internal growth initiatives along with our diversified and evolving end market dynamics. On a comparative basis, our third quarter of 2025 is now our strongest quarter within Service Centers over the last 10 quarters and sets a new sales high watermark. Regions within our Service Center business segment, which experienced year-over-year sales growth in South Central, California, Southeast, North and South Rockies and the Texas Gulf Coast. From a product perspective, we also experienced strength in our air compressors and U.S. Safety Services divisions. Supply Chain Services sales performance reflects a 3.7% decrease sequentially and 5% decline year-over-year. Supply Chain Services third quarter sales performance reflects pullback in activity at oil and gas and our diversified chemical customer sites. Overall, we experienced reduced spending from existing customers by continuing to drive efficiencies and streamline purchasing that we bring to our new customers. Going into Q4, we expect the next quarter to be impacted by seasonality with there being fewer billing days as SCS customers have facility closures and holiday hours. Thus, we expect a mild Q4 and stronger outlook as we close out Q1 of 2026. However, interest and demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their industrial customers, and we expect a stronger 2026. Turning to our gross margins. DXP's total gross margins were 31.39%, a 50 basis point improvement over Q3 of 2024. This improvement is attributed to strength in gross profit margins within Service Centers with a 117 basis point improvement from Q3 of last year. Additionally, the accretive contribution from acquisitions at a higher overall relative gross margin versus our base DXP business helped drive consistent gross margins within consolidated DXPE. Acquisitions continue to be accretive to both our gross and operating margins. That said, from a segment mix sales contribution, Service Centers contributed 68.16%; Innovative Pumping Solutions, 19.57%; and Supply Chain Services was 12.26%. This sales mix positively impacts our gross margins as we see an uptick in contribution from IPS. In terms of operating income, Service Centers, IPS and Supply Chain Services each had 14.6%, 18.3% and 8.4% operating income margins, respectively. The consistency in Innovative Pumping Solutions reflects the impact of our water and wastewater acquisitions at a higher relative operating income margin and a growing percentage of revenue in our sales mix. DXP Water has gone from 28% of year-to-date sales in Q1 of 2023 to over 54% of year-to-date sales of IPS at the end of the third quarter of 2025. Total DXP operating income was $43.7 million in the third quarter or 8.5% of sales versus $39.6 million or 8.37% of sales in the third quarter of 2024. Our SG&A for the quarter increased $11 million from Q3 2024 and $5.7 million from Q2 of this year to $117.6 million. The increase reflects the growth in the business and associated incentive compensation and DXP investing in its people through merit and pay raises. Additionally, this also reflects an increase in our insurance premiums, which we changed our renewal from a calendar year to midyear renewal, continued investments in technology and our facilities as well as acquisition costs and growth initiatives. SG&A as a percentage of sales increased 36 basis points year-over-year to 22.88% of sales and was up slightly or 46 basis points sequentially from Q2 of this year. Turning to EBITDA. Q3 2025 adjusted EBITDA was $56.5 million. Adjusted EBITDA margins were 11%. We continue to benefit from the fixed cost SG&A leverage we experienced as we grow sales. This translated into 1.5x operating leverage. In terms of EPS, our net income for Q3 was $21.6 million. Our earnings per diluted share for Q3 2025 was $1.31 per share versus $1.27 per share last year. Adjusting for onetime items, adjusted earnings per diluted share for Q3 2025 was $1.34 per share. Turning to the balance sheet and cash flow. In terms of working capital, our working capital increased $15.6 million from June and $73.6 million from December to $364.5 million. As a percentage of last 12 months sales, this amounted to 18.6%. This is an uptick from where we have been and reflects the impact of acquisitions and an increase in DXP's capital project work. As we move into fiscal 2026, we will continue to grow into the working capital as a percentage of sales, and particularly the impact from recent acquisitions. In terms of cash, we had $123.8 million in cash on the balance sheet as of September 30. This is an increase of $9.5 million compared to the end of Q1 and reflects our ability to produce free cash flow while managing growth capital expenditures and remaining acquisitive. In terms of CapEx, CapEx in the third quarter was $6.8 million or a decrease of $3.6 million compared to Q2 and a $2.8 million increase versus Q3 of last year. We are continuing to make investments in our business, software, our facilities and operations for our employees. As we move forward, we will continue to invest in the business as we focus on growth. That said, as mentioned during the second quarter, over the short to medium term over the next 1 to 2 quarters, we should see CapEx lessen and we look for it to be less in 2026. Turning to free cash flow. Free cash flow for the third quarter was $28.2 million versus $24.4 million in Q3 of 2024. This does reflect improvements in profitability along with elevated CapEx, which is primarily growth-oriented and highly controllable. Additionally, we continue to focus on tightly managing our capital projects, which we see as an opportunity to further generate and optimize cash flow. We have highlighted this in the past as requiring investments in inventory, product and costs in excess of billings. That said, we continue to focus on tightly managing this aspect of our business from a cash flow perspective and look to align billings with the investments. Return on invested capital, or ROIC at the end of the third quarter was 33% and continues to be measurably above our cost of capital and reflects the improvements in EBITDA and the operating leverage inherent within the business. Additionally, also, it points to our recent acquisitions performance and their positive contribution and accretive impact to both gross profit and EBITDA. As of September 30, our fixed charge coverage ratio was 2.2:1, and our secured leverage ratio was 2.3:1 with a covenant EBITDA for the last 12 months of $225.1 million. Total debt outstanding on September 30 was $644 million. In terms of liquidity, as of the third quarter, we were undrawn on our ABL with $31.6 million in letters of credit with $153.4 million of availability and liquidity of $277.3 million, including $123.8 million in cash. In terms of acquisitions, we have closed 5 acquisitions year-to-date, including 2 subsequent to the quarter end, and we will look to close a minimum another 3 before the end of the first quarter. DXP's acquisition pipeline continues to remain active and robust, and the market continues to present compelling opportunities. That said, we remain comfortable with our ability to execute on our pipeline and valuations continue to remain reasonable. In summary, we are excited about the future and building the next chapter. We will keep our eyes focused on those things we can control and what is ahead of us. We are excited because there is still substantial value embedded in DXP. Now I will turn the call over for questions. Operator: And your first question comes from the line of Zach Marriott with Stephens. Zachary Marriott: So sorry, I missed the daily sales number for June. If you could just quickly walk through Q3 again? And then any color you could share on Q4 thus far? Kent Yee: Yes. No, absolutely. I'll just walk through each month in Q3 and then kind of give you our flash look at October for Q4. July was $7.26 million per day, August, $7.95 million per day, September $8.9 million per day and October was $7.59 million per day. Zachary Marriott: Much appreciated. Looking at EBITDA margins, the last 2 years, there was a little compression in the margin percentage from 3Q to 4Q. Is it fair to expect something similar this year in 4Q '25? Kent Yee: Yes. Zach, actually, I think last year, which may have been the first time, we started going above 10% EBITDA margins really, really in Q2, Q3 and in Q4 of last year. So point being is I think, big picture, we've said it on the last couple of earnings calls, but that we feel plenty comfortable with 11%. Yes, there may be quarters where it's 11.2%, 11.4%. But really, we're trending now, I'll call it, at a sustainable 11% plus for now. As we move into 2026 and we continue to get more acquisitions and particularly in the water space, we may adjust that. But right now, the 11% is sustainable. So hopefully, that answers your question around Q4. Q4 is a lighter, though, I think that's your point, is lighter from the number of days in the quarter due to holidays, Thanksgiving and Christmas here in the U.S. and Boxing Day, if you will, in Canada. But we still expect from a profitability perspective to be our mix to kind of get us to that 11%. Zachary Marriott: Understood. That's responsive. And then corporate expenses aren't something we talk about too much, but there has been some variability just worth asking about today. The Q3 number you just reported was just under $26 million. Is that a fair proxy for what we should assume going forward? And what might bias that number higher or lower as you move through the coming quarters? Kent Yee: Yes. So there was a couple of unique things in there that I think David and I both called out in our scripts. One, we just -- and this is the first year, we flipped our insurance renewal from a calendar year to a midyear. And so that created July as when you're paying all the premiums, a little bit of an elevated level. On top of that, from an insurance perspective, no different than any other company, our insurance overall premiums have gone up slightly. So that's what you're seeing from July going forward, if you will. And so in Q4, I think you will see from a percentage basis, very similar. The other thing we experienced was just higher -- we're self-insured and we play on a claims basis from a health insurance perspective, and we had some unique claims come through, if you will, in Q3. That I can't forecast right now whether that will happen in Q4 or not, but that created an elevated level of cost, if you will, that's flowing through that corporate SG&A number. And then once again, we're acquisitive, as everyone knows. And so just more so timing than anything else, but we've been busy here, if you will, in Q3 from an acquisition standpoint. So our professional fees, if you will, and costs kind of were elevated here in Q3. That will continue. We have a very robust pipeline, but that will continue in Q4 and into Q1 for sure, just given our pipeline from an acquisition standpoint. So hopefully, that gives you additional color there on that SG&A line. Zachary Marriott: Last one for me. Can you please touch on any data center exposure or opportunities you guys may have? David Little: Sure. I'll take that. We're looking at a lot of different avenues based on the products that we represent. So we represent pumps, we represent water, represent filtration. And so all these data centers are -- and we also represent power and equipment that handles gas and other things. So we have an opportunity there. We're trying to do best we can to figure out how to tap into that market. We are getting a little bit here and there, but it's not been a big market for us. We feel like it can be from -- and so we're attacking it pretty hard. It's pretty diversified across the country. So trying to get on top of all the projects and trying to get some credibility, I guess, with the fact that we can do a lot of things is what we're doing. But really, at this point, I'm going to tell you that it's not been a big win for us. And yet, I think it's a great opportunity. Operator: There is no further questions at this time. I will now turn the call back over to David Little for closing remarks. David? David Little: Yes. First, let me thank all our DXPeople for certainly setting record sales. I think that's awesome. I think as we manage the company, the hardest thing we do is satisfy customers and get bookings and sales. So expenses, they were a little surprising, but they were really for all the right reasons and for the things that are necessary for us to be a growth-oriented company. So I'm not concerned about that. There's nothing really broken about DXP where we add acquisitions, expenses and the dollars are certainly going up, but it was a little concerning that the expense percentage went up. So -- so we're not crazy about that, but it's certainly a lot easier to fix than sales. I also want to thank our suppliers. It seems like they're doing a much better job with deliveries, and they're trying to manage their costs the best they can and keep us competitive in the marketplace. And we pass on those increases, but -- and that seems to be working all right. I'm pretty proud of the fact that we've got our gross profit margins up slightly and maybe a better statement is they're certainly holding. So I feel good about that. Of course, thanks to our shareholders and thanks for everybody supporting DXP. In summary, I think you can just say, well, we just had record sales. Gross profit margins are good and holding. Expenses were a little higher than expected, but they were for all the right reasons. Free cash flow improved at $28.2 million, which is great. We continue to hit adjusted EBITDA margins of 11%. We're excited about that. If we have any negatives, it would be a little bit in the booking side and that we trace that back to kind of our smaller piece of oil and gas that we have today. That market is still struggling as far as growth is concerned. And -- but they tell me even there that quoting activity is up and doing well, and we just got to get from the quote to the bookings. But anyway, so we're not concerned about any particular markets. We're not concerned about tariffs. We're not concerned about our government as it affects DXP. And so we feel good about our future. And so thank you for joining our call today, and we look forward to talking to you next quarter. Thanks. Operator: That concludes today's call. You may now disconnect.
Operator: Good afternoon, everyone, and thank you for joining today's Century Aluminum Company Third Quarter 2025 Earnings Conference Call. My name is Regan, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Ryan Crawford with Century Aluminum. Please proceed. Ryan Crawford: Thank you, operator. Good afternoon, everyone, and welcome to the third quarter conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; and Peter Trpkovski, Executive Vice President, Chief Financial Officer and Treasurer. After our prepared comments, we will take your questions. As a reminder, today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1. Please take a moment to review the cautionary statements with respect to forward-looking statements and non-GAAP financial measures in today's discussion. And with that, I'll hand the call to Jesse. Jesse Gary: Thanks, Ryan, and thanks to everyone for joining. I'll start today with a note on safety before turning to our Q3 operational performance, including our time line for resuming full production at Grundartangi. I'll then update you on some of our key strategic initiatives, including progress on the Mt. Holly expansion project, our Hawesville strategic review and our new U.S. smelter project before concluding with a discussion of the outstanding global market conditions that we are operating in today. Pete will then walk you through our Q3 results and our Q4 guide and provide an update on the receipt of our fiscal year 2024 45X payment from the government, which occurred shortly after quarter end. I'll then end the call with an update on our capital allocation plans. Safety is core to everything we do here at Century. Every so often, the company is faced with extraordinary events frequently outside of our control that give us an opportunity to live up to our words and demonstrate our commitment to these core safety values. As everyone knows, on October 28, Hurricane Melissa made landfall in Jamaica as one of the strongest hurricanes to ever make landfall in the Atlantic Basin. I'm proud to say that through the dedicated planning, hard work and readiness of our Jamaican team members, Jamalco weathered this catastrophic storm, protecting the refinery from any significant damage and most importantly, without suffering a single injury. Not only did the team secure the well-being of the facility and our employees, but then immediately began to provide assistance to the surrounding communities, providing potable water to local towns, villages and hospitals following the storm. We will continue to work with the government of Jamaica and our partners at Claredon Alumina Partners to identify areas of need and provide support where we can. So we are very proud of the team at Jamalco. I'm pleased to say that production has already restarted at the refinery, and we expect to resume full production over the next couple of weeks. We do not believe that the storm or its aftermath will have any material impact on our financial results. Turning to Page 3 and operations. As we announced on October 21, the Grundartangi smelter was forced to temporarily stop production in potline 2 following the failure of 2 of its electrical transformers over a 7-week period in September and October. Fortunately, the team at Grundartangi was able to execute a safe and orderly shutdown of the potline despite these failures, tapping down the pots without injuries and leaving the line in as good a shape as possible for restart. These transformer failures were very disappointing as both were well within their expected life. We are working with the designers and manufacturers of the transformers to better understand what caused these failures. The team at Grundartangi is wasting no time and has already begun preliminary preparations to restart production in Line 2. The time line for restart is dependent on how quickly replacement transformers can be manufactured, shipped and installed. Based on current estimates, we expect that it will take 11 to 12 months for this work to be completed. Of course, we are working hard to optimize and reduce the time line for restart on several fronts, including the potential to repair and reuse the failed transformers for some time period before the replacement transformers arrive. Although we are not yet certain this approach will be possible, we are working with the designer and manufacturer of these transformers to assess this path. If successful, the repair path could reduce the time line for restart by several months. We will continue to provide you with updates on restart timing on our next earnings call. Finally, we have submitted initial claims to our insurers and continue to expect that the losses arising from these events will be covered under our property and business interruption insurance policies. Turning to Mt. Holly. We are pleased to announce last month that we signed an extension to the Mt. Holly power agreement through 2031. In addition to supporting the current operations, the new agreement provides all of the necessary power for our previously announced restart of more than 50,000 metric tons per year of incremental production at Mt. Holly, which will return the plant to full production. The Mt. Holly restart project is making great progress with hiring and capital work already underway at the site. We continue to expect that we will begin to produce incremental units at the beginning of Q2 2026 and complete the restart by the end of June. Production of the additional units will gradually increase throughout the second quarter. Unrelated to the restart, we did suffer some instability in Mt. Holly production in Q3 that resulted in production from the plant falling below expectations by approximately 4,000 tonnes in Q3. Pete will provide you with more color on the impact on our Q3 results. This instability was fully resolved by mid-October, and the plant has been operating at normal production levels ever since. We do not expect any further production impact after October. Finally, at Sebree, we had another quarter of near record performance across a suite of operational and financial KPIs. The plant, our management team and our employees there are really performing at the top of their game, and it's great to see. Turning to our other strategic initiatives, starting with Hawesville. After our last call, we received a significant amount of additional interest in the site, including from new parties, which led us to extend the strategic review process. We are now proceeding with the final stages of those discussions with new and existing parties now. Suffice to say, there's been lots of excitement around the potential of the site. At the same time, rising aluminum prices and continued global shortages continue to bolster restart economics at the Hawesville site and for our new greenfield aluminum smelter project. Once built, the new smelter project will be amongst the most modern and efficient smelters in the world. It will double the size of the existing U.S. industry, creating over 1,000 full-time direct jobs and over 5,500 construction jobs. During the quarter, we advanced negotiations with potential power providers. Good progress in this regard means we are now focused on a single site and power provider for the new smelter. We have also had lots of interest from potential joint venture partners for the smelter and have started discussions with select high-quality counterparties. While these conversations are still at the early stages, we are encouraged with the interest levels we have had to date and now see some form of partnership as the most likely path forward with the project. Altogether, President Trump's policies have enabled a future where we could see U.S. production triple by the end of the decade. We here at Century are proud to do our part to make this future a reality and bring industrial jobs back to America. I'd like to thank President Trump for the significant actions that he and his administration have taken to restore American manufacturing and stand up for American workers. The Section 232 tariffs have truly enabled a new future for the U.S. aluminum industry. Just before I turn things over to Pete, I'd like to review the very strong market conditions that we are operating in today and that we see persisting well into 2026. As you can see on Page 4, Q3 saw aluminum prices rise across the complex as continued global demand growth paired with a persistently challenged supply side drove realized LME prices of $2,508 in the quarter and continue to drive spot aluminum prices to approximately $2,850 today. As you can see on Page 5, the world has a shortage of aluminum units today, driving further contraction of global inventories to new post-financial crisis lows and leaving the market sensitive to even the slightest supply disruptions or increase in demand. This is especially true in our 2 core markets in the U.S. and Europe. Regional premiums in the U.S. and Europe both strengthened in Q3 as the fundamentally strong U.S. economy and improving European industrial activity drove demand and caused premiums in both markets to rise, while raw demand in both markets was especially notable driven by the well-publicized power infrastructure build-out. Power and data infrastructure build-out should continue to drive additional aluminum demand as we move forward into 2026. Realized Midwest and European premiums averaged $1,425 and $193 per ton, respectively, in the quarter and have risen further in Q4 with Midwest premium spot prices at $1,950 and European duty paid premium spot prices at $320 today. As we start to conclude the 2026 sales season, we are seeing increased demand across our customer base for all of our U.S. billet products. As the largest producer of primary aluminum in the United States, Century stands ready to meet this demand. We now expect that we will see an approximately $0.05 year-over-year increase across our 2026 billet sales, which should generate an additional $30 million of 2026 EBITDA. Pete will now take you through our financial performance in more detail. Peter Trpkovski: Thank you, Jesse. Let's turn to Slide 7 and review our Q3 performance. On a consolidated basis, third quarter shipments totaled approximately 162,000 tonnes, a decrease from the prior quarter due to brief operational instability at Mt. Holly and the Grundartangi transformer failure. Net sales for the quarter were $632 million, a $4 million increase primarily due to higher realized Midwest premium, partially offset by lower shipments. For the quarter, we reported net income of $15 million or $0.15 per share. Our adjusted net income was $58 million or $0.56 per share, excluding exceptional items. Adjusted EBITDA was $101 million for the quarter, mainly driven by the increased Midwest premium price, partially offset by lower volumes and product premiums at Mt. Holly in the quarter. Moving on, we continue to make progress on improving our balance sheet during the quarter. Liquidity increased to $488 million, up $125 million quarter-over-quarter, and our cash balance stood at $151 million. The significant increase in liquidity and cash metrics reflects receipt of the proceeds from refinancing our senior notes, which was finalized in July. We recently used the proceeds to pay off the remainder of the Icelandic castthouse facility as intended. Net debt was $475 million, a slight increase from prior quarter due to a normal working capital build I will discuss later. As Jesse mentioned, we were pleased to receive our fiscal year 2024 45X payment of approximately $75 million from the IRS in October, which will help to significantly lower our net debt amount in Q4. Despite some lower-than-anticipated production output this quarter, our core financial performance remains strong and demonstrates the underlying strength of our business. Now let's turn to Page 8, and I'll provide a breakdown of adjusted EBITDA results from Q2 to Q3. Adjusted EBITDA for the third quarter increased $27 million to $101 million. Realized LME of $2,508 per ton was down $32 versus prior quarter, while realized U.S. Midwest premium of $1,425 per ton was up $575. The benefit from higher Midwest premium was slightly offset by lower realized European duty paid premium down $26 per ton to $193. Taken together, LME and regional premium pricing contributed an incremental $48 million compared with the prior quarter. Energy costs were higher, driven by a warmer-than-average end of summer in the U.S. and higher LME prices impacting our Icelandic power contracts that are linked to the spot metal price. Energy prices have returned to more normalized levels in October, but the Q3 headwind reduced adjusted EBITDA by $9 million. Alumina and our other key raw materials were approximately flat in the quarter, in line with our previously provided outlook. Continued pressure on the U.S. dollar compared to the Icelandic krona resulted in a quarter-over-quarter headwind that was offset by lower operating costs. However, our operating costs were slightly elevated compared to expectations as additional maintenance costs were required following the brief potline instability at Mt. Holly that Jesse mentioned earlier. Mt. Holly is back to full and stable production, but this event resulted in lower Q3 production, translating into approximately a $10 million headwind compared to our expectations. Now let's turn to Slide 9 for a look at cash flow. We began the quarter with $41 million in cash. In July, we successfully completed the refinancing of our $250 million senior secured 7.5% notes with new $400 million senior secured notes at an improved coupon. As we explained at the last call, the proceeds from this transaction were used to pay down the outstanding debt on the new Icelandic casthouse. This debt repayment occurred early in Q4 and will be reflected in our Q4 financials next call. Our priority to lower debt and achieve the $300 million net debt target remains unchanged. We funded $16 million of CapEx in the quarter that went towards ongoing investments at Jamalco as well as sustaining CapEx at the smelters. We paid $12 million in interest during the quarter that will decrease going forward as the recent refinancing transaction was completed at an improved coupon of 6.875%. We also paid down various credit facilities to end the period with minimal borrowings on our revolvers. We continue to accrue 45X tax credits in Q3. As of September 30, we had a receivable of $220 million related to full year 2023, 2024 and 2025 year-to-date U.S. production. As I noted earlier, in October, we were pleased to receive $75 million from the IRS from our Section 45X filing for fiscal year 2024. We continue to expect to receive the fiscal year 2023 credit in the coming months. Finally, we had a working capital build this quarter as timing of alumina shipments increased inventory levels and the higher price environment for LME and Midwest premium increased accounts receivable balances. We expect to improve our working capital as we approach year-end. We ended Q3 with $151 million in cash and strong liquidity in place to support our Mt. Holly expansion. The Restart project is on schedule and progressing well. We will begin to call out the cash outlays in future quarters as capital and operating expense dollars from the Mt. Holly project become more material. Now let's turn to Page 10 and look ahead to the next 90 days. At current realized prices, we expect Q4 adjusted EBITDA in the range of $170 million to $180 million. For Q4, the lagged LME of $2,705 per ton is expected to be up about $197 versus Q3 realized prices. The Q4 lagged U.S. Midwest premium of $1,775 per ton is up $350 versus Q3. The realized European duty paid premium is expected to be $275 per ton in Q4 or up about $82. Taken together, the lagged LME and delivery premium changes are expected to have an approximately $65 million increase to Q4 adjusted EBITDA when compared with Q3 levels. We expect similar energy price levels in Q4 as U.S. energy costs are forecasted flat to previous quarter and are expected to have no impact on quarter-over-quarter adjusted EBITDA. Coke, pitch and caustic prices have modest increases, but are partially offset by carbon emission allowances, resulting in a potential headwind of $0 to $5 million quarter-over-quarter impact. We expect our Q4 operating expense costs to improve by $0 to $5 million. Volume and mix should also improve by $10 million as Mt. Holly has returned to full pot complement following the brief instability in Q3. At Grundartangi, the Line 2 outage is expected to negatively impact shipments by 37,000 tons and EBITDA by $30 million in the fourth quarter. As Jesse said, we expect the financial impact of the Line 2 outage to be covered by our insurance policies. Of course, the insurance proceeds could lag the actual loss by a couple of quarters. We will normalize the timing of the insurance payments by adjusting EBITDA in the period where the financial impact occurred and adjusting out the receipt of the insurance proceeds in future quarters. We'll continue to call out the adjustments as exceptional items in the coming quarters, and we have already included this adjustment in our Q4 adjusted EBITDA outlook. We also include the estimated hedge and tax impacts to help model our business. We expect a $10 million to $15 million headwind from realized hedge settlements and $5 million tax expense, both flowing through our Q4 P&L and impacting adjusted net income and adjusted earnings per share. As a reminder, our appendix details the full hedge book and continues to show the vast majority of LME and regional premium volumes are exposed to market prices. Now I'll hand the call back to Jesse. Jesse Gary: Thanks, Pete. As we begin to look forward to 2026, the business is well positioned to generate significant cash flows over the balance of this year and throughout 2026. For instance, if you were to take our Q4 outlook and just update for spot metal prices, our expected adjusted EBITDA generation would increase by approximately $45 million to $220 million. The incremental Mt. Holly restart tonnes should further increase profitability starting in Q2 2026. In addition to strong EBITDA generation, we had $220 million in Section 45X receivables at the end of Q3, and we received our 2024 45X refund amount of $75 million in October. At these levels of EBITDA generation and the anticipated receipt of cash against our 45X receivables over the coming months, we are well positioned to reach our net debt target of $300 million early in 2026. We are already well above our liquidity targets. Per our capital allocation framework included in the appendix, once we meet our capital allocation targets, we will continue to first allocate capital to our sustaining capital projects and identified organic growth projects. A good example here is our Mt. Holly expansion project that should be complete by the end of Q2 2026. In line with our standard practice, we will provide updated guidance on sustaining and investment capital spending for 2026 on our February call. As we have cash flows beyond our capital needs, we will continue to be opportunistic but disciplined with M&A opportunities like our acquisition of Jamalco in 2023 and otherwise look to begin to return excess cash to our shareholders. As we approach our net debt target, we thought it would be useful to provide some further guidance on the types of capital returns that we would anticipate once we have met our targets. While we are not announcing any actions today, we have started to assess our options, including listening to shareholder feedback that we receive from time to time. This feedback has been overwhelmingly in favor of the share buyback program as a means of returning capital to shareholders. We expect to come back to you all with further details and announcements as we move into 2026, including the amount and timing of any potential share repurchase programs. Thanks to everyone for joining us today, and we look forward to taking your questions. Operator: [Operator Instructions] Our first question comes from the line of Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor Shabalin Selin on Nick Giles. And thanks for detailed report. I wanted to start with Mt. Holly. So if we were to isolate the Mt. Holly restart, which is roughly 50,000-plus tonnes, is it kind of safe to assume that this could generate in excess of $60 million in EBITDA at spot prices? And on the CapEx side, how much of CapEx has been already spent to date? And when would we expect you to achieve full run rate? You mentioned it starting Q2 and finish restart by June, if I correct, 2026, does it assume 100% utilization at this time? Jesse Gary: Sure. Thanks for joining the call. This is Jesse. Yes. So we're, as I said, well on track with the Mt. Holly restart, and we started the initial hiring and started some of the initial capital spending. But CapEx spending to date has been relatively minimal. You'll see more of that come in, in Q1 and Q2. In total, as we said before, the total project should be somewhere in the neighborhood of $50 million project spend. In terms of the additional EBITDA that we generated from the project, so you'll start to have units coming on in Q2 and then should be at full run rate starting in Q3. Once it reaches full run rate at spot prices today, the additional volume should generate about $25 million in additional EBITDA per quarter. Fedor Shabalin: This is helpful. And it would be great to get some additional perspective on how you're thinking about capital allocation. You already mentioned this. So your liquidity and net debt are roughly even amounts above your stated targets. So you're kind of indirectly at your target in some sense. And at what point will we consider high capital returns? And would you prefer buybacks or dividends? And then on the M&A side, would downstream opportunities be on the table? Jesse Gary: Sure. So yes, as I mentioned, we have been -- given the significant cash flow that we have today and that we see generating going forward, especially when you consider the lagged payments of those 45X payments that are on our books, and just to note again, we did receive the first tranche of those 45X payments from 2024 fiscal year of $75 million in October. So you'll see that come through in our Q4 results. We do think that we will be in a position to reach those net debt targets in 2026. Once we do, we've spent a lot of time thinking about this, and we spent a lot of time talking with our shareholders, and there is a clear stated preference for buybacks. And so as we think about it today, that's the most likely form of capital return once we do reach those targets. Operator: Our next question comes from the line of Katja Jancic of BMO Capital Markets. Katja Jancic: Maybe starting on Iceland. Did you say the repairs will take 11 to 12 months, but there is potential for you to accelerate the restart of the potline? Jesse Gary: That's right, Katja. So we're proceeding on 2 paths. The first path is the full replacement of those transformers. And there, we'll have to wait for the new transformers to be manufactured and then shipped to Iceland and then installed and then restart, and that's in that 11- to 12-month time line that I gave. At the same time, we're investigating whether the damaged transformers can be repaired. And we're hopeful that, that will be the case, but we have additional work to do to prove that out. If we are able to follow repair path, we would still order the new transformers, but the repair transformers would allow us to bring production back online several months in advance of that 11- to 12-month time line for replacement. Katja Jancic: Okay. And then on the insurance side, so would insurance cover for if the potline stays down for 11, 12 months, will insurance cover fully those 11 to 12 months? Or are there any restrictions? Jesse Gary: Yes. Our expectations today is that our policy limits are high enough that they will cover both the property and business interruption costs of the outage up to and including that 11- to 12-month time line that I gave. Of course, we have deductibles, the deductibles on the policy of $15 million. But above that, we will -- we expect to fully recover the losses. Katja Jancic: Okay. Maybe shifting to Hawesville. When do you think given the extension of the review process, are you think -- is there any time line when you think we could get a final decision? Jesse Gary: No time line. As I said, we've had a really good process from the beginning. But over the course of Q3, we did have a new surge of interest. And so we decided to then extend that time line to allow that new interest to come in and do some due diligence on the site. It's very positive interest, I'll say. And so we want to give them time, and we're working with them to proceed sort of as quickly as possible, but it's difficult to give an exact time line at this point. Katja Jancic: And does the review still include a potential restart? Jesse Gary: Yes. As we've always said, our goal here as part of the strategic review process is to see what the interest is in the site and what the potential value of the site is. And then we'll compare that versus the economics of a restart, and we'll make the best decision for our stakeholders. Operator: Our next question comes from the line of John Tumazos from Independent Research. John Tumazos: Of course, it's always hard to predict costs and there's uncertainties in hedging. But given how good things are right now, can you lock in the $110 larger billet premium with contracts, so it's certain next year? Are you able to hedge the Midwest premium that was $0.87 the other day. There are futures. And would you increase your LME metal hedging? Jesse Gary: Thanks, John. No change to our overall hedging policy. So as we've said all along, the main portion of our hedging program, and you can see the details on Slide 17 of the presentation, is to offset market power price risk that we have at Sebree. And so as you see from that slide, we've got about 22% of the megawatts for Sebree hedged for fiscal year 2026. And then we'll generally sell a little bit of metal, both Midwest premium and LME against those power price hedges to lock in some margin for Sebree. And the amounts that you see in the appendix are about normal for that program going forward. Aside from this, we did enter into a little bit of Midwest premium hedging when we made the decision to do the Mt. Holly expansion project and to lock in those returns that we've laid out for you where we expect the cost of that project to be fully repaid by the end of 2026. But other than that, our expectation is to remain exposed to the metal price and to offer that exposure to our shareholders. Now John, you did mention billet. In the U.S., we operate on an annual contract for our billet sales. And so most -- the vast majority of our billet sales in 2026 will be locked in at those prices that I quoted earlier for full year 2026. We do tend to leave a little bit of billet exposed to market prices throughout the year to pick up some spot exposure, but the vast majority of that will be locked in at those premiums that I gave earlier. John Tumazos: Jesse, the different news networks were suggesting yesterday that some of the Supreme Court justices might rule against Trump's tariffs. And of course, the 50% aluminum is very helpful to Century. And then 9 of the 23 presidential elections, off-year elections, the President's party has lost 40 to the House of Representative seats since 1934 is playing with political statistics noodling. So there's a chance that things don't stay this well from a regulatory standpoint. Do you think this is a good time to sell the company? Jesse Gary: John, this one is pretty clear. The Supreme Court case relates to what are called the IEEPA tariffs or sometimes known as the Reciprocal tariffs only. They do not relate to the Section 232 tariffs, which are where the steel and aluminum tariffs are under. The Section 232 tariffs have already been upheld in court and will not be impacted by the Supreme Court case pending on the IEEPA tariffs. John Tumazos: So let's just say my thesis is wrong. Do you think this is a good time to sell the company anyway? Jesse Gary: No, John, the company is not for sale. We are very excited about our prospects. We're excited about the cash flow generation that were available to show our shareholders. We're excited about our growth opportunities at Mt. Holly with the positive strategic review process, with the greenfield project as well as the increasing demand we're seeing across the United States. So our focus is really we're going to continue to try to produce aluminum as profitably as possible, supply units into the U.S. and European markets and continue to execute on our strategic plan. Operator: We have a follow-up question from Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor again. My question is kind of a continuation of John's topic. So the [indiscernible] have been indicating very, very tight domestic inventories, which has supported stronger Midwest pricing. So -- and if prices continue to strengthen, do you think that could influence the administration's decision to keep 232 in place with no exclusions? And then on the other side, if we saw a Canadian exclusion, for instance, how do you think about Midwest premium? I know that Canada is not a marginal [indiscernible] into the U.S., but I have to imagine there would be some downside risk. Jesse Gary: Fedor, I think it's important to step back and look at the purpose of the Section 232 tariffs, which was to increase U.S. domestic aluminum production to meet national security needs. And when we look at the program and the response of industry, it's really doing just that, and Century is proud to be doing its part. So just to name a few of those projects that are coming online, the Mt. Holly restart project that we're implementing and will be up by mid next year will, by itself, increase U.S. production by 10% from levels today. So that's a significant increase. And then we've announced our own greenfield project and one of our competitors has announced their own greenfield project and together, along with the Mt. Holly restart, that would triple U.S. aluminum production by 2030. So I think that the tariffs are working as intended. They're driving industry to reinvest in adding production here in the United States and adding American aluminum jobs here in the United States. So the program seems to be working. And I think the administration has been quite clear that they'll continue to do their part and keep the tariffs in place with no exemptions and no exceptions going forward. Fedor Shabalin: And promise, if you allow me to squeeze the last one. It was great to see new power agreement with Santee Cooper for Mt. Holly, where you have cost of service-based rates. And I wanted to ask about Sebree, where you're exposed to Indy Hub. What is the appetite to book incremental hedges for '26 and '27, especially given the expectations for increased electricity demand from data centers in this region? Jesse Gary: Yes, we also were very excited about the Mt. Holly contract. That's a very long extension for us, gives us very good line of sight into next decade and was one of the keys in enabling us to restart production there. So we're really excited about what's to come at Mt. Holly, very good smelter, very profitable in today's environment. At Sebree, likewise, the plant is operating excellent. We continue to invest in that plant. And we've been operating now under this market-based power contract for over a decade. And we've become very comfortable with the way it works. And we think over time, it's been the most cost-effective power contract actually that we have in our entire system. Now as I mentioned earlier, we do some risk mitigation with that, and we've generally been hedging those power prices about 20% to 30% of our exposure on an annual basis. And we think that's a pretty good percentage of the overall power risk for us to lay off and puts the smelter in a good place to continue to be profitable and operate well through the cycles. So we're comfortable with that hedging program at that level. Of course, we'll always be looking and opportunistic, but we expect to continue our hedging programs as we have in the past as we move forward. Operator: There are currently no questions at this time. So I'll pass it back over to management for any closing or further remarks. Jesse Gary: Thanks, everyone, for joining the call. At Century, we're really excited about the end to 2025 and what's to come in 2026, and we'll continue to execute to the best of our abilities. Thanks all. Look forward to talking to everyone in February. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and thank you for attending the Alta Equipment Group Third Quarter 2025 Earnings Conference Call. My name is Harry, and I'll be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting with Alta Equipment Group. Please go ahead. Jason Dammeyer: Thank you, Harry. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2025 financial results was issued this afternoon and is posted on our website, along with the presentation designed to assist you in understanding the company's results. On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our third quarter 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2. Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan. Ryan Greenawalt: Thank you, Jason, and good afternoon, everyone. I appreciate you joining us to review Alta Equipment Group's third quarter 2025 results. I'll begin with an overview of our performance, highlight trends across our business segments and share why we're optimistic headed into Q4 and 2026. Our team once again demonstrated focus and discipline through what remains a turbulent macro environment. Despite persistent headwinds related to tariffs, manufacturing softness and customer caution, Alta employees continue to perform exceptionally well, demonstrating our culture of accountability, customer focus and operational excellence. While equipment sales were challenged this quarter, the underlying tone of demand improved steadily through September and into October, which turned out to be our strongest month of the year for new equipment sales, predominantly within our Construction Equipment segment. Our Construction Equipment sales in October alone topped $75 million, which is nearly 60% of our entire equipment sales in Q3. With that, we believe the pattern witnessed in the third quarter reflected a shift rather than an indication of softness as customers seemingly elected to push purchases from Q3 into Q4 as they awaited more definite signals on interest rate direction and year-end tax benefits under the One Big Beautiful Bill Act. That timing dynamic, coupled with greater confidence in backlogs and financing sets the stage for what we believe is the beginning of a fleet replenishment cycle. As we sit here today, our backlog in Material Handling remains over the $100 million mark, helping to provide visibility for the next several quarters. Even with muted volumes during the quarter, productivity and cash flow remained resilient. SG&A is down roughly $25 million year-to-date, driven by structural cost savings, improved efficiency and a disciplined execution. Those efficiencies are now embedded in our run rate and provide for operating leverage as the market rebounds. Turning the focus now to our Construction segment. Our Construction Equipment segment performed admirably given continued tightness in private capital spending. Demand from customers tied to long-term fully funded infrastructure work remains strong. In Florida, permitting activity on large DOT and Corps of Engineers projects has accelerated, translating to greater deliveries early in Q4. In Michigan, the legislature's record $2 billion road and bridge funding package is already driving new bid activity and multiyear visibility. These are durable tailwinds that reinforce our position as a key equipment partner on essential public works projects. Taken together with rate relief and the tax incentives of the Big Beautiful Bill, we see construction entering a healthier demand phase. Industry data suggests we're bottomed -- we've bottomed in the general purpose construction markets throughout our various APRs, positioning Alta for growth as replenishment gains momentum in 2026. In this regard, we've prepared a new slide this quarter, Slide 7, which shows the industry volume disconnect we've experienced from our regional norms, specifically in the last few years. We believe a reversion to normal industry levels in our APR can quickly return some of the volume losses we've experienced. And given some of the tailwinds we see, the environment is prepared for a rebound. Turning over to our Material Handling segment. Industry volumes have also exhibited multiyear softness as illustrated on Slide 7. Material Handling revenue was essentially flat year-over-year. The Midwest and Canadian markets remain soft, primarily due to automotive and general manufacturing weakness. In contrast, our food and beverage and distribution customers continue to perform well. We're seeing early signs of recovery in automotive demand, the ongoing -- sorry, automotive demand, the ongoing reindustrialization of U.S. key regions, particularly the Great Lakes Mega region is creating powerful long-duration demand tailwinds across Alta's end markets. As manufacturers, logistics, operators and infrastructure investors expand capacity in these high-growth corridors, the need for reliable material handling, construction and power solutions continue to rise. Nowhere is this more evident than in the power and utility sector where investment in grid modernization, renewable integration and data center infrastructure is accelerating. Alta is uniquely positioned to capitalize on this trend, combining our deep regional footprint, OEM partnerships and product support capabilities to serve the expanding industrial base and the critical infrastructure that underpins it. During the quarter, we completed the divestiture of our Dock and Door division, another deliberate step in sharpening our portfolio and focusing resources on our core dealership operations. This transaction reflects our commitment to capital discipline and reinvestment in higher return areas of the business. Alta's business optimization efforts are centered on strengthening the company's flywheel, delivering the right product to the right customer executed by the right people, while deepening the resilience and profitability of our core operations. Through disciplined execution, we are streamlining workflows, sharpening accountability and improving customer cost to serve across every business line. Product Support remains the engine of Alta's value creation model, driving reoccurring revenue and lifetime customer relationships through best-in-class parts, service and rental solutions. At the same time, we are refining our product portfolio to concentrate capital and talent around the brands, segments and geographies that align most directly with Alta's long-term strategy and OEM partnerships. Together, these actions form a cohesive approach to business optimization, reinforcing operational excellence, advancing our unified strategy and accelerating the virtuous cycle of customer intimacy and sustainable growth. In closing, as we enter the fourth quarter, we're seeing tangible signs of recovery across our business. Deferred demand from the third quarter is now flowing into the pipeline, supported by a steady acceleration in infrastructure and public works funding across our key markets. At the same time, recent interest rate reductions and the incentives introduced under the One Big Beautiful Bill are beginning to restore contractor confidence, creating a more constructive environment for capital investment and sustained customer activity heading into year-end. In short, we believe this -- the industry is turning the corner, and Alta is exceptionally well positioned to capture that upswing. Before turning it over to Tony, I want to thank all 2,800 members of team Alta for their focus, execution and commitment to our purpose of delivering trust that makes a difference. Your resilience and customer dedication continue to define who we are and how we win. With that, I'll hand it over to Tony Colucci to walk through the financials in more detail. Anthony Colucci: Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2025 financial results. Before getting into the quarter, I want to begin by recognizing our employees, customers and partners for their support in Q3. Our business model is resilient, but it takes commitment, collaboration and trusting partnerships to execute on that resiliency day-to-day. Thank you to all. My remarks today will focus on 3 key areas. First, I'll present our third quarter financial results, which reflect a challenged equipment sales and rental environment overall, although we believe some of these challenges may be dissipating. As part of that discussion, I'll give a brief financial overview of the quarter for each of our 3 segments. Lastly, I'll touch on the balance sheet and cash flows for the quarter. Second, I'll be presenting what we believe to be the company's bridge back to $200 million of EBITDA and the factors impacting that bridge. Lastly, I'll discuss our expectations for the remainder of the year on both adjusted EBITDA and free cash flow before rent-to-sell decisioning. Throughout my remarks, I'll be referencing information presented on Slides 10 through 21 in our earnings deck. I encourage everyone to follow along with the presentation and review our 10-Q, both available on our Investor Relations website at altg.com. First, for the quarter, the company recorded revenue of $422.6 million, a 5.8% organic reduction versus last year. Revenues retreated sequentially in the quarter, mainly on equipment sales. However, Product Support remained steady and was up sequentially versus Q2 as I'll remind investors that our parts and service departments continue to act as an annuitized and stable cash flow stream in what is clearly a volatile equipment sales environment. As it relates to equipment sales, as mentioned, we believe that similar to last year, customers pushed off capital spending in Q3 for more clarity on interest rates and their own business' annual performance relative to the tax incentives available in the Big Beautiful Bill. Both of those factors, we believe, helped drive our highest equipment sales number of the year in October and provides a tailwind for Q4 equipment sales overall. Lastly, rental revenues are down $5.3 million year-over-year, but up $2.1 million sequentially, with the year-over-year decrease largely related to our strategic decision to reduce the size of our rent-to-sell fleet as we focus on better utilization and ultimately enhance returns on investment in rental fleet. Now focusing in on the segments for the quarter. First, Material Handling. As mentioned previously and as presented on Slide 11, new and used equipment in our Material Handling segment were down a modest $1.6 million year-over-year. But notably, the line was up on a sequential basis. As despite industry bookings for new forklifts continuing to run below historic norms, we have been able to keep pace with the prior year through selling allied lines and tariff-free used equipment to our customer base. Also important to note, and as Ryan mentioned, that despite demand challenges for the industry, Alta continues to carry a healthy backlog of equipment, over $100 million worth of new allied and used equipment into Q4. In terms of Product Support revenues, while we continue to run behind last year's pace in parts and service, most predominantly in our Midwest and Canadian geographies, I mentioned on our Q2 call that we believe that we have found a bottom in these departments, and that dynamic played out in Q3 as Product Support revenues in material handling outpaced the second quarter by nearly 4%. As noted on Slide 11, adjusted EBITDA was up year-over-year and sequentially versus Q2, coming in at $17.5 million in Q3 for the segment. On to our Construction segment and as highlighted on Slide 12. As a precursor to my comments, I would reset for investors that equipment sales in our CE segment can be and have historically been volatile, especially when compared to equipment sales in our Material Handling segment and certainly when compared to our other revenue streams. This volatility has certainly been evident in both 2024 and 2025 as macro factors such as interest rates, tax laws, election fears, tariff and trade policy uncertainty and customer backlog and local funding can all impact the CE customers -- CE segment customers' decisioning on when to purchase a piece of equipment. With that as a backdrop, we saw equipment sales in our CE segment drop $18.7 million versus last year Q3. That said, based on what we saw in October, we believe Q3 will be an anomaly as customers pushed ahead decisioning in Q4 given the expectations for interest rate reductions and year-end tax plan. Lastly, on equipment sales from a new and used equipment gross margin perspective, while we continue to run below historic level gross margins on new and used equipment, gross margins on new and used equipment were up slightly on a sequential basis, a hopeful sign that supply and demand dynamics in the marketplace are normalizing and that we may have found a bottom on this metric. On to Product Support, which grew roughly 3% year-over-year in the Construction segment and where we continue to outperform internal profitability metrics. Further to that point, as presented on Slide 14, while the segment stand-alone EBITDA is down $2.4 million year-to-date, the mix of the $75 million of EBITDA in 2025 is of a higher quality versus '24. Specifically, while 2024's EBITDA was more heavily weighted to opportunistic rental equipment sales and related gains, 2025's EBITDA is more -- been more heavily weighted to perpetual profitability gains in the form of increased gross margins and product support as well as a reduced SG&A load. This realignment from less consistent equipment sales to more reliable recurring product support profitability creates a more resilient and capital-efficient business going forward. Lastly, from a segment perspective, Master Distribution, which houses our Ecoverse business. The story for the quarter continues to be tariff related as nearly all of the segment's key metrics have been negatively impacted year-over-year. That said, a stabilizing trade environment between the U.S. and the EU and mitigating measures in the form of pricing actions and OEM risk sharing to best maneuver through this situation have been largely implemented, and we expect will take further hold and bear fruit in Q4. Overall, we are cautiously optimistic that the worst of the trade-related impacts on the segment in 2025 are now behind us. In summary, for the quarter, the company generated $41.7 million of adjusted EBITDA, a slight reduction versus last year on a pro forma basis and mainly driven by reduced episodic equipment sales in our CE segment. Lastly and notably, as we focus on driving ROIC, the company was able to realize nearly the same level of EBITDA year-over-year on a leaner balance sheet as the gross book value of our rental fleet is down nearly $30 million year-over-year. In terms of cash flows, and I'm referencing Slide 16, for the quarter, free cash flow before rent to sell decisioning was approximately $25 million for the quarter and stands at roughly $80 million year-to-date. To quickly check in on the balance sheet as of September 30 and as depicted on Slide 17, we ended the quarter with approximately $265 million of cash and availability on our revolving line of credit facility, plenty of capacity in term to navigate the business in this climate. Before closing my comments on the quarter, I'd like to quickly address the impact of Big Beautiful Bill had on the company's income statement in Q3. First, holistically, the company views the enactment of the Big Beautiful Bill as a net positive for both the company and for our customers. From the company's perspective, the effective removal of the interest rate -- the interest expense limitation in the Big Beautiful Bill will save the company cash taxes in the future and over time, will enhance our liquidity position. That said, given the reduction in the interest limitation, we had to take a notable onetime noncash income tax expense to establish a valuation allowance against our net operating loss assets. For clarity, this onetime expense has no impact on the company's operations, its cash liquidity position or its financing capacity. We welcome the benefits of the Big Beautiful Bill for both us and our customers going forward. Moving on to the second portion of my prepared remarks. The company's view on the potential bridge back to $200 million of EBITDA and the factors impacting that bridge. As presented on Slide 7 and as discussed earlier by Ryan, equipment values in our regions in each of our major segments have been depressed in recent years when compared to industry norms and in the case of our CE segment in the face of increased state and federal DOT spending in recent years. To illustrate the financial impact of Slide 7 and the reversion to the norm on equipment volumes and a few other elements, we present the EBITDA bridge on Slide 20. First, the starting point of the EBITDA bridge is our current midpoint of the FY 2025 adjusted EBITDA guidance. Next, the first step in the bridge is the incremental EBITDA created given Alta's current market share if equipment volumes simply revert back to historic norms. Note that this element represents $17 million in EBITDA in the bridge. Next, the second step of the bridge is related to a reversion of the norm on gross profit margins on equipment sales. As we've discussed on many calls recently, there has been an oversupply of equipment in the market -- in the equipment markets for nearly 2 year now -- 2 years now, which has led to an unprecedented competitive pricing environment that ultimately depressed equipment sales margins. The $10 million of EBITDA in this step represents a reversion to the norm on gross margins associated with the normalized level of equipment sales. Next, the third level of the bridge is related to Ecoverse, a business unit that in 2025 has experienced an outside level of impact from tariffs given its business model. The abrupt and blunt impact of the tariffs on this business can't be overstated. As a master distributor of environmental processing equipment that is sourced from Europe, Ecoverse relies on a constant flow of equipment and parts from that region and historically has not held a lot of stock inventory. Thus, the quick implementation of the tariffs was difficult to navigate and the time line on mitigation efforts had a longer tenor than keeping up with the marketplace. Thus, sales were impacted and margins quickly eroded. That said, since the outset of the tariffs, our team at Ecoverse has been effectively and actively working on mitigation efforts, which included supply chain resourcing, target pricing increases and supplier cost sharing. We believe these mitigation efforts are largely in place and the road back to Ecoverse contributing to the enterprise from an EBITDA perspective is ahead of us. Thus, the $7 million EBITDA step here. Next, we believe strongly that PeakLogix, our systems integration and warehouse automation business will revert to historic norms as interest rates come off their highs and CapEx projects get greenlighted for automation projects at customers within our material handling footprint. Thus, the $3 million reversion to the norm for PeakLogix in this column. Lastly, the $7 million negative EBITDA in the last step of the bridge is simply the incremental costs associated with the steps -- with steps 1 and 2 in the bridge. Overall, we believe the $30 million bridge on Slide 20 presents a simplistic -- presents simplistic hard evidence that a reversion to the norm in terms of industry equipment sales volumes and margins and a normal operating environment for both the Ecoverse and Peak provide for a logical path back to the company's target of $200 million of EBITDA. Moving on to the final portion of my prepared remarks, adjusted EBITDA and free cash flow before rent-to-sell decisioning for 2025. First, in terms of our adjusted EBITDA guidance for the year, we now expect to report between $168 million to $172 million of adjusted EBITDA for the fiscal year 2020 (sic) [ 2025 ] . Notably, the updated range implies a better sequential Q4 versus Q3. Lastly, despite the reduction in the guidance on adjusted EBITDA, we are effectively holding our guidance on free cash flow before rent-to-sell decisioning, which is again presented on Slide 21. As a reminder, free cash flow before rent to sell is a metric that we believe appropriately measures the true free cash flow generation capacity of the business in a steady state and removes the impact of the decisions we make with our rent-to-sell fleet. Overall, we expect free cash flow before rent-to-sell decisioning to be between $105 million and $110 million for the fiscal year 2025. In closing, I would say that we remain bullish about our partnerships, our employees and the long-term prospects at Alta and are confident in our enduring business model. Ryan and I would like to wish all of our 2,800 teammates and all of you listening tonight a healthy and happy holiday season. Thank you for your time and attention, and I will turn it back over to the operator for Q&A. Operator: [Operator Instructions] The first question today will be from the line of Liam Burke with B. Riley Securities. Liam Burke: Can we talk about Construction Equipment? It sounds like based on equipment sales for October that, that business, some of the roadblocks that have been slowing the business like funding of projects, availability of labor seems to have moved to the side and you'd anticipate at least an early upswing in that business, both from a sales and a margin perspective. Is that the right way to look at it? Anthony Colucci: I think, Liam, you said it well. From a sales perspective, I think we're -- as I mentioned, on the margin thing, we're cautiously optimistic. But from a sales perspective, certainly, we think exactly along the lines of how you described that October could be a harbinger of things to come. Liam Burke: Okay. But what would be the gating factor? I'm looking at your gross margins year-over-year were flat. I think Tony called out that they were up sequentially. What's to stop that movement to sort of move it back to their historic levels? Anthony Colucci: Liam, I think this is the first time we've been up sequentially. And so the messaging here is, hopefully, we've -- in several quarters, if not years. So hopefully, maybe we found a bottom. We continue to see some flattening in used equipment prices. But overall, we still think that the marketplace in construction equipment is still generally oversupplied. And until that oversupply or that overhang kind of fully mitigates itself, I think we'll continue to see gross margins at these levels. Now it has been dissipating in terms of the overhang. We have seen pricing kind of firm. And so it would follow that, we could see an upswing there in the coming year or so. Liam Burke: Okay. And then just quickly on Materials Handling. You highlighted some of the stronger pockets of the business, particularly food and beverage. And are you seeing any kind of movement on the manufacturing front? I know inshoring is going to be a long-term cycle, but are you seeing any lift on the traditional manufacturing side? Anthony Colucci: Go ahead, Ryan. Ryan Greenawalt: I'll take that one. This is Ryan. I think the lift we're seeing is more related to the replenishment cycle getting extended out than it is, the market demand being driven by -- the demand side of the equation is still -- has some pressure. And it's -- we think it's a near-term issue related to the tariff impact, in particular, on autos and the implications for the portfolio, the shift to EVs that was happening largely in the Michigan APR and in the northern part of our territory. There's some rationalization happening right now that's taking product out of the market in pockets. But what we're seeing is the fleet replenishments are back on track. Things that were delayed are back on track. We saw one of our biggest POs in that sector ever come through last quarter. So it's helping build the backlog and keep it what we're calling stable. But the longer-term trend, we think, is very bullish for our regions that -- we have a workforce that knows how to build things, and we have now policy that's going to encourage more to happen in our geographic footprint. Operator: [Operator Instructions] And the next question today will be from the line of Steven Ramsey with Thompson Research Group. Steven Ramsey: I wanted to continue that line of thought on Material Handling, the backlog being over $100 million. Maybe I heard you say you described it as stable. Maybe can you put that in context of the first half of the year, the backlog size where it was a year ago. But part of my thought process is sales have been increasing sequentially off of the Q1 levels. You talked about a great order in the prior quarter. Is this reducing the backlog? Or are there more orders filling it back up? Anthony Colucci: Yes. Steven, I'll take a shot at that. This is Tony. Just to clarify Ryan's comment there, the PO that he referenced is not going to be impactful for '25 here. It's more of a long-term kind of opportunity. Anyway, I believe we started in Material Handling, we started the year with $125 million of backlog. We're in the low $100s million here, as we mentioned. And so we have had some burn off of the backlog. As we mentioned last quarter, when we think of backlog, we're not just thinking of our Hyster-Yale new lift trucks, part-of-the-line lift trucks. We've got allied lines that we do very well with. And then used equipment, which given tariffs, there's an opportunity to really move used equipment from a pricing and competitive perspective. And so I think the burn off is, for us, less about maybe demand, which has been tepid and more about lead times from the factory coming down in terms of Hyster-Yale just being able to deliver more quickly given their production levels. So I would just say that the backlog is not down necessarily at Alta because of a massive decrease, although it's down, but more so just the lead times impacting it. Steven Ramsey: Okay. That's good. That's helpful context. And one more on material handling, parts and service gross margin very strong despite the flattish revenue. Can you talk about what drove that and how you think about the gross margin for the aftermarket and material handling going forward? Anthony Colucci: Yes. I think, Steven, in some of our regions, we have midyear increases from a pricing perspective. Certainly, some of the things we've talked about in terms of focusing on the right products and reducing non-billable labor can impact that as well. So those are some of the things that would impact service margins here in the third quarter. The way that we think about it over the long term in terms of modeling is taking a longer-term kind of view on margins. And if you look at it over the long term, the margins remain pretty stable. Steven Ramsey: Okay. Helpful. And then in Construction Equipment, I wanted to hear some of the nuance where parts sales were barely up while services grew mid-single digit. Can you talk about the delta between those lines and if that had -- or how that impacted the strong margin of that revenue line in the segment? Anthony Colucci: You know, Steve, that is probably just -- sometimes they don't move necessarily in conjunction with one another, depending on over-the-counter sales at the branches and how they move versus field service as an example. I don't know that I would draw any correlation or story that service was up relative to parts. Steven Ramsey: Okay. That's helpful. And then last one for me. On the divestiture of Docks and Doors unit, I guess, kind of why now at this point, given still keeping PeakLogix, maybe there wasn't synergy between the businesses necessarily. But why now? And then secondly, I may have missed it in the prepared comments, if that was an impact to the 2025 EBITDA guide? Anthony Colucci: Sure, Steve. I'll take the -- I'll go in reverse. Very minimal impact on the EBITDA guide. That business probably less than $1 million of EBITDA on an annual basis. I think on the Dock and Door strategically, and Ryan can weigh in, too. But overall -- recall, we did one acquisition several years ago of a Dock and Door business in Boston. The rest of that business or the majority of that business was inherited through an acquisition of the Hyster-Yale dealer in New York City. And so as we have kind of done a strategic review on all of the different business lines that we're in and trying to drive synergies between those, what our core business is with the Hyster-Yale products and what is the Dock and Door business, the more we looked at it, the more we thought that this would be better off in somebody else's hands, that was just focused on it. The other thing I would add is don't draw any parallels between what PeakLogix does and what Dock and Door does, very different kind of offerings, if you will, and go-to-market strategies, customers, et cetera. So anything else to add there? Ryan Greenawalt: I think that's well said. It's around -- the moat around the business, we prefer the exclusive rights, and there's more aftermarket yield on selling vehicles than selling [indiscernible] Operator: With no further questions on the line at this time, this will conclude the Alta Equipment Group Third Quarter Earnings Conference Call. Thank you to everyone who is able to join us today. You may now disconnect your lines.
Operator: Good morning, and welcome to Intercorp Financial Services Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Ivan Peill from InspIR Group. Sir, you may begin. Ivan Peill: Thank you, and good morning, everyone. On today's call, Intercorp Financial Services will discuss its third quarter 2025 earnings. We are very pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services; Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services; Mr. Carlos Tori, Chief Executive Officer, Interbank; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call. If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website, ifs.com.pe. Otherwise, if you need any assistance today, please call InspIR Group in New York on (646) 940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's financial performance or financial results. As such, statements made are based on several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir. Luis Castellanos López-Torres: Thank you. Good morning, and thank you all for joining our third quarter 2025 earnings call. Thank you all for your interest and trust in IFS. We appreciate your continued support. We have continued to observe positive performance in Peru's economy with cumulative growth of 3.3% as of August. This momentum has been driven by increased activity in consumption-related sectors and sustained private investment, which is projected to grow by 6.5% by year-end. While we are maintaining a cautious outlook, given the international context and the pre-election period, Peru continues to benefit from a low inflation environment and a solid exchange rate which has appreciated close to 10% this year. The country risk remains low. Even with the latest presidential transition, we haven't seen additional volatility. These factors reinforce Peru's position as one of the most dynamic and stable economies in the region. The political transition expected in 2026 does not suggest any major changes in financial stability. Prudent monetary management and strong institutions allow us to forecast continued growth supported by the resilience of the local market and investors' confidence. This quarter, IFS has sustained strong core results and profitability with an ROE of around 16%, even after a specific investment impact related to Rutas de Lima with a provision of PEN 78 million this quarter. As you may be aware, the Rutas de Lima concession has become an ongoing issue between the municipality of Lima and the concessioner. What is currently reflected in our books corresponds to information available as of the reporting date. We're closely monitoring the situation as new developments unfold. Local and international legal proceedings will continue in the following months with final resolution not expected in the short term. Our total remaining exposure after in payments today amounts to approximately $60 million in soles equivalent, which represents less than 1% of our investment book at IFS. These results confirm our ability to adapt quickly and keep generating value in a challenging environment, reaffirming our commitment to long-term sustainability and profitability. Interbank continues to grow in higher yielding loans, particularly in consumer and small business segments, now representing 22% of our loan portfolio. Stronger net interest margin and better-than-expected cost of risk have driven a solid improvement in risk-adjusted NIM, highlighting our discipline in effective risk and profitability management. Izipay and Interbank continue to capture joint business opportunities, while PLIN deepens user engagement, fostering more primary banking relationships and driving growth. Interseguro continues to grow its core business with solid performance in private annuities and life insurance, even after the negative impact from Rutas de Lima this quarter. In addition, Interseguro continues to leverage synergies with Inteligo to expand private annuity sales and collaborating with Interbank to advance integrated bancassurance solutions that deliver greater value for our customers. Inteligo, our Wealth Management segment also continues to grow in double digit, achieving new record high in assets under management, thanks to our client, trust and consistent engagement. IFS remains committed to our strategy of focused and profitable growth, keeping our clients at the center of every decision. Our priority is to achieve digital excellence and deepen primary client relationships through comprehensive data-driven services and a differentiated experience, powered by our innovation and advanced analytic capabilities as our competitive advantage. Looking ahead, we remain optimistic about IFS' and Peru's outlook. The company has demonstrated resilience in downturns and is well positioned to continue executing its growth strategy, maintaining profitability and reinforcing our leadership in the Peruvian market. Now let me pass it on to Michela for further explanation of this quarter's results. Thank you. Michela Ramat: Thank you, Luis Felipe. Good morning, and welcome, everyone, to Intercorp Financial Services Third Quarter Earnings Call. We would like to start with our key messages for the quarter. We had a very good third quarter as business momentum remains strong. Our accumulated net income is up by 81% compared to the same period last year, accumulating 17.4% ROE, which would have been 18.3%, excluding the one-off from Rutas de Lima. Net income from the quarter was PEN 456 million with an ROE of around 16%. Second key message, higher-yielding loans accelerated, showing a 7% growth in a year-over-year basis and 3% in the last quarter. Third, risk-adjusted NIM continues with a positive strength, increasing 40 basis points in the last quarter, now at 3.8%, still with a low cost of risk of 2.1% and with some positive signs in the NIM recovering 10 basis points in the quarter. Fourth, we continue to strengthen primary banking relationships. And as a result, our retail primary banking customers grew 6% last year. Fifth, we had double-digit growth in our core business in wealth management and insurance with written premiums growing by 58% year-over-year due to the growth in private annuities and life insurance, and wealth management assets under management are at new record highs with continued double-digit growth quarter-to-quarter. Let's start with our first key message. Let me share an overview of the macroeconomic environment. Peru's GDP growth accelerated in the third quarter with the Central Bank revising its 2025 estimate upward to 3.2%, supported by strong nonprimary sector activity such as agriculture and mining. August growth reached 3.2%, bringing the year-to-date expansion to 3.3%. Agriculture grew by 6.4%, fueled by high international demand and mining remains strong. Construction services and commerce also saw growth above 5%, demonstrating solid domestic momentum. Private spending has been a key factor behind the economic growth throughout the year. Macroeconomic fundamentals remain stable with inflation contained near 1.7% for 2025. The Peruvian sol has strengthened around 10% this year and the reference rate lowered to 4.25%, maintaining favorable financial conditions for ongoing growth. Overall, with a GDP growth projection of 2.9% for 2026 by the Central Bank, Peru is establishing itself as one of the fastest-growing economies in the region despite internal and external challenges. The Peruvian economy holds positive prospects for the coming years as it is well positioned to meet the global demand for commodities. Nevertheless, risks remain, particularly those related to political uncertainty and global market volatility. On Slide 5, high prices for copper and gold continue to be one of the key drivers of Peru's economic growth, boosting export revenues, encouraging investment in mining and related sectors and supporting job creation. As a result, Peru's stance of trade are expected to remain at historic highs. In line with the positive economic environment, business expectations remain stable with seeing optimistic ranges and consumer confidence continues to improve, supporting domestic demand. The general demand projection for 2025 has been revised upward by the Central Bank to 5.1%, driven mainly by solid growth in private investment and consumption. In the first 6 months of the year, internal demand expanded by 6.2%, with private investments up 9% led by double-digit growth in non-mining investments and private consumption rising by 3.7%. Looking ahead to 2026, internal demand is expected to moderate to 2.9%, with private consumption stabilizing at 2.9% and private investment reaching 3.5%. Additionally, there is an extensive pipeline of projects in mining and infrastructure scheduled for the coming years. In this environment, while we observed an acceleration in retail lending during the third quarter, we anticipate that this pace will likely moderate during the last quarter of the year, given the expected outflows from the private pension funds. On Slide 6, during the third quarter, we achieved a 17% year-over-year increase in earnings, reaching an ROE close to 16%. That said, this ROE marked a slight decrease from the previous quarter, mainly due to 2 factors. First, the last quarter, Inteligo delivered results related to investment portfolio that surpass expectations. And second, this quarter, Interseguro registered the impact of the Rutas de Lima provision of PEN 78 million, as previously mentioned. On the positive note, the bank saw a reversal of provisions related to Integratel, previously Telefonica for PEN 20 million. If we exclude Rutas de Lima and Integratel, IFS ROE would stand at 17.5%, which brings us closer to our medium-term target. I want to particularly highlight the bank's strong performance this quarter, which is not only attributed to a lower cost of risk, but also to an improved net interest margin in line with growth of higher-yielding loans, fee income and positive results from the investment portfolio. Excluding the effect from Integratel, the bank's ROE would have been 16%, which represents an improvement both year-over-year and compared to the previous quarter. Furthermore, the core business of Interseguro and Inteligo continued to post double-digit growth. On Slide 7, I would like to highlight the positive strength of our ROE throughout the year. For the first 9 months of 2025, our ROE stands at 17.4%. And excluding the Rutas de Lima effect, ROE would have reached 18.3%. This has been a solid quarter across all IFS business lines with our core operations as the main drivers of profitability. This performance positions us well to continue advancing towards our medium-term goals. On Slide 8, our accumulated earnings are up 81% compared to the same period last year with an accumulated ROE at 17.4%. Both Interbank and Interseguro have achieved relevant growth, each posting increases of more than 60% year-over-year. Inteligo, in particular, has seen its earning more than triple, which speaks to the strength and resilience of our diversified portfolio. Another positive highlight is the growing diversification of IFS earnings. In the first 9 months of the year, the bank contributed around 70% of total earnings, showing the increasing relevance of our other segments. Now let's turn to Slide 9, where we take a closer look at IFS revenues, which grew 9% year-over-year. At the bank level, top line is growing 4% in the quarter as we are beginning to see a recovery in our net interest margin on top of good results in fee income. This is driven primarily by accelerated growth in the higher-yielding loans, which starts to positively impact our average yield. Interseguro continued to demonstrate strong revenue trends in line with high investment valuations while insurance results improved, thanks to growth in annuities. Finally, at Inteligo, fee income continues to grow and the portfolio results have returned to more normalized levels. On Slide 10, we wanted to double click on the fee income evolution, which continues to demonstrate good dynamics with a cumulative 8% increase year-over-year. At the bank level, this growth is supported by retail on one hand, given the increased debit and credit card activity and by commercial banking on the other, reflecting results from our strategy of deepening client relationships and strengthening our ecosystem. Wealth management also posted notable growth with fee income increasing 17% year-over-year as a result of the ongoing expansion in assets under management. In line with our strategy, the transformation for acquiring business model continues, positioning Izipay as a key complementary component within our commercial banking product suite. This has enabled us to strengthen client relationships and increase float balances, although it has resulted in a compression of merchant margins impacting fee income. These developments are taking place and the growing competition in the market and the fast adoption of QR codes with no fees. On Slide 11, IFS expenses increased by 6% year-over-year as we continue to make strategic investments to support our long-term growth ambitions. This includes accelerated investments in technology to strengthen resilience, enhance user experience, improve cybersecurity, expand our capacity and develop AI capabilities alongside ongoing efforts to strengthen leadership within key teams, reflecting a recognition of the pivotal role talent plays in delivering our strategy. Consequently, the cost-to-income ratio at IFS level stands at 37.7%. Now let's move on to the second key message. On Slide 13, we see a positive trend in higher-yielding loans. Our total loan portfolio expanded by over 5% year-over-year, outperforming the market. This positive momentum was driven by the acceleration in higher-yielding loans, which grew 7% over the past year and 3% in the last quarter. The robust macroeconomic activity is reflected in increased disbursement by 34% in cash loans and by 56% in small businesses. In this last case, most of our current disbursements are now traditional loans, which include sales financing, collateralized loans and unsecured loans, which have higher rates compared to last year's [indiscernible] loans. This segment continues to expand with average rates increasing by over 150 basis points in the past year. Overall, in retail banking, the affluent segment was the one which started the recovery in growth with an 8% growth year-over-year and 2% in the last quarter. But now the mass market segment has now grown for 2 straight quarters, increasing 3% in the last quarter and beginning to regain scale. On the commercial side, the decline in the quarter is mainly attributable to the corporate segment, impacted by loan maturities and by some companies turning to the capital markets. However, midsized companies continue to perform well up 5% year-over-year, and small businesses up 33% year-over-year now representing almost 4% of our total portfolio. On Slide 14, we wanted to double click on the consumer portfolio, which accelerated in the last quarter. In personal loans, we've seen a significant uplift in digital channel performance, driven by enhanced personalization of communication journeys and continuous improvements to our website. Disbursement rose 51% supported by increased lead generation and additional loans to existing customers. We also redesigned our pricing strategy with a customer-centric approach, enhancing our value proposition and driving higher conversion rates. The current mix starts to shift towards higher-yielding segments, supported by growth in the mass market clients with good risk profile. Still, the retail cost of risk is at very low levels. In credit cards, transactional activity continues to grow as turnover rose 9% year-over-year. Looking ahead, we remain optimistic about our growth prospects, although we recognize that challenges persist. In particular, pension fund withdrawals would likely affect consumer loan disbursements in the coming quarters. Nevertheless, our continuous focus on higher-yielding segments and prudent portfolio management position us well to navigate these market conditions. As part of our strategy, we continue to strengthen our payments ecosystem with PLIN and Izipay. On Slide 15, we have continued working to generate further synergies as we drive the growth of our payment ecosystem, focusing on increasing transactional volumes, offering value-added services and leveraging Izipay as both a distribution network for Interbank products and a source to increase growth. In particular, the commercial teams from both Izipay and the bank are collaborating more efficiently, allowing us to deliver integrated solutions and maximize the value we bring to our clients. PLIN transactions grew 38% over the last year, and our digital retail customers reached 83%. We introduced PLIN Corredores, extending our digital payment services to the transport sector through Metropolitano Corredores, and we recently launched PLIN WhatsApp offering a new digital experience for our clients, which allows them to pay without using the app directly from WhatsApp, both by typing the instructions and through voice, boosted by AI. This is our first example of conversational banking, and we will continue to evolve this offering with new features in the near future. Continuing with our strategy, Izipay continues to show strong momentum in the small business segment with flows from Izipay up 60% over the past year. This growth has contributed to the 20% increase in deposits which now accounts for 10% of wholesale deposits or 26% of wholesale low-cost deposits. The flow from Izipay expanded by 31% in the same period as interim share of Izipay flow is around 39%. Following with the third message, we see improvement in risk-adjusted NIM. On Slide 17, let me share a quick update on asset quality. Our quarterly cost of risk continues on a low level at 2.1% in the quarter or 2.3%, including the one-off impact related to the Integratel provision reversal, previously Telefonica. On the retail segment, the cost of risk continues to decrease, now standing at 4% representing a decline of 130 basis points compared to the prior year, still below our risk appetite. Our consumer lending portfolio is performing well with cost of risk dropping from around 9% to 7% year-over-year, supported by healthier customers with new loans, while new loans are showing a good performance in the new vintages. On the commercial side, asset quality remains robust. The cost of risk stands at approximately 0.4% excluding Integratel and performance has been stable throughout the year. Looking ahead, as our consumer and small business portfolios keep expanding, now representing 22% of our total portfolio, we should expect the cost of risk to gradually increase. Still, our nonperforming loan ratios are holding steady, and our coverage levels are solid above 140%. All in all, these results underscore an improving operating environment and demonstrate that our prudent approach to portfolio management is enabling us to deliver sustainable growth. On Slide 18, there are some good news to highlight in terms of yields and risk-adjusted NIM. Over the past quarter, our risk-adjusted NIM improved by 60 basis points with a notable 40 basis points increase in the last quarter, in line with the lower cost of risk as previously mentioned. The good news is that yields started to recover last quarter, rising by 10 basis points. This recovery was driven by higher rates in both retail and commercial banking, especially with the higher yielding loans where we observed more than a 30 basis points improvement in the average year. Additionally, part of the improvement in yield can also be attributed to the acceleration in growth of our mass market segment, which continues to gain momentum and contribute positively to our results. As a result, NIM saw a 10 basis point increase quarter-over-quarter. On Slide 19, the cost of deposits declined by 40 basis points year-over-year and 10 additional basis points in the quarter, supported by lower market rates and a health care funding mix with a focus on low-cost funds. Deposits have also become a more relevant part of our funding structure, representing around 81%. Although there is a seasonal decrease in total deposits we are expecting a recovery towards year-end as we expect to capture a nice part of the pension funds withdrawals similar with what we achieved in the previous withdrawals. Cost of deposits continues to show a clearly positive trend as we see further potential for reduction going forward as the portion of efficient funding now at 36% continues to improve. As a result, our overall cost of funds fell by 50 basis points compared to last year and 10 basis points during the quarter with a loan to deposit ratio of 96%, in line with the industry average. Moving on to our digital strategy. We continue to drive meaningful value and strengthen primary banking relationships through our digital initiatives, particularly with PLIN. Over the past year, we have grown our retail primary banking customer base by 6%, now representing more than 34% of our total retail clients. Monthly active PLIN users reached 2.5 million, each completing an average of 27 transactions for a total of 38% more transactions versus last year. P2M payments remains a core driver of engagement now accounting for 71% of all transactions. Within this segment, QR POS payments expanded to 2.6 million monthly transactions, up 44% year-over-year. Finally, we believe we have solid key performance indicators that continue to improve. For example, our inflow payroll accounts hold around 13% market share, retail deposits are at approximately 15%, and credit cards account for about 26%. All of these metrics are supported by an NPS of 56, reflecting our commitment to customer satisfaction and loyalty. On Slide 22, we continue to see good trends in our digital indicators compared to last year as we remain focused on developing solutions that meet our customers' evolving needs. As a result, we've seen steady growth in digital adoption. Our retail digital customer base increased from 80% to 83%, while commercial digital clients now stand at 73%. We've also made progress in self-service and digital sales. Our self-service indicator reached 82% and digital sales climbed to 68%. While the latest NPS reading, we have shown an improvement to 56 and our internal data reflects a clear recovery all year. This progress was reinforced by contextual and automated communications. Also, we developed predictive models with personalized outreach. Finally, we introduced a fully digital onboarding flow through interbank.pe, empowering seamless user and password creation for the app. Finally, solid results with double-digit growth in the core businesses of Wealth Management and Insurance. On Slide 24, we highlight the strong performance in our wealth management business this quarter. Inteligo continues to show solid momentum. Assets under management have grown at a double-digit pace, reaching new highs and now totaling $8.1 billion. Fee income continues to improve, up 16% year-over-year adding to the positive trend in results, and there is a slight improvement in fees over assets under management. Additionally, we would like to highlight the progress we are making in synergies with the bank. We have now launched a dedicated mine investment sections within the Interbank app, enabling clients to conveniently manage their investments directly from the same platform. This integration marks another step forward in delivering a unified experience for our customers with offerings converging within business segments. On the digital front, we continue to enhance our Interfondos app with the goal of shifting its role from a transactional platform to a true digital adviser for our mutual bank clients. As a result, we have seen a sustained increase in both the app adoption with a 5-point year-over-year increase and digital transactions, which grew by 2 points annually and represents more than half of all client transactions. Now moving to insurance on Slide 26. We continue to see good results in the contractual service margin, which grew 19% year-over-year, mainly driven by individual life. In the third quarter, reserves for individual life and annuities increased by 36% and 15%, respectively, supported by strong new business generation that more than offset the monthly amortization of the CSM. Individual life remains a key focus for us given its low market penetration. Although traditional channels keep growing at high rates, we've been also diversifying our distribution strategy to include digital ones and simplifying the product to reach new segments and keep supporting growth. Additionally, short-term insurance premiums grew by over 110% driven by disability and survivorship premiums acquired through a 2-year bidding process from the Peruvian private pension system. On the investment side, as mentioned before, results were impacted by PEN 78 million impairment from Rutas de Lima. The return on the investment portfolio decreased to 4.1%. It would have been 6.1% without this effect. There is still uncertainty around the timing and amount of recovery as legal proceedings continue to develop. As of today, we have provisioned around 40%. Hence, our exposure net of impairment is around PEN 200 million or $60 million. In insurance, we continue to focus on enhancing the digital experience as well and expanding ourselves from digital channels. The development of internal capability has allowed us to increase digital self-service to 71% from 65% of the previous year and the direct sales to grow 19% in the last year. Now let me move to the final part of the presentation where we provide some takeaways. Before we move on to our operating trends, we'd like to summarize where we are focusing our growth efforts. In commercial banking, we have seen important growth in small business, which increased by 33% year-over-year, now with a market share of around 4%. The commercial portfolio as a whole grew 7% year-over-year, gaining 30 basis points of market share. This strong performance is supported by 3 main strategies: first, deepening relationships with key midsized company clients, where we continue to gain share of wallet and unlock additional cross-sell opportunities. Second, expanding our position in sales financing where we have become the second largest player in the system. And third, leveraging synergies with Izipay to enhance our value proposition, especially in the small business segment where our digital payment capabilities set us apart. In this quarter, the consumer portfolio began to show signs of growth. At the same time, the mortgage segment continues its positive trajectory, achieving a market share of 16%. In insurance, we are maintaining our focus on long-term products as individual life has shown encouraging growth this past quarter. Finally, in wealth management, assets under management continued to grow at a healthy pace, up 13%, reaching new record levels and reflection on both market performance and continued client engagement. On Slide 30, let me give a review of the operating trends of the accumulated numbers as of September. Capital ratios remain at sound levels, with a total capital ratio of around 15% and core equity Tier 1 ratio above 12%. Our ROE for the first 9 months of the year was 17.4%, above our guidance for 2025. As mentioned before, we expect the last quarter to go back to more normal levels and year-end ROE could be closer to 17%, although it remains dependent on the impact of Rutas de Lima and its potential impact on the fourth quarter, if any. For loan growth, we grew 5% year-over-year, a bit below our guidance but still above the system. Year-end growth will likely remain at similar levels. We expect a slight recovery in NIM over the remainder of the year. On the positive side, cost of risk is expected to remain well below guidance, helping to offset lower margins. As a result, we anticipate a slight improvement in our risk-adjusted NIM for the full year. Finally, we continue to focus on efficiency at IFS as our cost income was around 37% within guidance. On Slide 31, we highlight our strong sustainability performance for the third quarter of 2025. On the environmental front, we have made significant progress. Our sustainable loan portfolio now exceeds or is around $350 million, supporting projects with a measurable positive impact, especially in the industrial and agricultural sectors. We enhanced internal capabilities by providing climate technology training to 30 executives, boosting green finance across agriculture, fishing, energy and mining. For the first time, we measure financed emissions in Interbank's commercial portfolio following the PCAF standard focusing on agriculture, fishing and energy, which represent 18% of the portfolio. On the social side, we keep promoting inclusive growth in workplace diversity. Interbank was ranked #5 in the Great Place to Work Sustainable Management ranking with Interseguro, Inteligo Group and Izipay, also among the best workplaces. Interbank's antiharassment program Voices was recognized by the UN Global Compact as a best practice. In governance, Interseguro Inteligo Group published their 2024 sustainability reports, and we strengthened our participation in key ESG assessments. Let me finalize the presentation with some key takeaways. First, the business momentum remains strong. Second, we see higher yielding loans accelerating. Third, we have an improving risk-adjusted NIM. Fourth, we continue to strengthen primary banking relationships. Fifth, wealth management and insurance, both core businesses growing double digit. Thank you very much. Now we welcome any questions you may have. Operator: [Operator Instructions] And your first question comes from Yuri Fernandes from JPMorgan. Yuri Fernandes: Hi, Michela, Luis, everybody. I have a question regarding Rutas de Lima, I think this is a broader process, right, Brookfield's total collections, concession. It's a broad topic. I would like to understand a little bit the level of impairment you did on your exposure in the insurance company. Because I think Michela mentioned in the end that this could or could not be a problem in the fourth quarter. So I'd like to understand how much of the impairment reflects your exposure already or not? And what is your outlook for that case? And then a second question regarding the growth for retail in light of the pension withdraw. How much the pension withdraw may impact the growth? What is your growth expectations for maybe like -- especially I think in retail, but if you can comment a little bit more broadly, how much that can impact your growth outlook for the year, near term? Luis Castellanos López-Torres: Okay, Yuri. Well, thanks very much for your 2 questions. I'm going to give a part of the answers, and then I'm going to pass it on to the team to complement. As Michela mentioned, our exposure right now considers around 40% of impairment already. It's tough to give you an outlook, given that this -- as you mentioned, this is broader thing between Brookfield and municipality. There's legal procedures going around. That 40% I mentioned was booked with all the information we have at the moment of the closing of the quarter, then things have evolved since then. So I think it's early to really give you an expectation. However, we are closely monitoring that situation. And regarding the retail growth, it's -- the pension has a couple of effects. It's -- not only that improved sales growth, but it has short-term positive impacts regarding funding and people bringing money from those funds to Interbank. So it has an offset, a positive offset in the cost of funds and the activity, but for number one, I'm going to pass it on to Gonzalo to see if he wants to complement anything. And then for number two, I'm going to pass it on to Carlos so he can give you a little bit more on his view on the potential specific growth impact of the pension fund release. Gonzalo? Gonzalo Basadre: Sure. Thanks, Felipe. As Felipe mentioned, we have already reduced the value of our holdings in Rutas de Lima in 40%. We're still waiting on what happens with the [Foreign Language] that Rutas de Lima has placed. We'll have more information before the end of the fourth quarter, where we'll be able to give a more precise value of those holdings. Still, the total position of Rutas de Lima represents less than 1% of the whole IFS investment holdings. Even though we take a lot of -- we take a lot of time to sort this out, its impact will be -- will not be -- it's not important in the total IFS. Luis Castellanos López-Torres: And Carlos, can you help us in the growth question? Carlos Tori Grande: As Felipe mentioned, the AFP withdrawals have several impacts. But to answer your question, and then I'll go a little bit deeper. The last few withdrawals have flattened growth or even made their consumer loans in the market decrease 1% or 2%. That has been the effect in the past. This one might be a little bit different because there's other factors going on. The first one is, in Peru, all salary workers get a double salary in December. So December traditionally is very liquid, and that helps, obviously, consumption reduces a little bit of outstandings but helps with collections. So this year, in December, we will have that, and we will have a portion -- a large portion of the AFP. So it will be a very liquid, we expect a lot of transactions. We don't know exactly if the amount of loans will increase or stay flat. But for sure, it will have a good impact in collections and cost of risk in December. The AFP withdrawals have 4 parts, right? You get it in 4 different months. But the first month is the largest in terms of the system because the people that don't have the full amount to withdraw get it in the first one. So the first one is the largest one. And in addition to all of that, in November, salaried workers in Peru also get long-term compensation, let's call it, and that has also been released. So there will be liquidity in November and December. So there's a lot of moving parts. But again, it will be liquid. That is good for collections and for funding. There will be a lot of consumption and transactions and then the effect on the amount of loans probably is flat or negative for 1 or 2 months and then we will resume growth. Yuri Fernandes: So basically, marginally negative, with asset quality, good for deposits maybe 1%, 2% down, and then we should see a recovery in retail, right? That's basically the message. Luis Castellanos López-Torres: Yes. I don't know if it's 1% or 2% or flat. So to tell you truth, we'll see. It depends on the amount of consumption. But yes, that's one part now. It's a short-term effect, though. Operator: [Operator Instructions] And at this time, we will take the webcast questions. I would like to turn the floor over to Mr. Ivan Peill from InspIR Group. Ivan Peill: Thank you, operator. The first question comes from Daniel Mora of CrediCorp Capital. Daniel Mora: Can you provide more details about the expected loan growth for 2025 and 2026? Specifically, I want to understand whether the acceleration of credit card loans this quarter should be maintained throughout 2026. What is the expected growth of credit cards for the next year and the effects on the net interest margin? Luis Castellanos López-Torres: Okay. Great. Thank you, Daniel, for your question. Let me pass straight to Carlos. Actually, he's working budget right now. I don't know if he is going to be able to answer all the questions, but probably he has more deep sense on that front right now. Carlos Tori Grande: Exactly. We're working on our budget. So bottom line is in the third quarter, we accelerated growth in credit cards and consumer finance, and we expect to continue accelerating having -- I mean having the impact of the AFPs in the short term, but in 2026, we expect to continue to accelerate. The way we look at it or the way we look at this is usually, the system grows at 2x -- 2.5x, 2x GDP. So consumer loans grow at 2x GDP, as a multiplier, and we want to gain market share. So we will probably grow a little bit ahead of that. Our risk appetite has also increased slightly due to the good performance of our portfolio over the last few quarters, but also due to the expectations of the macro environment in Peru. So that's kind of what we expect. This will not be linear as I just explained, the AFPs will have a short-term effect, probably the end of November a little bit, definitely in December and some in January but then growth should resume. And then NIM will be -- will grow in line with our growth in credit cards and SMEs, and also will be positively affected marginally by lower cost of funds. So that's kind of the expectation. Operator: The next question comes from [ Elan Colibri ]. Unknown Analyst: What is your expectation for corporate level disbursements in Peru regarding 2026 as a presidential election year? Luis Castellanos López-Torres: Okay. So if I understand correctly, the expectation is the corporate level disbursements, I'm trying to understand that corporate banking activity. Again, it's an election year activity depending on how the situation evolves, should continue to pick up, if the continued investment perspective materialize. So I guess, loan book growth and corporate activity should continue on the milestone. We don't see any big project coming in line in the coming months. So it's going to be probably more replenishment of working capital or it's more CapEx and some refinancings. So probably growth is not going to be great in that front. But let me pass it on to Carlos so he can complement to see what he's seeing. Carlos Tori Grande: No, I agree. I agree. There's no large projects coming in line. There has been some bond offerings over the last couple of weeks of Peruvian corporate. So that obviously becomes prepayment for the banks. Interest rates are more attractive for corporate, and they have been. They've evolved downwards. So there's a lot of refinancing of short-term loans to longer. We don't foresee a high growth in that segment for the next few quarters. Ivan Peill: At this time, there are no further questions from the webcast. I would like to turn the call over to the operator. Operator: And there appear to be no further audio questions at this time. I'd like to turn the floor over to management for closing remarks. Michela Ramat: Okay. Thank you very much, and thanks again, everybody, for joining the call, and we'll see each other back again to discuss our year-end results for 2025. Thanks, again. Operator: This concludes today's conference call. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Lassonde Industries 2025 Third Quarter Earnings Conference Call. The corporation's press release reporting its financial results was published yesterday after market close. It can be found on its website at lassonde.com, along with the MD&A and financial statements. These documents are available on SEDAR+ as well. A presentation supporting this conference call was also posted on the website. [Operator Instructions] Before turning to management's prerecorded remarks, please be advised that this conference call will contain forward statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the forward-looking statements section of the MD&A for further information. Also note that all figures expressed on today's call are in Canadian dollars unless otherwise stated and that most amounts have been rounded to ease the presentation. Finally, be advised that the presentation will refer to non-IFRS measures or ratios mostly to ease comparability between periods. Reconciliations to IFRS measures are provided in the appendix to the presentation and in the corporation's MD&A. I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025. I will now turn the conference over to Vincent Timpano, Chief Executive Officer. Vincent Timpano: Good morning, ladies and gentlemen. I'm here with Eric Gemme, Chief Financial Officer of Lassonde Industries. Thank you for joining us for this discussion of the financial and operating results for our third quarter ended September 27, 2025. Now please turn to Slide 4. Lassonde delivered another solid performance in the third quarter, which is a testament to its ability to meet customer and consumer needs through its broad and diverse product portfolio and through a continued commitment to service excellence. Sales increased 8.3% to $724 million. As anticipated, sales growth was less than in previous periods as we lap the Summer Garden acquisition and the commissioning of the North Carolina single-serve line partway through the quarter and as we face some industry-wide demand-related headwinds. Still, we grew our sales in each business unit and generated an increase of nearly 23% in operating profit. These achievements mainly reflect strong execution on pricing as well as a better sales mix within our private label offering. Now let's turn to Slide 5 for a closer look at operations, beginning with U.S. Beverage activities. Lassonde maintained its market position in the third quarter. While the overall category was down low single digits as consumer spending reflects weaker confidence given the current macroeconomic context, volume for U.S. brands remained relatively steady and our private label volume contracted slightly. Our performance was also consistent with what we've seen in the market with competitor brands outperforming private label due to a temporary price gap contraction earlier this year as we led with pricing in response to apple and other commodity inflation and tariffs. With this said, we are now seeing branded competitors implement pricing actions, which we believe should restore normal price gaps and support private label category performance. Our business is well positioned to benefit from a shift back to private label as consumers increasingly seek value in these uncertain economic times. In the quarter, we also successfully completed the installation of production assets being relocated from a U.S. co-packer to our North Carolina facility, and we're in the process of ramping up operations. These assets represent our first ever in-house juice box production in the United States, which should improve reliability and reduce cost in servicing U.S. customers. We also expect to unlock additional volume for both U.S. branded and private label products by improving capacity and throughput on the assets. As for the construction of a new facility in New Jersey, I am pleased to report that we have broken ground following the reception of permitting during the quarter. The project remains on schedule and on budget with a phased transfer of the existing production activities from the current facility beginning in late 2026 and to be completed in 2027. Turning to Slide 6. Our Canadian beverage activities continued to gain market share, outpacing the category with overall market contraction remaining consistent with prior quarters in the mid-single-digit range. Our performance was driven by solid promotional support for our national brands, new distribution gains, mainly in the chilled category and a continued buy Canadian sentiment, which we continue to support with our Canadian to the core campaign through in-store merchandising. We also benefited from a favorable shift in the composition of our private label sales mix. Our focus on innovation to reduce commodity exposure also continues to generate positive results, mainly with Nectars and drinks as well as through new distribution in the chilled category. Moving on to Food Service on Slide 7. Our Food service activities had a solid quarter with once again double-digit sales increase over last year. Growth was driven by volume gains with broadline distributors in the U.S. and by improved penetration of national accounts in Canada. As for our new bag-in-a-box aseptic packaging line, our focus is on developing customized formulas for new accounts. Following positive response, we are now making solid progress in our discussions with customers and are engaging in bids. We see strong potential in this market given the uniqueness and value add of our offering with convenient dispensing and bulk aseptic packaging. As we've noted in past remarks, food service is a significant growth opportunity as we estimate it represents roughly half of consumer spending on food and beverages, whereas our split between retail and food service has historically been around 90-10. Now let's turn to Specialty Food on Slide 8. In the third quarter, we sustained our integration efforts within our North American Specialty Food network with the objective of capturing additional efficiencies and synergies. As an example, after reviewing our manufacturing processes and installing new equipment at our Ohio plant to eliminate a bottleneck, we achieved increased throughput. Summer Garden contributed sales of $48.1 million for the full quarter versus $26.7 million over 7 weeks last year. Its EBITDA margin reached 16%, reflecting seasonal volume fluctuations and the timing of promotional activities. EBITDA margin for the first 9 months of 2025 remained robust, approaching 21%. Summer Garden's focus also remains on finalizing its consumer-focused brand strategy, addressing opportunities to expand brand distribution and launch new innovation. As for legacy operations, overall volume held relatively steady and profitability continued to grow with sustained momentum in the glass jar sauce category. Finally, we continue to refine our strategy to drive sustainable and profitable growth within the specialty food market while enhancing service for our U.S. customers. We remain excited about the long-term growth potential of this segment, supported by ongoing initiatives to fortify our capabilities across both operations. I now turn the call over to Eric for a review of quarter 2 results. Eric? Eric Gemme: Thank you, Vince. Good morning, everyone. Let's turn to Slide 9 for our third quarter sales, which amounted to $724 million, up 8.3% versus last year. Excluding Summer Garden and a favorable foreign exchange impact, sales increased 5%, reflecting the favorable impact of pricing adjustments and a positive shift in the private label sales mix in Canada. Moving to Slide 10. Gross profit reached $198 million or 27.3% of sales, up 10% versus $180 million a year ago or 26.9% of sales. Excluding Summer Garden, gross profit dollars increased 4% year-over-year for a gross profit margin of 26.8%, reflecting the favorable impact of selling price adjustment and a positive shift in the sales mix. These factors were partially offset by higher costs for certain inputs such as orange, apple, pineapple concentrates, an increase in certain conversion costs in the U.S., mostly related to the deployment of new assets in North Carolina and to reduce absorption due to lower production volume and the accelerated depreciation expense of certain U.S. assets. SG&A expenses were $140 million, up from $133 million last year. Excluding expenses from Summer Garden, SG&A held steady as increases in certain administrative and selling and marketing expenses, finished goods warehousing costs, mainly in Canada and amortization expenses resulted from the commissioning of the new Canadian ERP were offset by lower transportation costs to deliver products to clients and a decrease in performance-related compensation. Excluding items that impact comparability, adjusted EBITDA increased 25% to $86 million or 11.9% of sales from $69 million or 10.4% of sales last year. Adjusted profit attributable to the corporation shareholder reached $40 million or $5.84 per share, a record level quarterly adjusted EPS, increasing 29% from $31 million or $4.53 per share last year. Turning to working capital on Slide 11. The days of operating working capital ratio stood at 55 days, down from 59 days in quarter 2. This decline was mainly due to an increase in days payable outstanding as we return to normal purchasing patterns. Meanwhile, days of inventory outstanding remained stable at 85 days, which is slightly elevated for third quarter. While the ratio stands above historical range levels of approximately 46 days at the end of the third quarter, our objective is to bring it near the upper limit of the historical range by the end of 2025, given current inventory holding strategies. As a reminder, we may temporarily elect to strategically leverage our balance sheet to secure certain inventory availability and/or lock in costs ahead of anticipated supplier price increases. Now on Slide 12. Operating activities generated $118 million in Q3 of 2025, up from $87 million last year. This improvement is mainly due to higher EBITDA and higher cash generated from working capital, notably through a lower accounts receivable, which normalized following a temporary effect on timing of invoicing due to the earlier rollout of the new Canadian ERP and to lower inventory as significant volume acquired earlier this year are gradually being depleted. These factors were partly offset by a $14.2 million combined increase in interest and income taxes paid. CapEx totaled $35 million in Q3 2025 and $142 million since the beginning of the year. We still expect CapEx to reach up to 7% of sales in 2025, including approximately now USD 57 million for the construction of the New Jersey facility and up to USD 20 million for the redeployment of our juice box lines in North Carolina. Turning to our balance sheet on Slide 13. Lassonde's net debt totaled $550 million at the end of the third quarter, down from $618 million 3 months earlier. The decrease mainly reflects cash flow generated by working capital. As a result, the net debt to adjusted EBITDA ratio improved to 1.7:1 at the end of Q3 2025, compared to 2:1 at the end of the previous quarter. All things being equal, the leverage ratio should range between 2 and 2.5:1 until the end of 2026, but we anticipate being near the lower end of the range. This remains well within our comfort zone of less than 3.25:1. I now turn the call back to Vince for the outlook. Vince? Vincent Timpano: Thank you, Eric. Now please turn to Slide 14 for our sales outlook. As we close out 2025 and despite persistent economic uncertainty, we reiterate our expectations of a sales increase slightly above 10%, excluding currency fluctuations, reflecting a full year contribution from Summer Garden, increased volume, in part supported by our latest marketing campaign, Oasis Supply, intended to build awareness and brand preference for our new chilled distribution, targeted promotional spend and the buy Canadian sentiment. The run rate effect of existing and planned selling price adjustments and volume improvement related to the pace of our U.S. Build Back plan and additional volume available from our single-serve line in North Carolina. Moving to Slide 15. We remain focused on executing our strategic priorities while remaining disciplined and agile in a volatile environment. For U.S. beverage activities, our priorities include continuing our private label volume build back plan, notably by increasing our penetration of existing customers with new products, executing on pricing to offset cost volatility induced by commodities and tariffs while balancing pricing impact on demand elasticity and competitive position versus brands and forging ahead on our new facility construction project to improve capacity and lower cost. For Canadian beverage activities, fortifying our leadership remains our priority through innovation to reduce commodity exposure and ensure active participation in on-trend and growing beverage segments, targeted promotion spending and marketing investments and constant efforts to improve productivity. Our North America Food Service team will continue its push for further expansion in this key market, including through our bag-in-a-box initiative. In Specialty Food, our priorities are continuing to integrate our North American Specialty Food network, expanding core brand distribution through improved positioning, fortifying our commercial capabilities and continuing to refine our strategy to support growth and improve service for our U.S. customers. Turning to Slide 16. The cost of orange juice and concentrates as well as apple and pineapple concentrates are expected to remain volatile through the fourth quarter as are other inputs affected by tariffs. The cost of orange concentrate has remained highly volatile with a sudden and significant decline in the spot price to less than USD 2 per pound solid in recent days on use of lower consumption, combined with a stronger upcoming crop in Brazil. To mitigate volatility, Lassonde follows a hedging policy for a portion of its commodity needs. While this approach provides stability, it can temporarily reduce the benefit of sharp declines in spot prices, particularly when the drop is sudden as seen in the current market. As for apple juice concentrate, inflationary pressures have moderated following a spike in early 2025. Additional pricing adjustments were deployed late in the second quarter, but the delay between cost increases and price adjustments temporarily affected our margins. Availability of pineapple concentrate, an important commodity for Lassonde remains constrained, creating challenges and resulting in lost opportunities this past quarter. This shortage may continue for several months with elevated prices, and we are closely monitoring this impact on input costs and juice blend formulations. In this volatile commodity pricing environment, we remain vigilant in monitoring changes in consumer food habits and demand elasticity for our products. To alleviate these effects, we will continue to bring innovation to market. As for the trade environment, the situation remains uncertain, which is affecting consumer sentiment and spending in both Canada and the United States as seen by ongoing category declines. We continue to actively monitor ongoing developments while ensuring our mitigation measures allow us to maintain a strong competitive position and an optimal cost structure, although the timing, duration and evolution of tariffs may affect these measures. In closing, as shown on Slide 17, we expect our momentum to continue, enabling us to achieve our 2025 financial objectives. We remain focused on executing our strategy, delivering our important investment projects and staying agile in this dynamic environment. Above all, Lassonde's diversified product portfolio, supported by an exceptional team of committed employees represents a key factor in maintaining a strong competitive position in the North America food and beverage market. This concludes our prepared remarks. We are now pleased to answer your questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: My questions are going to be mostly focused on the commodity complex here. You touched on, Vince, that pineapple, there's shortages in the quarter that sounds like it led to lost sales. I don't know if it's possible for you guys to quantify that or dimensionalize that for us, but that would be helpful. And then secondly, I know in the past, and I believe in your MD&A, it still, you talked about apples, apple concentrates, oranges representing 25% of COGS. How material is pineapple relative to your overall cost of sales? Eric Gemme: So look, it's going to be, Eric, taking the answer on this one. So you are correct I pointed out that the key commodities for us are apple and orange representing 25% of sales. We're also a significant player in [indiscernible], but pineapple is not very far. And pineapple is used either as a straight or also part of our blend. And pineapple is also a premium element from a blend perspective. So it affects volume, not dramatically like an orange or an apple could do, but the mix, the quality of the mix of our product is affected, and it was really a question of price of the commodity and availability. So basically, we were not able to ship as many of those juices or juice blends that we would have hoped during the quarter. Luke Hannan: Got it. And then secondly, I mean, it was mentioned, and I know that you guys have talked about this in the past that you typically hedge. So that means the volatility in spot doesn't always flow through your P&L right away. But there has been a relatively sharp decline in orange concentrate specifically more recently. And if I reconcile that with what you guys have talked about with working capital as well, that's declining. But have you given any thought to maybe being a little bit more strategic in hedging more at these lower levels from a spot perspective just to ensure that perhaps you can lock in a relatively healthy margin on at least part of your assortment going into 2026? Eric Gemme: So Luke, again, we are using hedging not as a gamble. So we will remain within our hedging policies and procedure. However, still lot of policy and procedure allow us to be strategic a little bit. So we will hedge. And again, we have our view in terms of where the market is and where it could go. And of course, we're going to -- within the boundary because, again, it's not gambling within the boundary of what we -- our policies, we will take -- try to take advantage of what we believe is favorable cost. But you are correct, and you read as well. We have at the moment because of the sharp and sudden decline in this commodity from a spot price perspective, our hedge positions are, of course, higher. However, from a strategic perspective, we believe that we are very much aligned with our competitor who also hedge because we are not a significant player in the hedge market. We have many other strategic player in there. So I think all of us are pretty much in the same spot. Luke Hannan: Got it. And then I wanted to shift over to -- there was mention about there being a sales mix shift in private label. I believe it was in Canada. Just wanted to know what exactly is driving that? Eric Gemme: Yes. So yes, it's in Canada, it's in private label. So when we talk about mix, it's about the type of cases that we're selling. So we had an elevated level of chilled sales in Canada. So whatever is in the chilled area, so orange or orange brand mainly. Luke Hannan: Okay. Last one for me, and then I'll pass the line as well. You touched on the gaps -- the price gaps between private label and branded now widening. There have been some other competitors, their national brands taking more price of late as well. Can you give us a sense, are those price gaps sort of what you expect? Are they at levels that you would expect to see normally? Is there still more to come on that front? Just give us a sense of where those price gaps stand today. Vincent Timpano: Yes. Luke, let me jump in. It's Vince. What we're seeing is price gaps restore more to normalized levels. So not all the way entirely there, but there was a lag in terms of pricing to the shelf, but we are seeing gaps between brand and private label be restored. The only other thing that I want to reinforce is that we led pricing in the market. That created a temporary gap as brands either followed, but there was a lag in terms of what we saw at the shelf price or there was increased promotional spend. But to answer your question, we are starting to see gaps restore back to normalized levels in the United States. Luke Hannan: Yes. And it sounds like... Eric Gemme: Well, Luke, to be clear, right, this concept is really in the U.S. market, not in Canada. Operator: [Operator Instructions] Our next question is from Martin Landry of Stifel. Martin Landry: My first question is just a follow-up to the last discussion in the U.S. market. So just to understand better, orange concentrate is down significantly on a year-over-year basis, but you're talking about pricing -- putting price increases and you've led with price increases. So are those price increases reflecting the tariff dynamic that is ongoing in the U.S.? Just a bit of clarity there would be helpful. Vincent Timpano: Yes. So there are commodity increases that are built into the price increases. But in addition, and you're accurate in saying that there's also a tariff component there as well. And recall, Martin, that when you're looking at commodities and you're purchasing on a global level, we anticipate that our competitors are in a very similar position, and that's why they're also responding with pricing. Martin Landry: Okay. And can you just remind us what was the magnitude of the prices that you've implemented in the U.S.? And what was the timing of that increase? Eric Gemme: Magnitude, I don't think we are providing that externally. From a timing perspective, it's really second quarter and third quarter. I think now we pretty much were done with these increases. Martin Landry: Okay. All right. And then looking at Q4, in Q3, organically, your sales were up 5% when we exclude the contribution from Summer Garden. So looking at Q4, you will be lapping the Summer Garden acquisition. So is it fair to say that, 5% growth rate organically for Q4, is it a good assumption to use? Could that be replicated? Eric Gemme: So Martin, I will refer you back to our outlook for the full year, where we say it's slightly above 10%. So I'll let you do the math, but you would see that last year, what we reported $738 million on a consolidated basis. If you run the math, I think if you believe that we can make whatever, 10% flat, you would see that's probably a decline versus last year. But if you stretch a little bit your 10%, I think as you get to 12%, you see that it's a slight growth versus last year, but not at the 5% June. Martin Landry: Okay. So then can you help me a little bit understand why you expect your organic growth to decelerate in Q3 versus Q4? Eric Gemme: So Q3, we had the full half of a quarter worth of Summer Garden. We had our Line 5, which is our single-serve line in the U.S. only starting. And right there from a volume and an additional organic growth, you had that those effect in Q3 helping versus Q4, where both elements were there for the [ third ] quarter. Operator: Our next question is from Etienne Larochelle from Desjardins. Etienne Larochelle: First off, I was just wondering if the Buy Canada movement, is it still a tailwind for your Canadian business? Because I feel like it's less -- it gets less topical in the media than a few months ago. So I'm just curious to know if it's still a positive impact on your business or if it's still -- is it slowly fading away? Vincent Timpano: Our views are that the Canadian sentiment remains robust. And there's a component of the performance that we continue to see in the Canadian business that reflects that. I think the important factor, though, is not that it comes at any price, consumers have their limit. And they recognize that at some point, they've got to manage their pocket book. So we're mindful of ensuring that we understand that we've got to continue to do more and not just rely on the Canadian sentiment. But the reality is we've got this as a core competitive advantage within Canada. We are a Quebec-based Canadian company that produces Canadian brands for Canadian consumers. And we're spending a fair bit of time reinforcing and continuing to educate consumers about that very fast. So we had a campaign that we executed early on in the year to reinforce that. We continue to execute it through effective in-store merchandising just to ensure that we're doing what we need to do to remind consumers of the Canadian heritage that it's less on. Etienne Larochelle: Yes, makes sense. And also you completed the relocation of production lines to your North Carolina plant during the quarter. I was just wondering if you could comment on how the ramp-up is going generally, when you expect to reach full production? And maybe any relevant updates on that front would be helpful. Eric Gemme: That project is on scope on budget. So yes, those lines are now starting to produce at the level we were anticipating. So -- but of course, it came in late in the third quarter. So there's absolutely no volume at the moment in there. But remember, it's not new volume, those lines. It's we were moving lines that were existing, and we had to rely. So basically, they had volume in there. So we had to rely in the meantime on co-packers. So don't expect a volume effect from the deployment of those lines. What you should expect is a reinsourcing of those volume and of course, now start benefiting from our cost versus having to use co-packers and not necessarily in the right place in the network. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Vincent Timpano for any closing remarks. Vincent Timpano: Thank you for joining us this morning. We look forward to speaking with you again at our year-end call. Have a great day and a great weekend, everyone. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2025 BlackLine Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. Matt Humphries, Senior Vice President, Investor Relations. Sir, please begin. Matt Humphries: Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine's Chief Technology Officer joining us. Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q4 and full year 2025, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially, as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today. Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen? Owen Ryan: Thank you, Matt. Good afternoon, everyone. Today, I will detail the changes we have made across our business that are beginning to deliver tangible results. Over the past 2-plus years, we have methodically rearchitected our leadership team, our go-to-market engine and our technology and operational structures. That foundational work is now largely complete. These changes give us greater confidence that we can deliver accelerating revenue growth and margin expansion as we exit this year and move into 2026. But first, let's start with this quarter's performance. We delivered another solid quarter of improving execution. Revenue growth increased to 7.5%. We achieved a non-GAAP operating margin of 21.4% and a free cash flow margin of 32%. Patrick will provide a more detailed discussion on the financials shortly. The strength this quarter was from new customer acquisition. New customer bookings were up 45% and the quality of these wins is evident with the average new deal size more than doubling by 111% and the median new deal size up by approximately 50%. New customer bookings mix accounted for 41% of overall bookings. This is not just about closing more deals, is about winning larger, more strategic platform deals often against our biggest competitors. Let me put this into perspective with some examples. Through our direct sales efforts, we secured our largest ever total contract value deal with a leading global commercial real estate services company. This deal took 2 years to close and was multifaceted, with intercompany serving as an entry point and includes a multiyear expansion across our financial close suite, leveraging Studio360 and our new platform pricing. We directly landed another new logo with a Fortune 20 company who chose our entire financial close suite, Studio360 and our platform pricing model, replacing existing tools and solutions. This was a great example of perseverance and leveraging past success as the CFO's previous experience with BlackLine translated into a meaningful new win. And in the insurance industry, we won a multi-solution deal with Accelerate, a leading middle-market specialty insurance exchange, looking for a scalable platform across both invoice-to-cash and financial close, the customer move forward with BlackLine recognizing that a platform approach with Studio360 was the optimal solution to support their future revenue growth versus remaining with multiple legacy vendors. On the partner side, our SolEx channel performance is improving. We closed mega company deals this quarter with Coca-Cola Europe Pacific Partners and with Boots U.K. Limited, proving the strength of our golden architecture with SAP. A key driver in many of these wins was our new platform-based pricing model, which accounted for nearly 3/4 of new customer bookings and is seeing solid international adoption after only 2 quarters. Our strategy is not just about winning in established markets, it is also important to unlock new growth opportunities. We have continued to make progress within the public sector. Despite the federal government shutdown, our pipeline continues to grow and we successfully delivered the production instance for our sponsoring agency in October. We anticipate completing final testing by mid-December and are on track to receive final FedRAMP approval in early 2026. Now turning to our existing account base. The interest in our Studio360 platform, new pricing model and our Verity AI offerings created some noise this quarter. We are seeing 2 dynamics play out as we see more customers evaluate or adopt platform pricing. First, as we succeed in delivering higher levels of automation, customers can achieve their outcomes with the need for fewer licenses, which is leading to user attrition. Second, we saw several large customers pause user ads to instead engage in deeper, more strategic discussions about moving to Studio360, platform-based pricing and our Verity AI offerings. Our platform pricing model is designed to decouple our growth from a simple seat count and align our revenue directly with the value we deliver. While this strategic transition will take time to work through our installed base, we believe the outcome is clear and more committed customer base providing more predictable value-aligned revenue. Although these dynamics created a slight headwind to net revenue retention, we view it as a leading indicator of a positive transition. In fact, the most telling indicator of long-term customer confidence came for our renewal activity, along with our solid platform pricing adoption. Importantly, the mix of multiyear renewals has increased to represent over half of all renewal bookings this quarter, demonstrating that customers are buying into our long-term vision and locking in their partnership, which increases the predictability and durability of our revenue. Finally, the planned churn from our strategic deemphasis of the lower end of the market is nearing its conclusion. We expect this headwind to be largely complete in the first half of next year. These outcomes are not an accident, they are the direct output of the foundational transformation I mentioned earlier. With much of this foundational work now complete, I want to detail the 3 pillars driving these outcomes. First is our go-to-market engine. Much of our success this quarter comes directly from the methodical work we have done to re-architect our go-to-market engine for scalable, efficient growth, focusing on 3 key areas. We have invested heavily in the tools and the processes our teams need to win. Our entire sales motion is now powered by modern billing, prospecting, contracting and CRM systems that remove friction and provide better insight. For example, our experience with a new AI-powered prospecting tool has shown that a BDR can nearly triple their pipeline generation. All of our BDRs will now use this tool to more quickly create and qualify opportunities. We've also transformed our marketing efficiency. Our teams are leveraging new digital campaigns and tools to drive a significantly higher ROI on our spend. In fact, despite a decrease in aggregate marketing spend since 2023, we have seen strong growth in pipeline generation through the end of Q3, which is up approximately 50%. And while it's important to leverage new technologies and reengineered processes, it comes down to people. With new leadership has now established across the globe, we've actioned a more rigorous performance management program, elevating the bar and adding seasoned sales professionals. This focus is already paying off. Rep productivity is improving. And by the end of 2025, we expect it to improve by nearly 30% versus last year. These coordinated efforts are delivering clear results. As I mentioned, rep productivity is up and importantly, our competitive win rates, especially in takeaways approved again in Q3. We believe this is direct evidence that our Studio360, platform pricing and improving go-to-market execution are enabling us to win more in the market. The ultimate outcome is clear. We are building a more productive growth engine that costs less to operate. We expect these changes will drive a 10% improvement in our customer acquisition costs in 2025 and even greater improvements next year. Second is our progress in product and technology. We have modernized our technology stack to support a future scale, efficiency and AI-powered innovation. It starts with infrastructure. A critical milestone is the near completion of our multiyear GCP migration. I'm pleased to report we only have a few customers remaining before we can fully decommission our private data centers. Finishing this project will unlock significant operating leverage and provides a modern, scalable foundation for our future innovation. This serves as the foundation for our Studio360 platform, as the central nervous system for modern finance, its power begins with a unified data layer. Powered by our partnership with Snowflake, this layer is now leveraged by 90% of our customer base for advanced reporting in less than 1 year. This helped us achieve an approximately 80% cost reduction in data storage. The real game changer for Studio360 is our progress in open connectivity. Our platform was architected from the ground up to be ERP-agnostic and our Studio 360 integrated capability extends this vision far beyond ERPs to third-party financial systems. This ability to rapidly connect to any data source can allow customers to realize financial transformation much more quickly. We're also seeing good momentum with our ERP connectors. Our Oracle Fusion Connector is already live with over 50 customers and our Workday and D365 connectors are already being used by paying early adopter clients. This success is now unlocking the full potential of Studio360 for our large portfolio of Oracle, Workday and Microsoft customers. This powerful platform infrastructure is enhancing our entire solution portfolio from our newest technology for our most established products. The performance improvements are dramatic. For example, our new big data matching solution built on this modern stack delivers a 98% reduction in match times and handles nearly 30x the data volume our previous solution, which we see as tangible proof of our ability to deliver at any scale. We are also accelerating the delivery of new innovation. Our high-frequency reconciliation solution was adopted by 10 customers shortly after its general availability in Q3 and is already helping build a multimillion-dollar pipeline. And this just isn't about new products, we are also driving product-led growth within our core. For established solutions like Journals, we've introduced new self-service capabilities for several common use cases, allowing customers to realize value faster and at a lower cost. And importantly, this unified trusted data ecosystem is the essential fuel for our Agentic AI capabilities named Verity. Now I want to spend a moment on this because in a world of intense AI hype and uncertainty, it is critical to understand why we see AI as a significant opportunity that deepens our competitive advantage. Our moat is not built on a single attribute on a powerful combination of our proprietary data and our deep expertise in delivering trusted, auditable solutions to the office of the CFO. First is our expertise and trust and auditability. In the office of the CFO, Black Box AI is a nonstarter, trust, transparency and auditability are paramount. Our entire platform was built from the ground up to be a system of record with a complete unbroken audit trial. Our approach is validated by our recent ISO 42001 certification for responsible AI which formalizes our commitment to governance, risk management and human oversight. In a world of increasing regulation, we view our deep, culturally ingrained expertise in building auditable enterprise-grade systems that finance leaders and their auditors trust is a massive competitive advantage. And second is data, AI models are only as good as the data they are trained on, and we believe our data is unique. It is not just that we have data from over 4,000 customers of all sizes across all industries and all geographies, is that we have the historical financial and operational data set for our customers going back to the day they started with BlackLine. This proprietary data set represents the accumulated knowledge of what thousands of companies have done to close their books and manage their financial operations. We believe we are sitting on a wealth of process-specific data, which we are only at the early stages of utilizing. This can allow us to deliver unparalleled value. We can provide industry-specific benchmarking that shows the customer how their processes compare to their peers and where they can improve. We are able to train our AI models on the most intricate cases by industry in a secure, auditable way because we have the real world historical data to do so. This combination of proprietary data and our leadership in trusted auditable systems is precisely why we believe we are positioned to win with AI in the office of the CFO. And this is just not a theoretical advantage. We are translating this directly into product reality. We began deploying Vera, our conversational AI to our customer base in October, just one month after its debut at BeyondTheBlack. With Vera as the supervisor of our agentic workforce, we are launching a suite of powerful agents to execute high-value tasks. For example, we already prepare our agent for account reconciliations has shown they can deliver even higher levels of automation for customers in a trusted and auditable manner. Soon, we will deploy Verity Collect to deliver agentic capabilities to our invoice to cash customers, automating customer outreach and accelerated cash collection cycles. These initial agents are the first step in our broader strategy to address the full spectrum of financial operations. Future releases will target other complex areas across record-to-report and invoice-to-cash, including agents focused on high-volume transaction matching, variance analysis, remittance automation and on-demand financial analysis. In parallel, we are executing a proof of concept with SAP to ensure the seamless technical and commercial integration of our AI-powered solutions into their ecosystem. This is a critical step in aligning our platforms and preparing to monetize our joint offering to our shared customer base. And finally, our focus on innovation and AI also extends to the implementation process. Our efforts to reinvent the implementation process are already delivering significant results. In Q3, the number of customer go lives increased by nearly 70% year-over-year and 17% sequentially. This is a powerful proof point of our team's improved execution and directly contributed to our services revenue this quarter. More importantly, it means our customers are realizing the value of their investments faster. We are also applying our AI strategy to go to the next level. We are preparing to launch implementation agents designed to automate and standardize the most common phases of deployment. We will begin piloting these agents with customers later this month before scaling them globally in the first quarter of 2026. Our focus on efficiency extends across the entire business and is organized around 2 key initiatives, creating a more efficient operational structure and leveraging AI to drive internal productivity. We have further adjusted our cost base for greater operating leverage. We have aggressively optimized our global footprint by moving headcount from high-cost to lower-cost locations. When I joined as co-CEO, our workforce was overly concentrated in high-cost locations. As we exit this year, approximately 25% of our BlackLine professionals are delivering for customers in lower-cost geographies. This strategic shift provides a significant and durable structural advantage on margin as we move forward. In parallel, we closed offices in high-cost areas while opening or expanding talent hubs in lower cost centers like India, Poland, Romania and Mexico. Our confidence in AI comes from firsthand experience, we are not just selling this transformation, we are living it. Internally, we have aggressively created and deployed AI tools to become a more efficient and innovative company. Today, BlackLiners are leveraging our internal AI platform or third-party AI tools in their daily work. The results in our product organization are promising. Nearly all of our engineers are leveraging AI tools today and our most active developers are completing over 100% more poll requests than less active users. This is not just about coding faster. It is about delivering value to customers faster. Our innovation cycle time, the time from an initial idea to that feature being in a customer's hands, has improved by 23% year-over-year, with over 160 features and products being released this year. We have also created our own AI tools to drive efficiency, reduce costs and better serve our customers globally. Our recent example is our own internal AI translation services for our solutions that can rapidly create and provide documentation and training for customers in multiple languages, allowing us to not only reduce costs but ensure we provide consistent and high-quality experiences for our customers. This internal adoption is a powerful efficiency engine. We view it as an opportunity to bend the curve on future costs and accelerate revenue growth through innovation. In summary, while operational improvements are never done, we have made real strides in how we run the business. Our strategy is clear and our execution is showing tangible results. While I am pleased with this progress, our team remains intensely focused on the execution that lies ahead. The leading indicators we have seen this year all point to a business that is accelerating. These factors give us great confidence in our ability to deliver sustained profitable growth consistent with what we have previously shared at our past 2 Investor Days. With that, I will turn the call over to Patrick to provide more detail on the financials and our outlook. Patrick Villanova: Thank you, Owen. Our third quarter financial results reflect the execution Owen has laid out. Disciplined operational management, combined with steady progress across key indicators that point to continued acceleration through the end of this year and into next. I'll walk through the details of the quarter and our guidance for the remainder of this year as well as a preliminary view into 2026. Total revenue grew to over $178 million, up 7.5%. Subscription revenue grew 7%, with services revenue growth of 13% due to accelerated project delivery in the quarter. Annual recurring revenue, or ARR, was $685 million, up 7.3%. We continue to see tangible evidence of deepening customer commitment in our forward-looking metrics. Total RPO growth was 12.4% and current RPO was up 8%. For reference, our average contract length was 27 months this quarter, up versus last year and sequentially. And more importantly, new customer contract length was up nearly 10 months versus the prior year. Calculated billings grew 4% in the quarter. This figure has an embedded 4-point headwind, which is largely timing related. As we continue to win larger, more complex enterprise deals, we have seen some customers move forward with quarterly versus annual billing terms. Our trailing 12-month billings growth, which helps normalize for these effects was 7%. Our customer count of 4,424 this quarter reflects our strategic resegmentation of the market moving away from lower-end customers. We project this transition to be substantially complete in the first half of next year. Our revenue renewal rate in the third quarter was 93%, up versus the prior year and the prior quarter driven by healthy enterprise performance in the upper 90s with middle market in the mid-80s. Net retention rate for the quarter was 103%, which includes a full point of headwind from FX. On NRR, we also saw net user adds slow in advance of customers adopting our platform pricing model and evaluating our AI road map. We continue to see a positive shift in our sales mix towards higher-value solutions. Our strategic products accounted for 36% of sales this quarter, up from 32% last year. This growth is a direct result of our go-to-market teams leveraging our unified platform to drive larger multi-solution deals. Demand was particularly strong for our market-leading intercompany and invoice to cash solutions. SolEx was seasonally steady in Q3, accounting for 26% of total revenue. Looking ahead, our Q4 SolEx pipeline is solid, and we are executing against it with several deals already closed in October, positioning us for a solid finish to the year. Turning to margin. Our non-GAAP subscription gross margin remained strong at 82%. Our aggregate non-GAAP gross margin was approximately 79%, reflecting a higher mix of services revenue this quarter due to the strong performance at accelerated project delivery from our teams. Non-GAAP operating margin was 21.4%, driven by better productivity across our GTN teams this quarter and reflects costs from our BeyondTheBlack event, which took place in September. Non-GAAP net income attributable to BlackLine was $38 million, representing a 21% non-GAAP net income margin. We delivered a record quarter for cash flow. Operating cash flow was $64 million and free cash flow was $57 million. This performance was driven by the combination of strong collections execution from our team and the timing of certain payments within the quarter. Regarding our balance sheet and capital allocation, we have approximately $804 million in cash, cash equivalents and marketable securities versus $895 million in debt. Finally, we continue to execute on our capital allocation strategy this quarter. We returned approximately $113 million to shareholders through the repurchase of 2.1 million shares. This brings our year-to-date total to over $200 million and underscores our confidence in the long-term value of our business. Now turning to guidance for the fourth quarter of 2025. We expect total GAAP revenue to be in the range of $182 million to $184 million, representing approximately 7.4% to 8.6% growth. We expect non-GAAP operating margin to be in the range of 24% to 25%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $42 million to $44 million or $0.58 to $0.61 on a per share basis. Our share count is expected to be about 75.1 million diluted weighted average shares. And for the full year 2025, our updated guidance is as follows: We expect total GAAP revenue to be in the range of $699 million to $701 million, representing approximately 7% to 7.3% growth. We expect non-GAAP operating margin to be in the range of 22% to 22.5%. And finally, we expect our non-GAAP net income attributable to BlackLine to be $153 million to $157 million or $2.08 to $2.13 on a per share basis. Our share count is expected to be about 76.6 million diluted weighted average shares. While we still have 2 months left in the year, the trends we see across the business give us increasing confidence in our preliminary outlook for 2026. Based on our strong pipeline, the adoption of our platform pricing model and operational improvements, we expect to deliver a combination of accelerating revenue growth and continued margin expansion next year, assuming a stable macro environment. The balanced approach to growth and profitability gives us increasing confidence on our path to achieving the Rule of 40 targets we outlined at our Investor session recently. Owen? Owen Ryan: Thank you, Patrick. And before we go to Q&A, let me just say that we are obviously aware of the recent market commentary about BlackLine. As a matter of policy, we do not comment on market rumors or speculation. The Board and management team engaged with shareholders routinely as well as constructively, and we will continue to do so, and that is all we intend to say on this topic. Operator, could you please now open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Patrick O'Neill from Wolfe Research. John O'Neill: Just kind of wanted to touch on the commentary around some large customers pausing user adds as they weigh options around Studio360 platform pricing in some of your AI offerings, is sort of the right way to read that? Is that maybe some fields or some net new ARR slipped in the quarter as a result? And maybe -- can you just help us quantify in terms of net new ARR, the impact on these dynamics? And is that something you expect to continue into 4Q? Or is that just sort of idiosyncratic to the quarter? Patrick Walravens: Yes. No. So I think it's a good question. And we did see some deals slip at the end of the quarter. Obviously, with the Verity announcement, in particular, a lot of interest in AI. And so -- and we have seen that continuing uptick in conversations right through today. And so a lot of, as you can imagine, interested in what BlackLine has to offer, did cost us probably a couple of million dollars of delayed deals at the end of the third quarter that are now in the fourth quarter. Some of them have closed during the month of October, others will close, we think over the balance of the next couple of quarters. I do think that what we're seeing in the pipeline certainly is showing a real increase on the larger end of deals for mega enterprise and the enterprise space. Those deals tend to take a bit longer but they are much more important for what we're trying to do as an organization as we move customers onto our platform and take a full advantage of all of the capabilities that underline the Studio360 platform. Operator: [Operator Instructions] Owen Ryan: Operator, do you have more questions? Operator? Operator: Just a second, sir. Matt Humphries: For all the listeners, apologies, it seems the operator is having some technical difficulties that he's trying to get sorted out, so please just bear with us again, apologies. Operator: We have Patrick O'Neill from Wolfe Research in the queue. Owen Ryan: Operator, we just completed that one. The next person in the queue should be Rob Oliver from Baird. Can you please let him then to ask his question. Thank you. Operator: [Operator Instructions] Our next question comes from the line of Rob Oliver from Baird. Robert Oliver: Can you guys hear me okay? Patrick Walravens: Yes. And I'm very sorry about what's going on here. Robert Oliver: Awesome. No problem, as well. So I guess I wanted to go back to flesh out the previous question just a little bit. So as you guys -- I guess something this quarter took you guys by surprise. And as you move through this transition, I just wanted to ask philosophically about this issue of automation and customers and seat versus platform? Because what it seems to me is what you guys laid out last year was a strategic shift, which enables customers to capture value without necessarily needing to commit on the seat side. So is it a logo churn that you guys are seeing of size as well as seat count internally around the model transition and the new platform? And then I had a quick follow-up for Patrick. Just wanted to better understand that. Owen Ryan: Yes. Thanks, Rob. I think that here's what we're seeing in the business and what gives the team and me confidence that makes us really increasingly confident that we can deliver on the commitments that we said we would do for the business. We have laid out, as you know, guidance to return to our growth rates to the mid-teens as well as improve operating margin and return capital through share repurchases. When you think about all of this together, right, there's obviously 4 pieces. There's gross bookings, there's churn, there's what we're doing on the expense side and then obviously, attrition management. From a gross bookings perspective, what you should understand is our performance this year is showing the ability to land larger, more transformational deals with customers. New customer bookings, as we said, were up over 40% this quarter, and our net average deal sizes have doubled since last year. The pipeline has continued to grow, and it is really beginning to ripen, a continuation of the trend that we see. Now obviously, the bigger deals we do, particularly the mega enterprise, the enterprise space, take 10, 12 months to happen. For us, what we're seeing now is on a year-to-date basis through the third quarter, our gross bookings growth was about 15%, and we expect to go through the fourth quarter with growth in gross bookings at about approximately 20%. And we expect that growth rate to continue throughout next year on the gross bookings side. So what that is showing and improving is that we can win in the market. We're taking market share. We know all about that. The second piece of this then you talked about is churn. On churn, the headwind for us has been and will be for a couple more quarters, is that strategic deemphasis of the lower-end customer base that is really beginning to near its conclusion. We expect the abatement to take place by the midyear of next year. And what's really driving that is the rigorous qualification and customer selection processes that we put in place in the middle of '23 when Therese and I stepped into the role. So remember, most of our deals are 3 years back then, they are now sort of rolling off the books. The other key thing besides the change in customer selection is we have radically revamped how we do implementations with our partners and our own team, focusing much more on just go lives. We're really focused on the outcomes for our customers and all indications of all new customers that have now come in, in the last couple of years, they're very well adopted as we move forward. We talked a little bit in message about expenses as well. So we've made a lot of changes to the organization to strengthen the foundation. This work really focused on operational efficiency. I know I get a lot of questions about effectiveness of go-to-market. But what this now allows us to do is scale very efficiently with a very modern platform stack of things that we're trying to do to optimize the cost base and importantly, we've been able -- beginning to be able to decouple revenue growth from operating costs. So we expect that to drive further expansion -- margin expansion and greater levels of free cash flow next year. That's what's sort of giving us confidence on the margin side. Now let me turn to the last piece, which was part of your question, Rob, and that relates to attrition. This is an area of intense focus for us around the leadership team, something we expect to work through this year and into next. And we really are experiencing 2 types of attrition that we're working our way through. The first, for lack of a better term, is success-based attrition, where customers have really been achieving very high levels of efficiency and effectiveness with BlackLine that are actually requiring fewer user licenses. It's what the core value of the proposition is the value proposition what BlackLine delivers, but it's suboptimal for us for long term. It's the reason we've been trying to drive towards platform pricing because we recognize we have to decouple our growth from seat count and align that with the values and outcomes we're driving on behalf of our customers. With the release of Verity AI, along with the accelerated innovation across our core product and Studio360 platform, it allows us to go deeper and broader with customers leveraging the trust and brand permission that we've built. So we view that as a positive trade-off for the medium to long term, even if it's impacted us a little bit on attrition this year. Now the other piece that's really critical is attrition that relates to underadoption of our solutions. We have been dealing with that really through 2 parts of what we're trying to accomplish. One is we've been aggressively leveraging the data that we now have to better understand our customers' usage and engage with these less adopted customers to get them back on a path via our Studio360 platform and the underlying solutions. We're using this information in a way that allows us to have very meaningful and candidly, sometimes very difficult conversations amongst and between our customers, the ERP providers, the implementation partners and BlackLiners. The second piece of this really relates to our multiyear renewal efforts, which have been coupled also with the changes we've made around implementations to the processes, what we're doing with our partners, with our customers as well as the optimization of what work we're doing. This combination has really allowed us to reengage with customers and deepen and broaden the relationships that we have with them. If you remember when Therese and I stepped into the roles, we talked about elevating in the office of the CFO. That is happening now. And the positive of that, again, is it allows us to have these deeper, broader conversations. But in the short term, we've still been dealing with some attrition. But as I mentioned before, we expect to see gross bookings grow about 20% next year. And we expect to see based on the actions we're taking on churn and attrition, at least a reduction of 10%, if not 15% in C&A for 2026. So when you put all that together, as we think about where we're going, the increase the stronger gross bookings growth, the declining churn, the greater expense management and a very clear plan on reducing attrition is giving us the confidence that we're sort of communicating to deliver the top line and the bottom line results we have committed at Investor Day, and we expect to deliver that in 2027 compared to the range where we gave you from 2027 through 2029 in the long-range plan. So I know, Rob, that was a long question. I think you -- or a long answer, you said you had a follow-up question, so what's the next part of your question, please? Robert Oliver: Yes. I appreciate it. It was going to be for Patrick. Patrick, just on I guess, catching up with you guys kind of over the last couple of quarters, there's been some positive indications around customers that do adopt the new pricing model and kind of what the kind of like-for-like pricing is. So I know that you guys have had -- you broke out some nice numbers on the bookings side of customers taking the new platform? And any early indications there of kind of on the pricing side, if you're still seeing -- I mean, obviously, notwithstanding the fact that you're seeing some seat-based churn, are there customers where you're still seeing the kind of uplifts you expected to see? Patrick Villanova: Thanks, Rob. Yes, we are. So when we started I guess, introducing this platform pricing, which we started domestically here in the United States in Q1 and then internationally in Q2, we had a plan. And we continue to be ahead of that plan in terms of the amount of bookings or conversions what we've had to that. We are well ahead of that plan from a new logo standpoint. As you heard in the prepared remarks, we landed a large deal, our largest deal ever in terms of TCV, and that was on platform pricing. So from a new logo perspective, we are well ahead of our plan. We have seen an uptick in Q3 in our installed base, our existing customers adopting this. And in combination, we still continue to be ahead of our plan that we laid out earlier this year from a platform pricing perspective. Operator: [Operator Instructions] And I see our next question comes from the line of Chris Quintero from Morgan Stanley. Christopher Quintero: Really great to hear about the expected acceleration into next year. I guess as you kind of just mentioned bookings growth of about 20% expected next year. If you would kind of distill that into maybe the top 3 factors, what's really driving that booking strength and improvement here as you go into next year? Owen Ryan: Yes. Thanks, Chris. I would say the biggest thing, again, has been us changing the conversations and having them at higher levels in organizations, and seeing and being able to talk to our customers truly about digital finance transformation. So we've been sort of working our way through being viewed as a point solution to more of a platform. Those conversations, the capabilities, the innovation that we've been able to bring to the market in the last 2 years is resonating very well. One of the things that Jeremy and the team have done has listened very closely to our customers. And so you look at the amount of new product and innovation we rolled out last year, that same thing this year, and then the road map we have, our customers are really starting to see us in a way that says we are going to be a true partner for them as they go through digital finance transformation. I think the other thing is the work we do with our partners. If you remember, one of the strategic choices we made a couple of years ago was to call out a lot of partners, and we have deepened the relationships with the blue chip firms that are out there in the world. And they also are part of those conversations we're having with customers about digital financial transformation. Many of those folks are working with CFOs and Chief Accounting Officers, Corporate Controllers every day. And so that is certainly a piece of it. It's the access and the conversations at a higher level. Our guys have really raised their game in the conversations when they're out there talking with customers. And then candidly, so much of it is about the product-led growth that we've been trying to drive. I mean, again, one of the things that we've gotten back to doing really well is listening to the voice of our customer and building solutions that work for what they're trying to accomplish, but now doing that through the lens of a platform versus just a point solution. So those are the things, Chris, that are showing up. And again, when you look at our pipeline and how it's maturing, so much of that is on the higher end of the market, which is really where we see we can deliver a lot of value for our customers. Christopher Quintero: Awesome. And then I wanted to follow up on the competition angle. It seems like on this call in your prepared remarks, you were talking more about kind of competitive takeaways than you have in the past. Is that kind of the right takeaway here? And I guess, like what's really working well for you to take some deals away from the competitors here? Owen Ryan: Yes. Yes. So we are seeing a nice uptick in competitive wins. I think, again, a lot of this talks about -- I think at one level, BlackLine is viewed as a very safe choice in the office CFO. We've got a proven track record. The quality of our implementations continues to get better with our partners, the optimization, the trust and brand that we built, the products that we're bringing to bear, the scale with which we can operate. It was talked about some of the new things we can do in the marketplace. And so all of that is sort of just giving our customers that much more confidence that we can deliver on our promises. I think one of the things that I like to tell our team all the time, we're not necessarily in the business of selling software or in the business of delivering outcomes for our customers and doing that with our partners and our clients, that's really starting to show very, very nicely, and that's helping us in our win rates and obviously being able to rely on existing customers to serve as references to other customers. It's very compelling. And then the last piece of that, that we are seeing is we are really deep in a lot of different industries and the ability to sort of connect those experiences. So when we're going in, we're not just talking about accounting and finance. We're talking about accounting and finance specific to that industry. And then, by the way, when we can show where we've done it elsewhere for a peer set, it gives our customer base, which tends to be a little bit risk-averse, that much more confident on what we can deliver because we've proven we can do it elsewhere already. Operator: Our next question comes from the line of Alex Sklar from Raymond James. Alexander Sklar: Owen, maybe for you on SAP, a lot of optimism on building pipeline throughout the year with some of the changes there. I think the comments where you've got a good start to the Q4 selling season, but what else from the BlackLine side, are you still focused on to really inflect that opportunity? Owen Ryan: Yes. Look, I think the health of the SAP relationship overall is really solid. And I think we mentioned in the prepared remarks, the joint proof of concept that we're working with them from an AI perspective, we continue to put the innovation that we're creating here through their PQ process. Obviously, having Stuart Van Houten and a number of other people that have joined from SAP be part of the go-to-market framework, has all worked very, very well. I think we mentioned in one of the earlier calls, the point that we were now sharing customer success or customer usage between BlackLine and SAP, which was something brand new. We now have sort of dedicated customer success people on both sides of the SAP BlackLine relationship that will really help us to reduce some of the attrition we sometimes see in that partnership because now we're focusing in a way that, quite frankly, we hadn't been able to do in the past and again, gives us that confidence we're going to see the attrition rate drop in 2026 and beyond. So those are all the things that are going on. There's lots of activity taking place in each of the markets. I just came back from a couple of weeks in Asia Pac. Some of my other colleagues also went over to Asia Pac, where we met with the leaders in the different countries over there. So obviously, it's nice to hear things coming out of L.A. and Waldorf, but what's more important is what's the boots on the ground, I think those are where the relationships are getting better and deeper. And so we're seeing nice progress there across the board. Alexander Sklar: Okay. Great. And maybe a follow-up for Patrick. Just in terms of kind of the 2026 outlook. You think you said kind of factoring consistent macro. I know it's something that's been tougher to project this year. How would you kind of -- how are you characterizing the macro? So we've talked about some of the things your customers are facing with kind of platform pricing and Studio360 adoption. But from a macro standpoint, like how has that progressed since Q1 when we kind of started talking about the different scenarios through third quarter November here? And what are you exactly factoring for next year? Patrick Villanova: Yes. Thank you. So with regard to the macro environment that would lead to the 20% growth rate that Owen indicated, it would be the environment that we're in today. So when we were thinking about back in April and evaluating the potential impact of tariffs, we found that, that largely did not have an impact on the business this year. So when we talk about a macro environment going forward, if we maintain the current state that we're in today, that is the basis for the projection that we were casting upon 2026. Owen Ryan: Look, I think the one thing that we're all trying to work with our customers on here is you've probably seen there's about 1 million corporate job layoffs, I think, over the last couple of months. A lot of that necessarily -- or not necessarily, but it's in the back office, and that's certainly creating some opportunities for us to talk with our customers about how they can use BlackLine because of the efficiency that we're driving for our customers and you power that with what the -- what we're demonstrating to them around AI, and so it could become a little bit of a tailwind versus a headwind depending on how these companies choose to move forward. Fascinating to me in my trips around the world in the last month, and I've spent a lot of time on the road in markets that I would have thought would have been slower or more resistant to adopting the kinds of change that you sort of sometimes see in North America, that is accelerating throughout the rest of the world. And so I think again, that sort of is a bit of a positive tailwind from where I sit today. Operator: And I show our next question comes from the line of Patrick Walravens from Citizens. Patrick Walravens: Great. And it's nice to see that the -- you're starting to see the signs of what you've been working on for so long, Owen. Owen Ryan: Yes, I'm right, Patrick. Patrick Walravens: We're well impatient over here. I'm sure you are, too. Owen Ryan: I hadn't noticed. Patrick Walravens: My question for you is, you made an interesting comment. You said that the conversations between the ERP providers, the customers and the implementation partners can be very difficult, why is that? Owen Ryan: Well, because you wind up with customers sort of have sometimes these views of how quick their transformation is going to go, how easy it's going to be. You replaced an ERP system. That's a complicated project. People change, priorities change, things get emphasized, deemphasized and everybody wants to think it's, well, just slam in the technology, and it will be nirvana. And it's not -- that's not the answer. It's about not only changing the technology, it's making sure you change all the processes that go with that and then also helping people through the change management of what all this takes. And so it's very easy for somebody to say, well, it's only because of X, but it often is because of X, Y, Z and A, B, C. And so what we're trying to do more of now is engage and lean into those conversations. And what we're seeing is positive, it's showing up in the multiyear renewals because we're forcing things that maybe we had in the past wouldn't have done is getting these customers back on that journey and showing them what the art of the possible is. It's so critical from my vantage point around Studio360 to have the blueprints that are part of that. It's so critical that we can now talk about the ability to integrate, the ability to sort of orchestrate what they're doing to visualize it and then have the control and compliance that's on top of all that, those are things that we're forcing into a conversation that, candidly, it isn't always the easiest thing to do, but sitting there are not engaging doesn't do anybody any good. And again, where we're seeing, I think, the uptick is our customers signing up for multiple years because they know they got to get back on this journey. And I think the other thing that's interesting about this a little bit, Patrick, I'm not sure it's scientific, I also think now that people are getting back in offices, face-to-face conversations are a good thing to have and are sort of driving some of the changes in how things are beginning to unfold. Patrick Walravens: Yes. I agree with that. Okay. And then Patrick, 2 quick ones for you. So first of all, I mean, why does -- you're in line on EPS this quarter. So you took the EPS for the year down by $0.05 to $0.11 bottom top of the range, so for Q4. Why is that? Patrick Villanova: There's 2 factors there, Patrick. The first one is you're talking about non-GAAP net income is the interest that we earn on our cash balance. And as we indicated earlier, we have purchased $200 million plus in stock this year as part of our share buyback program, which is driving down the interest that we earn on that. The second driver is the big beautiful bill. While that has provided an infusion of cash flow for us and many other businesses, it does not change our non-GAAP tax expense. So the expense remains constant from a provision standpoint, but we do have a cash flow benefit from that bill. Patrick Walravens: Okay. And then the second question is just so we understand clearly what you guys are saying about the -- about next year. So at your financial analyst session, you presented 2 slides. One was the target model framework. I'm sure you know it by heart, right, which starts with total revenue growth of 13% to 16%, and goes all the way down to your operating margin. And then you had another slide which showed your commitment to the Rule of 40, which had you at 38% in '27 and 40% in '28. So what exactly is it that we're going to see in '26 now? Patrick Villanova: In 2026, you will see at least a Rule of 33 as we committed to in Las Vegas. Patrick Walravens: Okay. So is there any acceleration of this framework? Owen Ryan: For 2027, yes, Patrick. That's where, again, we talked about what we're seeing from a gross bookings perspective, what we're doing on the churn and what we're seeing on the expense side. So as we think about the revenue growth, that's really when we get to that teen growth number in '27, we'll see an acceleration of revenue throughout the year. We think we'll see an acceleration on the bottom line. But the real impact of that will work its way throughout the financial statements throughout the course of the year and again, then show up pretty clearly starting in 2027. Patrick Walravens: Okay. So target model framework slide now, that's now through '27? Owen Ryan: Yes. Yes. Operator: And I show our next question comes from the line of Steve Enders from Citi. Steven Enders: Okay. Great. I guess I want to go back to just the 20% kind of bookings commentary and I guess the view of that kind of accelerating from where we're at today. Just I guess, what is it that you're seeing like gives the confidence around that picking up going into Q4 and then going into next year? And then I guess, on the other side of that, also the commentary around this kind of transition going from the headcount impacts to kind of driving that platform model? I'm just trying to understand, I guess, the kind of like puts and takes to kind of make that 20% happen there? Owen Ryan: Yes. So on the gross bookings side, if you remember, starting in September of last year, we started to communicate that the pipeline was starting to grow. And that has grown even right through the month of October. Every month, we continue to see progress on the size of the opportunities and the brands that we want to be doing business with. That's what's driving that growth is the conversations that our people are engaging within customers as well as a great work that our marketing team is doing in the marketplace. So you watch that and you can see how it's progressing through the stages of sales. And so that's what gives us the confidence of what we expect to see in the fourth quarter and then what we're seeing heading into next year. Remember, it takes a good 10, 12 months for stuff in the mega enterprise space, the enterprise space to make its way to what we do in the pipeline compared to the mid-markets, maybe 4 to 6 months. And so everything we would have expected -- or we're trying to drive, excuse me, not expected, from the quality of that pipeline, from the customers we're engaging with, the partners that we're pursuing those opportunities with and the level of engagement from those customers all give us a much higher degree of confidence as we work our way through, and we've seen the acceleration of gross bookings throughout the course of the year and now beginning to really see that pick up in the fourth quarter. And when you start to then look at the beginning, or into next year, you can see the pipeline that started in January, working its way right up through the end of October continuing to mature its way through. And so that is what gives us confidence because we have enough pipeline to deliver what we've just said around an increase in the gross bookings. So that's the first piece. And hopefully, that's responsive to your question. The second piece is there was a lot of work that we had to do to reposition BlackLine to get to become a $1 billion company. I would say that when I look back with where the infrastructure was, it was probably better suited for a $250 million company than somebody trying to get to $1 billion. And so all the things that have taken place in go-to-market in the G&A part of the business and the product and tech, that has been being worked on through multiple angles, really culminating for where we are today and the ability to move forward with much more operating leverage in the business going forward. And so it's just the investments you would make that accelerate, make it easier for our people to conduct their jobs and we are seeing the increases in productivity. I'm thrilled to see a 30% increase in productivity from a quota-carrying rep. And I think Stuart and his team are just getting started on that as we move forward. The things that Jeremy Ung and his team are doing about productivity from our engineers is phenomenal. And so we're seeing us taking advantage of revamping our processes, using technology as well as the change management we need to drive in the organization. So we feel pretty comfortable that we're going to be able to decouple revenue growth by adding heads all the time to drive that revenue. If we don't need to do that as we scale out the business. It doesn't mean we won't add quota-carrying wraps, doesn't mean that we won't add product and tech professionals as appropriate, but it's not going to be that high correlation that you would have seen from BlackLine previously. And I think that's where we see, again, the opportunity to both accelerate top line growth as well as accelerate bottom line performance. Steven Enders: Okay. That's great to hear. And then maybe to follow up on Pat's question on just the next year kind of view. I guess appreciate saying that 33% number. I guess maybe asked a little bit differently, like if I'm looking at where consensus numbers are for next year, I think it's at high 8%, almost 9% growth. Is that the right ballpark in terms of how you're thinking about now? Or how should we maybe think about the mix of growth and margin to get to that 33% number? Owen Ryan: I think you're largely thinking about it correctly. But obviously, we're -- our target of a Rule of 33 for 2026 is our minimum expectation in terms of what we're going to achieve next year. So yes, we're aware that the consensus number is 8.8%. We do have confidence in our growth profile for next year and our ability to achieve at least the Rule of 33. Operator: And I show our next question comes from the line of Jake Roberge from William Blair. Jacob Roberge: Great to hear about the pipeline strength, but can you give us some more color on what you're seeing with close rates and win rates, just given the divergence between pipeline, gross bookings and then also ARR growth would just be helpful to understand what you're seeing on that front. Owen Ryan: Yes. Look, I think our win rate is probably up about 10 percentage points from where it was. So if -- and I'm just going to use a number, if it was 20%, now you could look at it maybe 22%, right? Those are lower than they actually are, but just using it that way. So we see that uptick and close in win rates and we can tell we're taking share from somebody out in the marketplace. And so that has been very encouraging. And we expect that, that is going to continue, if not accelerate even a little bit more, just again, given all the things that the responsiveness we're getting from our customers around the platform pricing, understanding better what Studio360 really is all about and then all the work that the team has done around Verity AI. It's sometimes hard for me to process the amount of change that we've driven into the company last year and this year, just on the product and tech side. It's one thing to sell that into the marketplace, deliver to the marketplace, a whole other thing to get your own people enabled on it, to understand it, buy into it, get comfortable with it and go out and tell that story. And again, we're seeing that our team is getting better and better at articulating that value proposition and engaging in conversations at a higher level in a broader as well as deeper way. And so that's what we're seeing. I don't know, Patrick, anything you want to add on particular numbers, but that's what's going on in the business right now. Operator: And I show our next question comes from the line of Koji Ikeda from Bank of America. Koji Ikeda: Sorry about that, I was on mute. So I totally appreciate right before the Q&A that you don't comment on media speculation. And I really do appreciate that level setting. And so -- but I do think it's important to ask, and I wanted to ask about how you're thinking about driving shareholder value from here. Whatever you can talk about from that lens would be really helpful, because I look at the third quarter growth, I look at the profitability, but balance against the duration adjusted billings growth of 7%. But then really, it sounds like bookings is having some good momentum, too. So whatever you could share on how you're thinking about driving shareholder value would be really helpful. Owen Ryan: Look, Koji, I think we're all fixated and focused on that every day, and I appreciate that you're not going to ask me about the market rumors. I think we meet with the Board on a regular basis. The Board is well aware of our responsibilities, fiduciary responsibilities to drive shareholder value and that's what we're trying to do by reaccelerating growth the way we've talked about it, driving bottom line performance, returning cash to shareholders. Those are the things that are within our control that we are executing every day and we feel really good about that. And no one's asked me yet about AI, so hopefully, somebody will and why that's -- we don't view that as a threat to our business because I think that's the other thing that's held the share price down a little bit. I know certainly, when I talk to investors and analysts, they're always saying, "Well, isn't AI going to put you out of business?" And so Koji, as I answer, so I'm going to try to do it in 2 parts. I think we're doing everything we can. We're doing it even quicker now because things are finally converged on getting the bookings machine going, really dealing with the C&A challenge and managing expenses. On the AI side, where we seem to have been lumped in with everybody else and taking our lumps from that, we said in the prepared remarks, we believe we have 2 strong parts that reinforce and widen the moat as we operate around AI. First, we are viewed by our customers, but also by the world's leading accounting and auditing firms as well as the implementation partners as a very safe, reliable, trustworthy pair of hands. As Patrick says all the time, 95% right in accounting is 100% wrong. So we understand that responsibility clearly and has been in our DNA since the founding of the company. Actually, even earlier today, I had a meeting with the leadership of one of the most critical bodies that works with companies, auditing firms and regulators, and the topic was about the role of AI in accounting and auditing because we want to make sure we're staying very closely aligned with the latest thinking and even shaping the thinking of what policies and guidance will be as AI makes its way forward. The second piece that we talked about was the data that we have. And we are sitting on a trove of information that we are really just beginning to use and our customers are beginning to see the power of that information. Interestingly, as we talk with finance teams and IT teams, 2 things are generally cropping up: First is these companies seem to be interested in buying proven solutions rather than taking a chance on less established brands as it relates to the financial close and consolidation; and second, and this is important is the IT team and their initiatives -- AI initiatives seem focused more on their bigger business opportunities that could have an impact for their companies, and it is not centered on financial close and reporting as a priority. In fact, we're aware of a paper that's going to come out next week that's sort of just going to emphasize that, and it wasn't a paper, by the way, created by us. So the key for us as we move forward with AI is going to be able to provide AI solutions that remain reliable, transparent, auditable as well as cost effective for our customers. Now one other data point that I would just share with you that is worth noting. Our roster of customers includes the world's leading technology companies. We have a who's who, it's incredible. And these companies are engaging with us on what we can do for them with AI. Even though they're selling AI out in the marketplace, the place they are not -- they don't seem to be interested in selling AI is in financial close and reporting. And so while there's no guarantee that they're going to use BlackLine AI, it does seem to support the statements I made above that their priorities are elsewhere, and they have an interest in what we're doing. And I think if we can convince the market that there is different pockets of who are going to be the winners and losers in the AI war, then we feel like we're going to be a winner in that. And hopefully, we'll get some pop out of that for our share price. And again, on these conversations that I'm having with the various bodies that oversee public companies, auditors and the like, the regulation is going to take a really long time to get going. And so if anybody thinks that publicly traded companies and no matter what market they're operating in, are going to go do something really crazy around the financial close and consolidation and what they're willing to sign off on for a rep letter and everything else and in what they're communicating to the capital markets, we just don't see it happening anytime soon. And we see that we are really well positioned for the conversations that the customers who trust us and understand what we're doing. And so I think for us, we look at this as a real positive, but we have to obviously show that to the market. Operator: And I show our next question comes from the line of Terry Tillman with Truist Securities. Dominique Manansala: This is Dominique Manansala on for Terry. So just considering the federal motion of early and FedRAMP unlocks future opportunity, how does adoption typically sequence here? Do you expect it to expand horizontally into additional agencies or more so vertically within a single agency into workloads like intercompany or invoiced to cash? And then on top of that, are there specific things that shorten time to live once FedRAMP has achieved like maybe a shared service model or preexisting SAP footprint? Owen Ryan: Yes. It's a really good question, Dominique. And I think the answer to the first part of the question is both. What we're seeing is, like, for example, with the DOJ win that we had, I mean, that is now available to multiple agencies where they can -- within the DOJ, I forgot how many there are, but there are quite a few that have access and a number of them are now looking at what we have to offer. But I think the other thing that's been interesting is being able now to have more conversations across different federal agencies where there's a keen interest in what a BlackLine can offer. And I think some of the very interesting conversations earlier on for what I would have argued were sort of our more traditional financial close capabilities around REX and matching and journals but I never think of the federal government as an intercompany opportunity. But interestingly, it has proven to be an intercompany opportunity because of all the interagency billing and activity that goes on. So we're seeing plenty of opportunities very quickly across the federal space and even picking up now in the state space as well. So I think we sit here we're very confident that based on the feedback, BlackLine is a really terrific fit for the federal government space. The ability for to deliver automation, control, auditability for these agencies is really incredibly important to them. And given the pressure on the federal workforce, the opportunity for what BlackLine can do seems to be resonating very, very well as we're pursuing that marketplace. Dominique Manansala: Great. That's helpful. And then just as a follow-up, in building an elite partner group and then being selective in where you invest or invest enablement dollars, how do you determine which partners get priority here? Is it -- does it influence on transformational deal formation, industry specialization or maybe contribution to source pipeline? Owen Ryan: It's a couple of different things. So obviously, if you think about many of the partners that we work with, they often have dedicated teams that are almost sitting in the office of the CFO and Controller. So we try to work with those that have the strongest brand permission in those customers. We try not to sole source things. We tend to -- if a customer asks us for recommendation, we try to provide them at least 3 names, typically 3 names of partners that we work with, and we try to match that up with the organization's preference for their own customers. But again, we work with a sort of a who's who list, but it's their permission in the space, it's their industry capabilities. If they've made the investments to really deepen their capabilities around certain products within BlackLine. So we've seen a real uptick in our critical partners trying to learn and understand even more about intercompany, our invoice to cash solution. And so the better equipped they are for those, the higher the likelihood that we are to make a recommendation of them as at least one potential player in any opportunity. So that's sort of how it's worked so far. I will say it's a lot easier with a smaller list of partners to navigate than the dog's breakfast of partners we had previously. And I think that those deeper relationships are certainly opening up where those partners are that much more confident to recommend BlackLine. I think we have seen a real breaking apart of the partners sort of saying, well, you could pick this provider or you could pick that one with a more firm BlackLine is the best at this and here's why we would recommend you go with them versus someone else? Operator: And I'm sure our last question in the queue comes from the line of Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I'll keep it to one quick one. I just wanted to ask on the 10- to 12-month sales cycles you mentioned, Owen. Obviously, that makes sense given the size of some of these opportunities. But what are you doing from the perspective of trying to automate some of the implementation work in order to lower sales cycles? And do you have any sense for how quickly and by what magnitude do you think you can reduce time and cost of implementation for customers would be really helpful to get some context. Owen Ryan: Yes. Adam, that's a great question because, look, the CFO has a project and he's got 2 that can deliver 20% return just making it up, and one is in the office of CFO and one's on sales, they're going to pick sales all the time. So we have to find ways to deliver greater value even more quickly. So over the last sort of -- when Therese and I stepped into the role, we changed out pretty much all of the leadership team of -- on our professional services side. We've changed a lot of our customer success leadership, all with the idea of trying to drive greater implementation, greater optimization, and that was sort of just revamping the way we do things, right? Just being crisper, cleaner of how you go about it. In the last 6, 8 months, 9 months, whatever it is at this point in time. The next phase of that was then how do you take all the lessons and experiences from all these implementations we've done, all these optimizations we've done by industry, by size of company, by workflow to then say, "Hey, here is a quicker, better way we can help you do this." We will be making that available to our partners to use. We'll be making that available to our customers to use because, again, what we want to do is drive that value for our customers that much faster. So you heard us talk about how many more go-lives we've had sequentially as well as just year-over-year, but critically, the time to get those implementations is continuing to drop. And I'll have a better answer for you in February by how much we think that's going to drop, but it will not be an insignificant cutoff of time that goes from sort of when the customer signs the contract to when they go live, so they begin to really optimize what we're doing with them. Operator: That concludes our Q&A session. At this time, I'd like to turn the call back over to Owen Ryan, CEO, for closing remarks. Owen Ryan: So thank you all for joining the call tonight. Sorry about the little bit of technology glitches at the beginning, but we really do appreciate your interest in following BlackLine. Look forward to continuing to talk with you, share more about our journey and how we're going to make the plans that we've committed to you. Everybody, have a great night. Take care. Operator: Thank you. Thank you for attending today's conference call. This concludes the program. You may all disconnect.
Operator: Good morning, and welcome to the earnings conference call for the period ended September 30, 2025, for MidCap Financial Investment Corporation. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Elizabeth Besen: Thank you, operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Kenny Seifert, Chief Financial Officer. Howard Widra, Executive Chairman; and Greg Hunt, our former CFO, who currently serves as a senior adviser, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer. Tanner Powell: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's Third Quarter Earnings Conference Call. To begin today's call, I'll provide an overview of MFIC's third quarter results and the significant repayment from our investment in Merx, our aircraft leasing portfolio company that we highlighted on our call last quarter. I'll also share some thoughts on the outlook for our dividend. Following that, I'll hand the call over to Ted, who will share our perspective on the current market environment, walk through our investment activity for the quarter and provide a portfolio update. Kenny will then review our financial results in detail and recent financing-related activities. Yesterday after market closed, we reported results for the third quarter. Net investment income or NII per share was $0.38 for the September quarter, which corresponds to an annualized return on equity or ROE of 10.3%. GAAP net income per share was $0.29 for the quarter, which corresponds to an annualized ROE of 8%. As discussed last quarter's call, we're pleased to report portfolio company repaid approximately $97 million to MFIC during the quarter. NAV per share was $14.66 at the end of September, down 0.6% compared to the prior quarter. The decline in NAV was primarily due to a handful of positions that were added to non-accrual status, partially offset by a gain on our investment in Merx. The increase in non-accruals reflects company-specific issues, and we believe is not representative of a broader deterioration in credit quality. During the September quarter, MFIC made $138 million of new commitments across 21 transactions. We believe MidCap Financial's strong incumbent position continues to be a significant competitive advantage as evidenced by the fact that slightly more than half of our new commitments by number were made to existing portfolio companies. In a muted M&A environment, incremental commitments are an important source of deal flow. While sourcing assets is generally considered to be among the biggest challenges for many market participants in the market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market, which is consistently ranked near at the top of the league tables. Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have the access to significant volume of commitments originated by MidCap Financial, which allows MFIC to select assets, which we believe to have the most attractive risk-reward characteristics. During the September quarter, MidCap Financial closed approximately $5.8 billion of commitments. MidCap Financial has what we believe one of the largest direct lending teams in the U.S. with over 200 investment professionals. MidCap Financial was founded in 2009 and has a long track record, includes closing on approximately $150 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries, and we believe that this makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. MFIC's affiliation with MidCap Financial has enabled us to successfully build a portfolio of predominantly first lien loans to sponsor-backed companies. Moving on to Merx, our aircraft leasing company. As discussed on last quarter's call, during the September quarter, Merx completed a sale transaction covering the majority of its owned aircraft. In addition, Merx received additional payments from insurers related to 3 aircraft detained in Russia. Both the sale transaction and the insurance proceeds exceeded the assumptions in Merx's June valuation, resulting in a $16.6 million gain recorded during the September quarter. Merx repaid approximately $97 million to MFIC on a net basis during the September quarter. Approximately $72 million of the paydown was applied to equity and the remaining $25 million was applied to the revolver. At the end of September, MFIC's investment in Merx totaled $105 million at fair value, representing 3.3% of the portfolio, down from 5.6% at the end of June, which reflects the $97 million paydown and a net gain recorded during the quarter. As part of the sale transaction, Merx expects to receive approximately $25 million of additional consideration by the end of 2025 or in early 2026, which will be paid to MFIC and further reduce our exposure. Let me remind you about what remains at Merx. MFIC's remaining investment in Merx consists of 4 aircraft, plus the value associated with Merx's servicing platform. Merx earns income through its servicing activities from Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 39 aircraft. Having fully deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund level returns. Merx receives a remarketing fee on each aircraft sale. At the end of September, the servicing business represented approximately 25% of the total value of Merx. The servicing component of Merx will naturally decline as servicing income is received. Turning to our dividend. On November 4, 2025, our Board of Directors declared a quarterly dividend of $0.38 per share for stockholders of record as of December 9, 2025, payable on December 23, 2025. Before I turn the call over to Ted, I would like to take a moment and make a few comments about our dividend, given increasing investor focus in light of the recent Fed cuts and market expectation for additional cuts and the resulting decline in the SOFR forward curve. Due to the asset-sensitive nature of our balance sheet, all else equal, declines in base rates will put pressure on net investment income. For context, the current SOFR forward curve is projected to trough around mid- to late 2026 at around 3%, which is roughly 80 to 90 basis points below current levels. As shown on Page 16 in the earnings supplement, a 100 basis point reduction in base rates would reduce MFIC's annual net investment income by approximately $9.4 million or $0.10 per share, which includes the impact of incentive fees. We are actively working on a couple of initiatives to help offset some of the impact from declining base rates. These initiatives, including pursuing additional paydowns from Merx and resolving certain non-accrual and earning assets. Post quarter end, we made a couple of enhancements to our capital structure, which will also improve MFIC's earnings power, which Kenny will discuss. With that, I will now turn the call over to Ted. Ted McNulty: Thank you, Tanner. Good morning, everyone. Starting with the market backdrop. U.S. economy has remained resilient, which has helped ease concerns about a recession. Inflation remains elevated. Consumer spending and business spending have been strong, although consumer sentiment is worsening. In response to rising unemployment risk, the Federal Reserve cut interest rates by 25 basis points in September. The Fed cut another 25 basis points in October. Torsten Slok, Apollo's Chief Economist, says private labor data suggests that the labor market is doing okay. He also sees growing upside risk to inflation driven by tariffs, a weakening U.S. dollar, a strong economy and wage pressures in certain sectors. As the significant tariff-driven volatility has eased and there's more clarity with respect to the trajectory of rates, we're seeing an increase in sponsor M&A activity. That said, given the significant capital raise for direct lending, we continue to see pressure on both spreads and OID. We believe the core middle market where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Regardless of recent M&A activity levels, we see that many of our borrowers continue to have add-on financing needs, which is an important source of deal flow. Next, I'm going to spend a few minutes reviewing our third quarter investment activity and then provide some detail on our investment portfolio. In the September quarter, we continued to deploy capital into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the September quarter totaled $138 million with a weighted average spread of 521 basis points across 21 different companies. Despite the competitive environment, MidCap Financial has remained disciplined in its underwriting. The weighted average net leverage on new commitments was 3.8x in the September quarter, down from 4x in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to generate what we believe to be attractive ROEs even at current spreads. Gross fundings, excluding revolvers and Merx totaled $142 million. Sales and repayments, excluding revolvers and Merx totaled $197 million. Net revolver fundings were approximately $3 million. As previously mentioned, we received a $97 million net paydown for Merx. In aggregate, net repayments for the September quarter were $148 million. Excluding the $97 million net repayment from Merx, net repayments for the quarter totaled $51 million. Shifting now to our investment portfolio. At the end of September, our portfolio had a fair value of $3.18 billion and was invested across 246 companies across 48 different industries. Direct origination and other represented 95% of the total portfolio, up from 92% at the end of June, primarily driven by the Merx paydown. Merx accounted for 3.3% of the total portfolio at the end of September, down from 5.8% at the end of June. At the end of September, the non-directly originated loans acquired from the closed-end funds represented approximately 2% of the portfolio. All of these figures are on a fair value basis. With respect to recent headlines, we have no exposure to either First Brands or Tricolor. Specific to the direct origination portfolio, at the end of September, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.9 million. The median EBITDA was approximately $51 million. Approximately, 95% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market as substantially all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10.3% on average for the September quarter, down from 10.5% for the June quarter. At the end of September, the weighted average spread on the directly originated corporate lending portfolio was 559 basis points, down 9 basis points compared to the end of June. Underlying portfolio company credit metrics showed a slight improvement quarter-over-quarter, although we saw an uptick in investments on non-accrual status. We observed a modest decrease in borrower net leverage or debt to EBITDA, with the weighted average leverage decreasing to 5.29x at the end of September, down from 5.32x at the end of June. This trend reflects the lower leverage on new commitments, which helped offset increases in certain existing investments. Additionally, the weighted average interest coverage ratio improved slightly to 2.2x, up from 2.1x last quarter. Looking ahead, all else equal, if base rates decline as currently expected, we anticipate a positive impact on portfolio company credit quality through even higher interest coverage ratios. These metrics are generally based on financial information as of the end of June 2025. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of September, the percentage of our leverage lending revolver commitments that were drawn was essentially flat compared to the prior quarter. During the quarter, we reinstated a portion of our investment in Nuera to accrual status following a restructuring, which converted our first lien debt position into a combination of first lien debt and preferred equity. Conversely, we placed 5 investments on non-accrual status due to company-specific challenges, noting that one of these investments was acquired in last year's mergers. A portion of our investment in LendingPoint was moved to non-accrual status in anticipation of a forthcoming restructuring. In total, investments on non-accrual status represented 3.1% of the portfolio at fair value, up from 2% at the end of the prior quarter. Subsequent to quarter end, we were repaid on our position in Global Eagle, a position acquired in the mergers, which was on non-accrual. Toward the end of October, we became aware that one of our portfolio companies, Renovo, would be filing for bankruptcy. The company filed in early November. As of September 30, MFIC had a $7.9 million exposure to the company. PIK income declined to 5.1% of total investment income for the September quarter and 5.8% over the LTM period. Our PIK income remains relatively low compared to other BDCs, which we view as a positive indicator of portfolio health and reflects our focus on cash pay investments. With that, I will now turn the call over to Kenny to discuss our financial results in detail. Kenneth Seifert: Thank you, Ted, and good morning, everyone. Total investment income for the September quarter was approximately $82.6 million, up $1.3 million or 1.6% compared to the prior quarter. The increase in fee income, partially offset by a decline in recurring interest income, which is due to a tightening of base rates, a modest uptick in non-accruals and a slightly lower average portfolio size. Prepayment income was approximately $3.2 million, up from $1.2 million last quarter. Our fee income was $458,000, up from $220,000 last quarter. Dividend income was $200,000, flat quarter-over-quarter. The weighted average yield at cost of our directly originated lending portfolio was 10.3% on average for the September quarter. This is down from 10.5% last quarter due to the aforementioned tightening in rates. Net expenses for the quarter were $47.3 million, up from $44.9 million in the prior quarter. This increase was primarily driven by higher incentive fees. MFIC stated incentive fee rate is 17.5% and is subject to a total return hurdle with a rolling 12-quarter look back. Given the total return hurdle feature and the net loss incurred during the look-back period, MFIC's incentive fee for the September quarter was $5.8 million or 14.1% of pre-incentive fee net investment income. Other G&A expenses totaled $1.6 million for the quarter and administrative service expenses totaled $1 million. Both figures are essentially unchanged from the prior quarter and in line with our previously communicated expectations of $1.6 million and $1 million, respectively. For the September quarter, net investment income per share was $0.38, and GAAP earnings per share or net income per share was $0.29. These results correspond to an annualized ROE based net investment income of 10.3% and an annualized return on equity based on net income of 8%. Results for the quarter included a net loss of approximately $7.9 million or $0.08 per share, primarily due to losses on a handful of investments, as previously mentioned. Turning to the balance sheet. At the end of September, the portfolio had a fair value of $3.18 billion. Total principal debt outstanding of $1.92 billion and total net assets stood at $1.37 billion or $0.1466 per share. Company ended the quarter at net leverage of 1.35x with average net leverage, excluding the impact of Merx equating to 1.37x. This was up slightly from the prior quarter's average of 1.35x. Gross fundings for the quarter, excluding revolvers totaled $142 million. Debt repayments for the quarter were $148 million. Excluding the $97 million repayment from Merx, net repayments for the quarter would have been $51 million. Turning to the liability side of the balance sheet. We have been focused on extending our debt maturities and reducing our financing costs. On October 1, we amended our revolving credit facility and extended the final maturity to October 2030. Part of this amendment, the funded spread on the facility was reduced by 10 basis points from 197.5 basis points to 187.5 basis points. Just a reminder, this includes the 10 basis points of credit spread adjustment. The unused fee was reduced from 37.5 basis points to 32.5 basis points. Size of the facility was reduced by $50 million to $1.61 billion. The remaining material terms of the facility were unchanged. As a result of this amendment, we expect to recognize a one-time expense of approximately $1.5 million in the December quarter due to the acceleration of unamortized debt issuance costs associated with one lender whose commitment was reduced. In addition, in October, we upsized and repriced MFIC Bethesda 1 CLO, which originally priced in September 2023. We increased the size of the CLO collateral from $400 million to $600 million. As part of this reset, we sold through the single A tranche generating approximately $456 million of relatively low-cost secured debt, which equates to a blended advance rate of 76%. The blended cost of the notes sold was 161 basis points. Spreads on middle market CLO debt tranches have tightened considerably since the CLO originally priced. Spread on the senior AAA tranche on the CLO reset was 149 basis points compared to 240 basis points when the CLO originally priced, tightening of 91 basis points. CLO has a reinvestment period of 4 years and the net proceeds from the CLO transaction were used to repay borrowings under our revolving credit facility. As discussed on prior calls, we continue to view CLOs as an attractive source of term financing. We will recognize a one-time expense of approximately $1.8 million in the December quarter related to the reset, which reflects the acceleration of unamortized debt issuance costs for the original CLO. As always, MFIC benefited from MidCap Financial and Apollo's experience and expertise in CLO management and structuring this transaction. While these financing transactions will result in approximately $3.3 million of one-time expenses in the December quarter, the expected reduction in financing costs is expected to lead to a rapid payback period. Weighted average cost of debt for the September quarter was 6.37%. Weighted average spread on our floating rate liabilities will decline from 195 basis points as of September 30 to 176 basis points, a 19 basis point reduction. This decrease is driven by both the amendment of the revolving credit facility and the CLO reset. This concludes our prepared remarks. Operator, please open the call to questions. Operator: [Operator Instructions] We will take our first question from Arren Cyganovich with Truist Securities. Arren Cyganovich: I'd just like to discuss the increases in non-accrual. It wasn't a lot, maybe 1% or so on cost, but there were several companies. Maybe you could just talk a little bit about what is driving this? Is there any kind of theme between them? Are they tariff related? Maybe just a little bit more detail around the issues that were affecting those companies? Ted McNulty: Yes. Sure, Aaron. This is Ted. Thanks for the question. If you look at the companies that went on non-accrual, there's not really a theme that ties them all together. We have one that was impacted by tariffs. We have one that does have some pressure from weakened consumer sentiment. Overall, not a real theme, very idiosyncratic across each one. Arren Cyganovich: In terms of the increase in M&A activity that you're seeing in the marketplace, is this something that you feel like will be sustainable through 2026? Maybe just a little more of your thoughts on the outlook for investing environment. Ted McNulty: Yes. I mean, Arren, I think there's a couple of factors at play. One, you have some private equity companies or held companies that have been in the portfolio for a long time. You also have dry powder, and so you need a combination of putting money to work as well as returning capital back to the LPs. From that perspective, there should be ongoing demand. You also have with kind of tariffs not going away, but at least some of that volatility being muted as we talked about, a little more certainty, which can narrow the bid-ask spread between buyer and seller. Then with rates starting to come down and kind of some consensus around where the curve is going to shake out. I think Tanner mentioned troughing mid next year around 3%, you start to see the financing costs come down and the financing -- the cost, the certainty of that financing and the cost starts to stabilize. All those factors should lead to ongoing activity. Operator: We will take our next question from Melissa Wedel with JPMorgan. Melissa Wedel: I wanted to revisit the comment you made about some of the mitigating actions that you're taking to help offset the impact of lower base rates. I realize that those things can take a while to ramp up and it can take some time to rotate assets. I'm curious how your team is evaluating the timing difference there and how that could impact dividend decisions? Essentially, how long might you wait to give those efforts time to kick in? Tanner Powell: Yes, sure. Thanks, Melissa. When we look at deployment, as we've alluded to quite a bit, we're very lucky to be roughly $3 billion of a sourcing engine for $50 billion and so have a lot of opportunities for deployment in an improving M&A market. Importantly, when we look at deployment, and I think this rhymes with our approach with respect to the proceeds we generated from the sales of the broadly syndicated and high-yield loans, we want to do it in a deliberate manner. Importantly, instead of just getting right back to target leverage from the Merx proceeds immediately, we want to continue to, one, not over-indexed in any one market and then also take the opportunity, which we're afforded by virtue of that really wide origination funnel to be very granular in what we're doing. Importantly, all things being equal, you'd love to get right back up to target leverage. In the case of Merx, we've gotten $97 million back, and we anticipate another $25 million, which was otherwise only earning 2.5% on our balance sheet, so clearly, a nice accretion opportunity. When we go to deploy, it's got to be balanced by -- and even if it does take a little bit of time. We want to err on the side of creating a really, really granular portfolio. Importantly, the other aspect of that is, of course, now as Kenny alluded to, having reset our first CLO down 90 basis points and upsized our all-in secured cost of capital, which is our financing strategy to become more secured heavy in our liability side is roughly 1.75% and putting us in a good position to be able to still generate nice NIM in what is very clearly a tightening spread environment or a tight spread environment. The conclusion is we can do it quickly. We want to be measured, and we want to do it consistent with how we've deployed across a really diverse pool of 244 obligors in our portfolio. Melissa Wedel: Appreciate that detail. You mentioned portfolio leverage as part of your answer. Can you give us an update on how you're thinking about portfolio leverage in the context of this environment given where spreads are right now? Tanner Powell: Yes. Our target for leverage is unchanged, and we would endeavor over the next period of time to get back to the 1.4 level. We do think, as we've said in the past, that the execution through very, very attractive levels of investment grade within the CLO is indicative of our confidence in being able to run at a little bit higher leverage level. We would endeavor to get back to that 1.4 level, again, drawing on the comment to your previous question, again, but doing it in a measured way. Operator: [Operator Instructions] We will take our next question from Paul Johnson with KBW. Paul Johnson: I only have just one. I mean with the recent liability amendments and I guess, addressing kind of -- it looks like you're making room to kind of address the upcoming bond maturity, but kind of getting your ducks in a row, I guess, on the liability side, does that change anything around your interest in potentially repurchasing shares? Tanner Powell: Yes. Thanks, Paul. I think when we look at share repurchases, which are obviously very topical now in light of where BDCs have traded as of recently. We have been an active repurchaser historically. It is a very compelling tool for driving shareholder value, which, of course, needs to be weighed against liquidity and where we stand in terms of leverage and outlook, importantly, of course, weighed against the opportunity to deploy into new loans. That said, we do believe, as we have in the past, that it is a compelling tool. Would note also on share repurchases, Paul. Historically, it has been our view that instead of implementing the 10b5, we would prefer to utilize share repurchases when the windows open and thus, we can have the latest and greatest information, which obviously limits the amount of time you can be repurchasing. Notwithstanding, we do believe it's compelling, and we have a nice room under our current authorization. Operator: [Operator Instructions] We will take our next question from Kenneth Leon with RBC Capital Markets. Kenneth Leon: This may have been already covered, unfortunately, I'm indulging a few calls. What's the latest and any updated thoughts around dividend coverage just given the current rate outlook there? Tanner Powell: Yes, sure. When we look at the dividend, Ken, we were able to meet $0.38, benefiting from a slightly lower incentive fee in the current quarter. Then as we mentioned in the prepared remarks, we do have considerable proceeds from Merx that were yielding on our books a significantly lower yield. That's a nice accretion opportunity for us. Then we've also undertaken an opportunity in the current market environment, which is as those spreads on our assets have come down, we've been able to remark our liabilities. As that plays through our numbers between those dynamics and then in addition to the fact that there is an opportunity to work through our non-accrual positions, those 3 drivers give us an opportunity to mitigate the effects of lower base rates. The Board has made a decision at the current moment to leave the dividend intact. Then as we see those 3 levers that we have playing through and we assess importantly, the actual trajectory of rates versus what's anticipated, we will continue to reevaluate. We also did call out a 100 basis point decline in rates would be about $0.10 of annual NII and thus, taking into account what the actual trajectory of rates is against those 3 levers will enable us to make kind of a more informed decision as we move forward over the coming quarters. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Tanner Powell for any closing remarks. Tanner Powell: Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us with any other questions, and have a good day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Quarterly Conference Call for the company's Q3 2025 results. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 7, 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of the Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that could cause results to vary, please refer to the risks identified in the company's annual information form and other filings with Canadian regulatory authorities. Except as required by Canadian securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made. I would now like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull. Craig Mull: Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S. dollars, unless otherwise specified. Cipher demonstrating meaningful growth during the third quarter of 2025, which was largely attributed to the addition and performance of our U.S.-based Natroba business. Sales from Natroba and its authorized generic Spinosad were $8.1 million during the third quarter of 2025, a 4% sequential increase over the last quarter's revenues of $7.8 million, consistent with the product seasonality, whereby head lice and scabies infections are generally more prevalent in the warmer months of the year. Additionally, the Natroba business continues to have strong profitability with gross profit of $7 million and a gross margin percentage of 86% during the third quarter of 2025. Adjusted EBITDA from the Natroba business was a strong result of $5 million, which contributed to our total combined business adjusted EBITDA of $7.3 million during the third quarter of 2025. Consistent with our past track record, our earnings translate directly to free cash flow, which has allowed us to continue to deleverage the business. During the third quarter and after the quarter-end, we repaid a total of $17 million on our revolving credit facility, which has now been reduced to a balance of $8 million at the present time. This is an incredible feat given that we drew $40 million on the revolving facility to acquire the Natroba business just at the end of July 2024. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. I would like to spend the balance of my remaining remarks to discuss our business development activities, which we are very active in and where I am focusing the majority of my time. We have 4 distinct strategies ongoing at the moment to drive shareholder value and grow our business. Firstly, it is critical we continue to invest and build upon the Natroba business and the U.S. operations to position it to further grow heading into 2023. To supplement our existing sales approach, we will be launching a direct-to-consumer sales model early in 2023, which is a strategy many pharmaceutical manufacturers are taking as a direct and modern sales approach to the U.S. market. We believe Natroba is right suited for a direct-to-consumer sales model, whereby permethrin and related OTC products are no longer an effective solution to the needs of individual consumers and families suffering from head lice and scabies. They simply need a better solution and an ability to get it fast when it is needed. Our platform will streamline the process to obtain a prescription, efficiently adjudicate a claim and provide a convenient local pickup or delivery option to consumers. The strategy also includes partnerships with retailers to ensure that Natroba and Spinosad is adequately stocked in states and city centers across the U.S., so it is available through this platform. We are excited about our new DTC strategy, and we'll provide more details on the rollout in the coming months. A second area of our business development strategy is we are actively pursuing complementary products, which can be directly commercialized through our existing U.S. sales force. We are currently active in discussions with various parties, and we'll continue to provide updates. However, as with all business development opportunities, the activities take time and the opportunities may or may not come to realization. A third strategy we are pursuing is launching Natroba in Canada, and we are on track to submit our new drug submission to Health Canada during the fourth quarter of 2025. We believe Natroba will fill an unmet need in Canada for a highly effective treatment for head lice and scabies, and we will continue to provide updates as developments occur with Health Canada's review and the submission process. The fourth strategy I would like to discuss with you is we are actively pursuing out-licensing opportunities for Natroba globally. We continue to believe there is an unmet need for a highly effective product like Natroba to address head lice and scabies indications in other territories globally. However, we believe it is important to find the right fit with our out-licensing partner for Natroba. Product pricing in territories outside of the U.S. is an important element we must consider when finding the right fit for the out-licensing. With that being said, we are in discussions with various organizations at the present time and hope to provide exciting updates as developments occur in this area. Thank you for joining us here today, and I look forward to answering any of your questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan. Ryan Mailling: Thanks, Craig, and good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's third quarter and 9-month period ended September 30, 2025. Total net revenue for the 3- and 9-month period ended September 30, 2025, was $12.8 million and $38.2 million, respectively. Net revenue for the third quarter of 2025 increased by $2.4 million or 24% compared to the same quarter in the prior year. Net revenue for the 9-month period ended September 30, 2025, increased by $16.7 million or 78% over the same period in 2024. Increases were attributable to the addition of the U.S.-based Natroba business on July 29, 2024, for which only 2 months of revenue were included in our prior year results for both the 3- and 9-month periods ended September 30, 2024. Product revenue from the U.S.-based Natroba business comprised of the brand Natroba and authorized generic Spinosad was $8.1 million and $22.5 million, respectively, for the 3- and 9-month periods ended September 30, 2025. Product revenue from the U.S.-based Natroba business for the 3 and 9 months ended September 30, 2024, was $5.5 million. Product revenue from the Canadian product portfolio for the third quarter and 9 months ended September 30, 2025, was $4 million and $12.7 million, respectively. Canadian product portfolio revenue of $4 million increased by $0.2 million or 5% for the third quarter of 2025 compared to the $3.8 million in the third quarter of 2024. For the 9 months ended September 30, 2025, product revenue from the Canadian product portfolio of $12.7 million represented an increase of $1.9 million or 18% compared to $10.8 million in the same period of the prior year. Additionally, as the sales for our Canadian product portfolio are denominated in Canadian dollars, when translated on a constant currency basis, Canadian product portfolio revenue for the 9 months ended September 30, 2025, was impacted by changes in the U.S. dollar relative to the Canadian dollar. The impact was nominal for the third quarter. However, when translated on a constant currency basis for the 9 months ended September 30, 2025, Canadian product portfolio revenue increased by $2.2 million, representing an increase of 21% over the 9 months ended September 30, 2024. The products comprising our Canadian product portfolio benefited from a combination of increased sales volumes and favorable changes in product mix for certain products for the 3 and 9 months ended September 30, 2025, compared to the same periods in the prior year, which contributed to the overall increase in revenue. Moving on to our U.S. licensing revenue. Total licensing revenue for the 3 and 9 months ended September 30, 2025, was $0.8 million and $3 million, respectively. Licensing revenue decreased by $0.3 million and $2.3 million, respectively, for the third quarter and 9 months ended September 30, 2025, compared to the same periods in the prior year. The overall licensing revenue of $0.8 million for the third quarter of 2025 represented a 28% decrease compared to $1.1 million in the same quarter of the prior year. The decrease is due to the Absorica portfolio in the U.S., which contributed $0.4 million of licensing revenue in the third quarter of 2024, a decrease of $0.2 million when compared to the $0.6 million of revenue for the same quarter in the prior year. The decline in the Absorica portfolio licensing revenue resulted from lower royalty revenue contributed to by reduced sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was combined with Cipher no longer earning a royalty on Absorica LD in the U.S. market effective January 1, 2025. We also earned revenue from supplying product to our distribution partner, however, revenue from this remained consistent year-over-year in the third quarter. Overall licensing revenue for the 9 months ended September 30, 2025, was $3 million compared to $5.3 million for the same period in the prior year, representing a 44% decrease. The decrease for the 9 months ended September 30, 2025, was contributed to by the Absorica portfolio and Lipofen, including its authorized generic. Licensing revenue from Absorica was $1.7 million for the 9 months ended September 30, 2025, a decrease of $2 million or 54% when compared to the same period in 2024. Revenue from Absorica for the 9-month period was impacted by year-over-year declines in product shipments on which we earn revenue from supplying product to our distribution partner. The decline in the Absorica portfolio licensing revenue for the 9 months ended September 30, 2025, was also impacted by lower royalty revenue contributed to by lower sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was further contributed to by lower contractual royalty rates year-over-year. Market share for Absorica in the authorized generic of Absorica was 2.9% at September 30, 2025, according to Symphony Health market data, representing a decrease of 2.7% compared to 5.6% at September 30, 2024. The products continue to face increasing generic competition and related market dynamics within the U.S. market. Licensing revenue from Lipofen and the authorized generic of Lipofen was $1.1 million for the 9 months ended September 30, 2025, representing a decrease of $0.4 million compared to the same period in the prior year, attributable to lower sales volumes and net sales realized by our distribution partner on these products, on which Cipher earns a net sales royalty. Selling, general and administrative expenses for the 3 and 9 months ended September 30, 2025, were $3.7 million and $12.8 million, respectively. Selling, general and administrative expenses for the third quarter of 2025 of $3.7 million represented a decrease of $2.5 million or 40% compared to the same quarter in the prior year. The decrease was primarily attributable to the nonrecurring acquisition-related costs of $1.6 million in connection with the acquisition of the U.S.-based Natroba business, combined with $0.7 million in legal costs with respect to an arbitration process, which were incurred during the third quarter of 2024. However, these costs were not recurring in the third quarter of 2025. Selling, general and administrative expenses for the 9 months ended September 30, 2025, of $12.8 million increased by $3.5 million compared to the same period in the prior year. This increase is attributable to a full 9 months of selling, general and administrative expenses for the acquired U.S.-based Natroba business in 2025 to date compared to only 2 months of selling, general and administrative expenses for this business post-acquisition in the same period in prior year. Additionally, legal costs associated with the arbitration process were $0.5 million higher for the 9 months ended September 30, 2025, compared to the same period in the prior year. These increases in selling, general and administrative expenses were partially offset by $1.9 million of nonrecurring acquisition-related costs in connection with the acquisition of the U.S.-based Natroba business, which were incurred during the 9 months ended September 30, 2024. However, these costs did not reoccur in the same period in the current year. Net income for the 3 months ended September 30, 2025, was $5.5 million or $0.21 per diluted common share compared to $0.3 million or $0.01 per diluted common share for the same period in prior year. Prior year net income for the 3 months ended September 30, 2024, was adversely impacted by $1.6 million of nonrecurring acquisition-related costs in connection with the Natroba acquisition and $0.7 million of legal costs with respect to the arbitration. Net income for the 9 months ended September 30, 2025, was $14 million or $0.54 per diluted common share compared to $8.2 million or $0.33 per diluted common share for the same period in prior year. Net income for the 9 months ended September 30, 2025, benefited from the inclusion of the U.S.-based Natroba business for the full 9 months of the period compared to the inclusion of this business for only 2 months post-acquisition during the same 9-month period in the prior year. However, net income for the 9-month period ended September 30, 2025, was also adversely impacted by $0.8 million of noncash fair value adjustments associated with the inventory acquired in the Natroba acquisition, which were recognized in cost of products sold during the period. $5.8 million increase in net income year-over-year was further contributed to by the $1.9 million of nonrecurring acquisition-related costs incurred in connection with the Natroba acquisition during the 9 months ended September 30, 2024, which did not recur during the same period in the current year. Adjusted EBITDA for the 3- and 9-month period ended September 30, 2025, was $7.3 million and $21.1 million, respectively, compared to $4.1 million and $10.7 million, respectively, for the same period ended September 30, 2024. This represents an increase of 79% and 97%, respectively, for the third quarter and 9 months ended September 30, 2025, when compared to the same periods in the prior year. The increase in adjusted EBITDA was mainly driven by the addition of the U.S.-based Natroba business for the full period in 2025, partially offset by declines experienced in U.S. licensing revenue. Company had $8.4 million in cash and $13 million in debt outstanding as of the end of the third quarter of 2025. Cipher continues to generate meaningful free cash flow from operations with $10.8 million in operating cash flow during the third quarter of 2025 and $21 million generated from operations for the 9 months ended September 30, 2025. During the third quarter of 2025, Cipher allocated $12 million of its accumulated cash to make repayments on its revolving credit facility and utilized an additional $1.6 million of accumulated cash for repurchases of common shares under its normal course issuer bid. Subsequent to the third quarter of 2025, on October 31, 2025, Cipher further allocated a portion of its cash that had accumulated from free cash flows to make an additional repayment of $5 million on the outstanding balance of its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $8 million outstanding on its revolving credit facility and having completed $32 million in total debt repayments during the fiscal year-to-date, we have made substantial progress towards becoming net debt free. Due to the revolving nature of Cipher's credit facility, after making these repayments, we continue to have $82 million of potential financing available to us, comprising $57 million of remaining availability on our revolving credit facility, plus an additional $25 million accordion option. Cipher's continued strong cash flows from operations continued with access to capital, put Cipher on excellent footing to execute on our business strategy, pursuing growth opportunities. which Craig highlighted during his remarks. We'll now open the call for questions. Operator: [Operator Instructions] Your first question comes from Andre Uddin of Research Capital. Andre Uddin: Besides looking at your sales force and DTC advertising, can you maybe discuss if there's an opportunity for any potential contracts with the military for state prisons for Natroba? Craig Mull: Very good question. Right now, we do have a kind of a strategy pillar where we're working through government contracting, as you just said. An example of a recent activity, which is just some initial discussions as I participated just the other week in a discussion with the VA and to expand the product through VA and get access there. So, that was kind of our first step into that, and then we wanted to then move into other government agencies. So, there's some traction there. But obviously, we don't highlight it because it's at an early stage, but we're certainly moving on it. Ryan Mailling: And Andre, just to add to that, there are other groups of similar interest to us, including nursing home and retirement associations, school nursing associations. The military, obviously, is an area that we think that there's a great demand for this type of product. So, we're starting to reshape our sales force more to go after these, what we call them pillars of business where we are focused on associations and groups where we can get our message out much more efficiently and much more cost efficiently as well. Andre Uddin: And just maybe you could also just going along the same lines, can you discuss how the preferred drug listings for Medicaid is proceeding in some of the other states? I know you have Illinois, but still moving forward for Natroba? Craig Mull: It is. So, some of this is -- some of it is kind of ongoing. So, I'm not able to call it greatly disclose the status of those. But what I can say is at the present time, there are a number of states of similar size to Illinois that are in the -- have our bid, which is submitted to do exactly what you said, which is remove permethrin 5% from the preferred listing and to favor Natroba or Spinosad as preferred. So, there are a number of states right now with bids in their hands that they're considering. And how that works on an ongoing basis is the bids come up for renewal annually. In the most part, some of them go by a different tempo. But as we do that, some of the things are, one, we're adding both Natroba and Spinosad onto state formularies, which just ensures product gets dispensed as well as provide them an option and a financially beneficial option to have our product as preferred. So, states are states like that option, and we hope to have some announcements coming forward as states decide on those bids. Andre Uddin: And I like how you're paying down your debt. I was just wondering if you could just elaborate a little bit more in terms of in-licensing for your business development pipeline, like what does that look like and where prices are? And that's sort of my last question. Craig Mull: On the in-licensing or acquisition side, there are lots of opportunities out there. We're really focused on those opportunities that fit best with our current U.S. operations. And we're in discussions with a number of different opportunities or targets at the moment. Again, as we go through due diligence and the process, obviously, some fall off the table, but we're encouraged recently by some discussions and meetings that we have with what we consider to be products that fit well with our structure in the U.S. Operator: Your next question comes from Max Czmielewski of Stifel. Unknown Analyst: I'm on here for Justin today. But it's exciting to hear you are joining the farm to table trends. And I guess on that, if you could give a little bit more detail on how you think about balancing pricing. I know it's not an expensive product at baseline. So balancing pricing with volume expectations from the DTC approach and how you're thinking about marrying that with your digital marketing plans. Bryan Jacobs: Max, it's Bryan Jacobs here. So, kind of your first question is on pricing. What we've always found is it's difficult when you have a far superior and when I say superior, efficacious product versus the alternatives to really want to compete on price. And if I take our business aside is I think that that's a losing strategy for anyone. If we have the best product, you're going to command a bit of a premium price. But compete -- on the flip side of that is our product is heavily covered on Medicaid and through other -- and on commercial plans. So, really what it is, is it's an educational item to a family because if you think about it, an alternative is you're frantic like you may have something like head lice or scabies. But for head lice, you go to a pharmacy and you try and grab something off the shelf and you may use it and you run out of it, you may need multiple boxes of that, and it doesn't work. So, you're battling with head lice for many weeks. So, the cost of that and the cost of the time of that is kind of a problem for families. Whereas our product, once you pay your co-pay on insurance and get a prescription, you wouldn't be worse off, and you would use the product once and it kills all lice and eggs and your kid goes back to school the next day completely lice-free. So, part of it is ensuring that when people search for the product that works, bringing them into our platform and saying, okay, wow, this is what I want and then being able to get the product in their hands. And that's why we're working through ensuring that the product is available at different retail outlets and giving them a delivery option, so it can show up at their door. We think that's going to be a very compelling business model. And like you said, that's the stable type approach that we're working towards. And this is a supplement to our existing plan. So, we're going to launch this, and we believe it's going to be kind of the next phase of growth for the Natroba franchise and then kind of scale around it from there. Unknown Analyst: And I guess my second question is based around one of your pillars of growth and how you're thinking about your overall strategy and out-licensing Natroba in global markets. Where do you think you see the most opportunity? Is it on -- to say this with diplomacy, more of the emerging market side or developed markets? Are there areas in which permethrin doesn't have the same issue of resistance that wouldn't make sense for a marketplace? Can you just give some color on that? Craig Mull: Sure. Craig here, Max. First of all, let me kind of see if I can address your questions in reverse order. The issue with the resistance of permethrin 5% and 1% is a global issue. And most jurisdictions, if not all, have this resistance problem for permethrin. So, our product is going to shine against other products in other jurisdictions as well. The issue that we're finding is that in a lot of these underdeveloped countries or less developed countries, the pricing isn't where it should be for our product. And so, we're working with different outfits in perhaps less populated countries or less affluent countries. to try to find the best kind of cost/pricing structure. Europe is a good market for this product, particularly the Southern European countries, Spain, for example. And they have reasonably high reimbursement of drugs in general, and this would fall into that. Some Asian markets as well, including specifically Japan, has a relatively lucrative drug payment plans. So, our focus is going to be in Europe, particularly Southern Europe and Japan and a few other Asian countries. Does that address your question, Max? Unknown Analyst: That's perfect. Operator: The next question comes from Doug Loe of Lead Financial. Douglas W. Loe: Congratulations on a solid cash flow quarter again. So maybe just a housekeeping question. So, as you previously announced, your debt levels are down to $13 million in the quarter. Your debt-based financial ratios are well into safe territory. Just wondering, are you comfortable with current debt levels? Or do you expect to deploy any supplemental operating cash to bring debt levels down to even lower levels? Ryan Mailling: Doug, I think, obviously, we need to balance our priorities and cash availability and deployment. But I think, yes, we're going to continue to look to repay our debt. There's no reason not to at this point. Craig Mull: We don't have far to go really, I mean, I'm thinking that we're going to start accumulating cash for our next acquisition. And that's really the plan there. We will be debt-free very close to the end of the year. And then from there, we're going to be accumulating cash if we find the right deal. Douglas W. Loe: Well, I infer from that answer then that no product and licensing opportunities that would require new cash would be imminent before debt repayment would be the priority. I assume that's what you're implying with your answer. Craig Mull: Yes, we're waiting for the right deal to come. And in the meantime, we'll pay off our debt, and we'll stockpile our cash in anticipation. Ryan Mailling: Just to add on, Doug, it's a revolving facility, so we have access to it if we need it. Douglas W. Loe: Of course. Understood. And then yes, just a sort of a competitive landscape question. So, one of the key drivers that was originally identified when you acquired Natroba and ParaPRO was the emergence of resistant strains to permethrin. And we certainly see that dynamic percolating through the medical literature as well. I was just wondering, is that reality broadly known within the medical communities where the head lice is conventionally treated? Or do you think it would make sense to conduct a small study showing that Natroba is more effective than permethrin in resistant strains that -- or treating resistant strains to which permethrin is no longer effective. I'm not sure whether that would be a prudent deployment of R&D capital, but just wondering if you'd considered that and if that might be something on the horizon. And I'll leave it there. Bryan Jacobs: Doug, it's Bryan. We do have a study that's been out there for a while, dates back to 2015 that just talks about the resistance profile across the U.S. It was conducted across literally north, south, east, west states. So covered, I believe, in the high 40s number of states where they collected lights and demonstrated the fact that their resistance and the resistance profile was 98%. And this was done many years ago. So, the one thing that you know about resistance over time, it only gets greater. So, we use that as part of our communications tool when we're reaching out to physicians. It's one of the tools that we have in the toolkit. There is no doubt that part of what we need to do is to get it more ingrained into the medical community. So, ensuring -- we're now getting the attention of a lot of physicians, a lot of KOLs that are attuned to this. And an example of that, as Craig said, we're working after different verticals because that's the way to really kind of go about it, tackle things at the school board level at the long-term care home consortium level. So, we have a KOL at the moment who's working through writing a new protocol associated with if there's an outbreak, this is the product to use, not only because permethrin, you have to do multiple doses over a period of time while people are infectious, but just the fact that it also may no longer work. The 2 dosing -- when permethrin 5% first came out, it was a 1 dose. And then it was broadly known as you need to do one dose and you need to be -- you need to wait 10 days and then dose again. What's not broadcasted right now is it's probably getting into third or fourth until if you pour the permethrin on anything, it will die, but that it's absorbing into your skin during that time. So, it's certainly the best product out there. So, ensuring we use the data that we have and attacking it at the right verticals as opposed to a door-to-door approach is -- as Craig was describing, that's going to be part of our strategy in 2026. Operator: [Operator Instructions] Your next question comes from Tania Armstrong of Canaccord Genuity. Tania Gonsalves: Just a couple from me. So, first on Natroba, I think, Craig, you mentioned earlier in your remarks that seasonality plays a role here and sales tend to be higher in warmer months. I would have thought that sales are also quite high in that like September time frame when kids return to school. Do you guys see that? And should we expect then a downtick in revenue into Q4? Bryan Jacobs: It's Bryan Jacobs here. Nice to meet you. I don't know if we've talked before. Your last part of your question there, do we expect Q4 to be lower than Q3 and Q2? Generally, yes. And even though Q3 is, call it, the hottest, warmest season and you have back-to-school, as you indicated, what we did see this year was that both -- as opposed to having a huge spike in Q3, we feel Q2 and Q3 were more balanced because the stocking and getting ready for it at the wholesale and retail channels happened earlier. Tania Gonsalves: That's good color. And with respect to -- this came up in an earlier question, but just getting on some of these bids that you've made to states outside of Illinois to get on their formularies and displace permethrin. Have there been any states that you have submitted a bid and not won that? Bryan Jacobs: No, there haven't. At the present time, we have a number of states that have the bids that are contemplating it. It's typically what happens there is they give you -- the process works as you approach the renewal of the bid, you submit it and the states just work where they make the decision towards the very end, you kind of hear about it. So, we're hoping in the coming months as we look at some of them renew kind of right on the calendar year that we'll hear back on those. But no, we haven't had anyone turn down that as of late. Tania Gonsalves: And then just lastly, and apologies if I missed this in your remarks, but the compensatory damages and reimbursement for legal fees as part of that Sun Pharma litigation, how should we think about that being accounted for in Q4? Will there just be a contingent consideration line item on your balance sheet? Or have they actually paid you the cash yet? Or are they withholding a portion as they appeal to the outcome? Craig Mull: Tania, it's Craig Mull here. Most of that arbitration award now is public information, and you probably are aware that Sun has decided to try to vacate the order of the arbitrator, and that's going through New York courts at the moment. We don't know how that will go. I certainly like our position a lot better than theirs. But we haven't received any payment, and I don't think that we will be recording any until we hear what the New York courts say. Ryan Mailling: Yes, I can tell you Tania, it's really dependent on timing of this outcome and what the outcome is. So, at this point, it's a contingent asset or gain, which you don't recognize until you have certainty on. Tania Gonsalves: And how long do those appeals processes? I know it varies, but for something like this, how long would you anticipate this taking? Craig Mull: I was told by our litigators that it's likely a few months. Operator: There are no further questions at this time. I will now turn the call back over to Craig Mull. Please continue. Craig Mull: I want to thank everybody for your time today, and I appreciate that you joined our call. We look forward to reporting positive news on the coming quarters as we progress with our plans. Again, thank you very much for your time, and we appreciate your support and interest. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.