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Operator: Good morning, everyone, and thanks for waiting. Welcome to the conference for the disclosure of results of the third quarter '25 of Cogna Educação. [Operator Instructions] We inform you that this conference is being recorded and will be available in the RI site of the company, www.cogna.com.br, where you can find the whole material for this result disclosure. You can also download the presentation in the chat icon even in English. [Operator Instructions] Before going on, we would like to clear that eventual declarations being made in this conference regarding the business perspectives of Cogna, projections, operational and financial targets are the beliefs and premises of the company and the management as well as the information available for Cogna. Future information are not guarantee performance, and they depend on circumstances that may happen or not. So you have to understand that the general conditions, the sector conditions and other operational factors may affect the future results of Cogna and may lead to results that will be materially different from those expressed in future conditions. I'd like now to pass on the floor to Roberto Valério, CEO of Cogna to start his presentation. Mr. Roberto, please, the floor is yours. Roberto Valério: Good morning, everyone. Thank you for participating on the conference to discuss the results of the third quarter of '25. As we always do, we have Frederico Villa, our CFO here; Guilherme Melega, the Head of Vasta. This call will last 1 hour in which we'll have a 40-minute presentation and 20 minutes for the Q&A. So I'd like to start this meeting by saying once again that we understand this is one more quarter with great results in our understanding. We keep growing with the ability of operational delivery in a quite good way. It grows in a fast pace in double digits in the quarter and in the 9 months. So we are growing almost 19% of revenue in the third quarter and 13% in the 9 months. And I'd like to say that both the core business, therefore, higher education and basic education are growing double digits, and we keep investing in new fronts and future opportunities as it is the case of our business line for governmental sales as another example with our franchise starting. So from the point of view of growth, we understand that the core has a lot of capacity to deliver results. We are growing double digits with the same assets. Since the beginning of the structure in 2021, we understand that the core business still have a lot of opportunity to grow, basically refining and improving processes and the client experience. But we keep here planting and seeding new business to grow the company. The same way, the operational results keeps growing in double digits, basically 10% in the quarter and 12.4% in the year in the accumulated of the year. So this is the 18th consecutive quarter with the EBITDA growing. I'd like to reinforce our concern with consistency and it's a structural growth. So it's been 4.5 years that we are consecutively growing operational results. From the point of view of EBITDA margin, this quarter is pressured by an increase in the PCLD regarding Pague Fácil that was something that we did in Kroton in the commercial cycle. We will explore in the next slides as well as lower margin in Saber due to seasonality. And as you know, Saber, as Somos has the fourth quarter and the first quarter as strong quarters from the point of view of results and the third quarter is a smaller one. But in this case here of Saber, it pressured a little, but we'll talk specifically about PCLD later on. Now talking about the net revenue, we had BRL 405 million in the 9 months accumulated. So in spite the delta growth in the quarter to the net income was BRL 220 million because we had losses in the third quarter of '24. And when we analyze the 9 months, the delta of the net income is BRL 450 million. Obviously, it's being fostered by the improvement in operational results that we emphasize in the quarters we are talking about, but not especially, but also due to the reduction in the financial expenses to reduce the debt and our liability management strategies that allow the cost of debt to be lower. Therefore, the operational results with the lower expenses is happening in the net income. In terms of cash generation, we reached BRL 392 million with BRL 1.9 million less compared to last year. And as we always do, we let you judge if these points are one-offs or not. But in the third quarter of '24, we recovered taxes in cash of more than BRL 115 million. Obviously, if we compare operational to operational in the recover of taxes, our growth in the GCO would be 38%, therefore, quite a strong one. In the accumulated 33% of growth, almost BRL 940 million in post OGC. So the highlight of the quarter and the 9 months is the free cash flow. We reached BRL 300 million in this quarter, BRL 583 million in the 9 months accumulated. Just to emphasize, there's almost BRL 584 million in 9 months. This is 50% more than all the free cash flow generation in the whole year of '24. So in 9 months, as we generated more cash, 50% more of free cash flow than the whole year of '24. Now going to the debt, we reduced the net debt in BRL 474 million in the 12 months. I emphasize that only in the second quarter here, our reduction was more than BRL 220 million. So the cash generation is, in fact, being used to reduce debt. And then Fred will explain that aside from the reduction, we can also have important reductions in the average cost of the debt. Regarding leverage, we reached 1.1x the EBITDA, the lowest one in the last 7 years. The last time we had this level of leverage was in 2018. Therefore, we are quite satisfied with the results and prospectively thinking for the fourth quarter into '26, we keep having the same -- we keep optimistic and trusting that we have everything to have consistent results. Now going to Slide 5, we will talk about the operational performance of Kroton. And I think I can start by emphasizing the growth in intake more than 7% in the period. I would like to emphasize specifically the growth of the presential one. That is not the first cycle of intake. It's the third cycle that we have growth in the presential. And with the growth, I'll talk later, but with the growth specifically in the high LBV, I mean the most expensive courses, which help us in the ticket. And I relate this growth and the presential to our commercial model that is fine-tuned in the campy and is allowing this growth. And in distance education with a growth of 6.4% that is specifically to the change in the regulation for GL that fostered the course, mainly the health care courses that bring not only the benefits of growth, but also the improvement of the average ticket. So in the mix, it helps a lot. Obviously, we have a lot of evolution in the team, improvement of processes, systems and commercial strategies, but I reinforce that in the presential, this fine-tuned model in the campus helped a lot and the change in the regulation of DL fostered the enrollment, mainly in the health care courses that are the most impacted by the new regulations. The student base grew 2.7% in total. But if we consider only ProUni and ex ProUni, the ones that, in fact, pay and generate cash to us, the student base grew 4%, quite important and consistent as it's been over the last years. From the point of view of average ticket I also have emphasis here in this quarter because the Kroton as a whole is growing 11.7% in 3 segments: presential, DL and on-site -- I'm sorry, KrotonMed, and we have 2 points helping the average ticket. Newcomers, as I mentioned, in on-site, we have more enrollment in the most expensive tickets and in DL, also more newcomers in the health care courses on average with a greater ticket. But I also have to mention that we can repass the inflation to the old students in KrotonMed on-site and DL. So we have both old and new students with an increase in the average ticket, which pushed this growth to almost 12 points. Now in Slide 6, talking about the net revenue. Obviously, if we have more enrollment. And I forgot to say something important here about intake reinforcing that, obviously, the volume of intake is important to us, but the balance between volume and ticket is very relevant. We are always analyzing take analyzing the revenue in the period and the revenue grew 41% in this period. When you have a new period growing the revenue, and we know that the students will be with us for many semesters. In perspective, we have quite a positive result regarding the revenue for the next months and quarters. Now talking about revenue specifically. So we grew almost 21%, growing a lot on-site and online education. So we grew a lot in both front. So to be completely transparent, even if we reclassify the discounts that, as you know, we have a complete disclosure with all the items we are using since we reclassified the discount with inactive students for IDD with a neutral impact in the EBITDA, but adjusting the revenue, this growth instead of 20.9% would be 15.9%, but even though quite a strong double-digit growth. I'm talking about the accumulated, it's the same, 17% in on-site and DL. And here, we see the effect of Pague Fácil that we'll talk later is more diluted. Therefore, the delta between the growth we see of 17.4% and the growth ex Pague Fácil is smoother. Now in Slide 7 and talking about the gross profit as a whole, it grew 21.5% with a small increase in the gross margin from 79.4% to 79.9%. And in the same way in the accumulated in the year, we had an important growth in gross profit and a slight growth in the gross margin, which shows that the growth in operation in its core that is revenue minus cost is quite positive, and we are gaining on efficiency when we analyze the 9 months. The gross margin improved 0.7% with a small reduction in the margin of KrotonMed, and it's important to emphasize that in the 18 courses that we have, the medicine courses that we have, 3 are new. And as they mature, they increase the base of cost as we hire more professors. So the amount of hours increased, the general cost increase. So it pressures a little the margin, but according to expected and completely in line with our plans. So in Slide 8, costs and expenses. As you can see when we analyze cost and expenses with the percentage of net revenue, we have a gain in performance in all lines. So corporate expenses with a small gain in performance, the operational ones gaining more than 3 point percent of market and sales with diluting 1 point percent as the cost, as I mentioned in the previous slide. So the company grows and grows keeping the costs controlled and specifically the expenses controlled, which makes us gain efficiency and diluted with the percentage of net revenue. The only difference is PCLD that I'll explore in 2 slides because in the third quarter of '24, it was 6.2% growing 7.6% going to 13.8% due to 2 factors, both the reclassification of the discounts for inactive students as well as the greater penetration of Pague Fácil, but I will talk about it in other slides. When we look at the accumulated, you see that we keep growing in efficiency with no operational expenses and marketing and cost and I'm in Slide 9. So we have more -- 2 points more of dilution and marketing, 1.4%. So gaining efficiency, we see that the operation is quite adjusted. Now in Slide 10, so that we take more time here explaining those differences in the PCLD, we made this diagram to be easier to understand. So I am on the left and considering the third quarter of '24 with the first information, you can see the net revenue, BRL 939 million, which was published in the third quarter '24. The PCLD was BRL 58 million. Therefore, the percentage would be 6.2%. With the reclassification of the discounts that is so that we didn't have a reduction in the revenue every time we renegotiated with an inactive student, we would start classifying the discounts in the PDA. So in the pro forma of the third quarter of '24, the PDA would be BRL 98 million and not BRL 58 million, but the revenue would increase from BRL 939 million to BRL 980 million. So in the pro forma comparing it, the third quarter of '24 to '25, the PDA divided by the NOR would be 13.4% and 13.8%. Therefore, an increase of 3.7% in the PDA. So I explained the first delta of the 6.2% that adjusted by the reclassification of discount would be 10.1%. And if we consider delta for Pague Fácil, that is the offer that we implemented in this quarter, the PDA would be stable. And why would it be stable? Because our inadequacy is not increasing. It's kept the same. The fact is that when we offer more offers in Pague Fácil, that is the facility to pay the first installments. We don't have the history of credit of the students. So we provision more than students that we already have their history so that you have a reference. The level of provisioning is close to 10% to the student with the history. And in this case here of the students coming with this offer of Pague Fácil, we provision 47%, therefore, a greater provision. So that's the explanation, so why the PDA is growing. So it increases in this quarter because this is when we give the offer to the student. And in the fourth quarter, we don't have the offer anymore because we don't have newcomers anymore. So you see a convergence of the PDA to the closer number of pro forma. So explaining the movements, I would like to take some minutes here for you to understand the offer itself. So with the change of the regulatory framework, many players among us started communicating that they should take the period before the regulatory framework change to enrolling courses that won't be available anymore. But during the intake process, we realized that many players were offering discounts in the monthly payment. So in practice, it reduces the LTV of the student because all the payments that we come along the life of the student will be with a lower ticket. So we decided another offer. So to keep the average ticket, but offering to pay the second -- first and second payments in July and August in our case, installment. So the student enrolls because they are making the enrollment in middle of August when classes started. So they didn't pay July and they didn't pay August. They are starting to pay from August on. So these 2 parcels were not a bonus. So we divided them installments during the period of the student course. So in this case, the students in 4 years would be divided into 46 months. So as we don't know the credit profile of the students, they are new. So we provision more with these 2 payments that we booked and we are receiving month by month. So for you to understand clearly the offer, that's it. And it makes sense because we don't give up on the average ticket. We don't reduce the LTV of the student. We simply consider installments for the payment of 1 or 2 monthly payments along their course of time. So if you have more doubts regarding that, we can discuss in the Q&A. And we have a second table that is the deadline for receiving, which shows that the default is still positive. That's why we are decreasing the average deadline from 47 to 34 days. So this is the clear proof that is the P&L because we see that the student is, in fact, generating cash. Now going to Slide 11. The consequence of all that is the EBITDA result. Therefore, the EBITDA in the quarter grew 10% in the year accumulated 15.8%. So you can see a drop in the margin between the third quarter of '24 and '25 going from 37% to 36%. So the reclassification of discounts and the additional provision of Pague Fácil is pressuring the margin because it is increasing the PDA, but all the other costs like marketing, operations, corporate is all -- they are all diluted and gaining on efficiency, and we see that clearly in the results and in the cash generation. With that, I finish the explanation of Kroton, and I'd like to pass on the floor to Guilherme Melega for the comments on Vasta. Guilherme Melega: Thank you, Roberto. I'll go on with Slide 13 on the net revenue. I'll concentrate on the graph on the right with the commercial cycle because the third quarter is the one finishing what we call the commercial cycle of Somos Educação that goes from October to September. So here, we have the total idea of how the classroom behaved and everything that happened and will -- that happened in '25. So we reached BRL 1.737 billion, which is 13.6% considering the cycle of '24. The highlight is the subscription products with the teaching and complementary solutions that grew 14.3%, reaching BRL 1.32 billion. And now the non-subscription had an increase of 17%, reaching BRL 118.6 million result of the growth of our 2 flagships all in Anglo, one in São José do Rio Preto and the Pasteur Institute also with a growth in the pre-SAT courses in the year. So we acknowledge the growth in the 2 main business lines of the company. I also emphasize the B2G, bringing a natural volatility, but we could with new contracts keep the balance in this line of revenue, also keeping a similar level to '24, reaching BRL 76.2 million, BRL 66.8 million, I'm sorry. In Slide 14, I'll show our subscription sector. So we start on the right, where we have the breakdown of the core segments that are the learning and teaching segment. The complementares, the social emotional bilingual, makers and other complementary activities to the basic subjects, our growth was quite robust, reaching 14.3% in total. But the core segments grew 12.5% and the complementary segments, 25% as we can see a faster growth in the complementary over the years. And I'd also like to emphasize something that Roberto commented that is quite important to us. That is our consistency over the years, delivering that. So on the left, we see the first ACV of Vasta that is in 2020 when we acknowledge BRL 692 million compared to BRL 1.552 billion that we are delivering by the end of this semester. It represents 2.3x more, so a figure of 17.5%. So we are quite satisfied with the performance we can reach with the gain in market share and the penetration that our products are having on the private market. Now going to Slide 15, talking about the EBITDA, we grew 10.6% in our EBITDA, focusing here also in the cycle. We reached BRL 480.9 million EBITDA, the greatest one of Vasta in the commercial cycle, representing a margin of about 28%, in line with the previous year. And here, we will decompose a little our expenses going to Slide 16. I'll talk briefly because the third quarter to Vasta is not so significant, but it is important to note when we look at the table, our recurring gain in lower provisioning of PCLD. So we had a provisioning here, a lower one as we observed in other quarters. And we have more investments in marketing and sales because we are in the peak of the campaign for '26. But when we analyze the next slide, 17, we have an idea on how our expenses behaved in a complete cycle. So here, we have our total expenses when we analyze the table with the percentage of revenue, keeping in 71% with emphasis to the gains in productivity that we have in corporate expenses, operational expenses and PDA, as I mentioned in the previous slides. We have small investments in marketing and sales that should keep the double digit of the revenue. And in costs, I call your attention to the impact of 2.1% result of a mix that comprises more and more complementary products that we pay royalties for. So they have a higher cost like bilingual and social emotional as well as the Mackenzie system that grows in a fast pace. So these products have royalty, they increment a little our costs. On the other hand, we do not deliver capital to develop the product. So when you look at the benefit that we have in the cash, it's much greater than the small points of margin that we observed in the total costs. And lastly, I would like to emphasize that we are in the peak of the commercial campaign for the cycle of '26. We are quite optimistic with this period to keep the growth and keep the history of ACV as we saw before, we will have probably quite a good '26. I emphasize that we reached more than 50 contracts and we are operating 6 units this year. Next year will be 8 as franchising with a total of 14 units and the B2G is a big path of growth that we have with a lot of prospection at this moment, and we hope to have quite a hot fourth quarter to supply the cycle of '26. Now I pass on the floor to Fred to go on the presentation. Frederico da Cunha Villa: Thank you, Guilherme. Good morning, everyone. I'll start the presentation of Saber. And remember that Saber has some businesses, the national program of didactic books, languages, other services encompassing governmental solutions and so on. So note the graph on the left that in the quarter, we grew the revenue from -- of 9.4%. So this growth was fostered by the hitting of 2 business. First of all, 17% in languages; and secondly, the growth of Acerta Brasil that is governmental solutions with a growth of about 38%. It's important to remember that in '25, this is the year of purchase for high school and repurchase for elementary school. In high school, we had a gain of 8% in market share, which shows the growth that we have in our products with the program of didactic books. However, we see that there is no representativity in the quarter. We had a displacement from the third to the fourth quarter. Now going to the graph on the right, in the accumulated, I had a reduction of 9% in 9 months comparing '24 to '25. So this reduction, as I mentioned before, is only a reflect of the displacement and the reduction of the PDA, but it's according to the fourth quarter, and we had businesses with a positive impact of about BRL 32 million in 9 months in '24. And in the year, in the 9 months, the big effect here was in the first quarter that we've had a revenue that walked back in about BRL 60 million, but our expectations, as I mentioned before, is that we will have a stronger fourth quarter with the displacement of the didactic books program. So going to Slide 20, talking about the recurring EBITDA and margin EBITDA. As we said before, this is a year to grow the margin, but with the EBITDA growing and it shouldn't mainly due to the effects of investments that we will have in the material for marketing and all the commercial part, mainly, as I mentioned before, due to the repurchase program of high school and in the accumulated of 9 months that finishing September 30, we saw a growth in our EBITDA of 16%, leaving from -- going from 67.5% to 78.5% with an expansion of margin and 4.7%. So it's a neutral semester with a growth in revenue, but without growing the EBITDA, but this is due mainly to the displacement of the PDA. Our expectation is to have quite a positive fourth quarter. Finishing the presentation of Saber, I start now Cogna. Cogna represents our 3 main businesses like Kroton and Somos and Vasta, and I just mentioned Saber. So just a brief summary going to the final presentation. We had a growth in the revenue in the quarter in Cogna of 18.9%, reaching BRL 1.523 billion. So we grew revenue in all businesses. And in the accumulated, we also reached BRL 4.816 billion with a robust growth. That going to Slide 23, we have the demonstration in the recurring EBITDA and margin EBITDA. So we grew the EBITDA in the third quarter 9.8%, reaching an EBITDA of almost BRL 423 million. And as I mentioned, we grew the revenue in our 3 main businesses in Saber. We decreased the EBITDA, but we have the effect, as Roberto mentioned before, the effect of our commercial strategy in Kroton for intakes via Pague Fácil. And the main goal here was to keep the average ticket. You can see in our release that we can keep and have even growth in our intakes, and we had an impact in the PDA. We grew with the program to pay installments in Kroton, and in this way, we grew the PDA in the accumulator of 9 months, we grew 12.4% reaching an EBITDA of BRL 1.530 billion. Now going to Slide 24 with net profit and margin. In the quarter, the third quarter of '24, we had losses of BRL 29 million, and now we reached a net profit of BRL 192 million with a growth of more than 700% and a growth in the margin of net profit. And this comes from the growth of our operational results and it grew about 10%. We had a reduction of our financial results. So with many initiatives here in liability management and renegotiation, we reduced our financial results in 13%. And the main effect here is the effect of taxes of BRL 126 million and the reason we demonstrated this continuation and the operational effects and what are these effects mainly here with the reversion in the contingency that is not going over our EBITDA and the recurrent results, and we had the condition of the income that I briefly explain means that we had a company, Saber that had the tax losses in revenue income. And we incorporated this company so that we had this benefit in this year and future benefits. So look at this year, we had accountability effect of BRL 126 million. But in the fourth quarter, we will compensate BRL 11 million in taxes. So this operation brings not only accountant benefits, but in the cash of '25 and the years to come. If the accumulated, we reached almost BRL 406 million next year -- last year, in December 31, '24, we had a profit of BRL 879 million. Just remember that part would come from a reversion of contingency and our net profit of the operation was BRL 120 million. So in 9 months, ex effect of the income taxes, we reached the net profit of the operation compared to the previous year. And finishing that, the most important to us in the company is as we manage the company and we look a lot that for getting EBITDA and now analyzing the net profit and the cash generation and free cash. So we can see that in the operational cash generation, we had a slight reduction of 12%, reaching -- going from BRL 392 million last year. And last year, we had a positive effect of BRL 150 million of receivables of taxes from the federal revenue, and we had this benefit last year. We didn't have the benefit this year, but it's part of the game. So there is no adjustment. We are not proposing that. We are just explaining. But the most important to us is the free cash flow that we grew in the free cash flow. And when I say that, it is the generation of operational cash post CapEx and debt. So we reached BRL 300 million with a growth of about 3%. I'd like to mention also that the company analyzing the risks, we kept the second quarter of '24, '25 compared to the third one or the third of '24 with the third quarter of '25, we had a risk neutral with a small decrease of about BRL 9 million regarding the second quarter of '25 and BRL 17 million compared to the third quarter of '24. So you can see that the cash -- the free cash flow is not coming from postponing the risk. We are reducing our risk. And just to finish the free cash flow, an important data is that in the accumulated, we reached BRL 584 million last year. We had a generation of BRL 395 million. So remember that our fourth quarter, as I mentioned, is strong here in the national program of didactic books, and it's also a strong quarter in Somos Educação. So we are thrilled with what is about to come to the fourth quarter. Now going to the end of the presentation, our cash position and debt, we -- in Slide 26, I would show that the important is that we are reducing the net debt. So we reached BRL 2,576 million. We finished the third quarter in a strong cash position with BRL 1.277 billion. And the message here is analyzing the amortization schedule. In '26, we don't need to do any debt, and we have no amortization for '26, which is generally a difficult year because it's the elections year. Now going to Slide 27, the last one of my presentation, I'd like to show the leverage of the company. We reached the leverage of 1.11x, our lowest level of leverage since the fourth quarter 2018. Considering the third quarter of '24, our leverage would be 1.58x. We had a reduction and more than leverage. We monitor also the net debt. So we had a reduction of net debt compared to the last year, BRL 474 million. And regarding the second quarter of '25 compared to the third one, a reduction of BRL 230 million, which shows that in the last 4 years, we are doing what we say, what we committed to hit the revenue and generate EBITDA that will do the deleverage of the company, free cash flow and reduction of net debt. And last but not least, our average cost of debt is reducing. So in the third quarter '24, we had an average cost of 1.82%. And in the third quarter, it's 1.52%. And as we understand the market and our rating that we maintain that, but with a positive prognostic. We have cost of an eventual debt for future liability management in a lower cost than this one that I mentioned of 1.52%. So we are still thrilled with more execution, more work. And I pass on the floor to Roberto Valério for the final considerations. Roberto Valério: Thank you. Now going to Slide 28. I reaffirm our pillars and growth is one of the pillars. It's not by chance, it's the first in the list. As we showed, we grow in all operations, and we are planting and developing new pathways of growth to the future. As Fred mentioned, we are thrilled to the end of the year, the fourth quarter that is generally with no news in Kroton, but given the diversity of our portfolio, we have good quarters in Vasta and Saber with a positive perspective to the year. And we see no different challenge to '26. We see the level of unemployment very low, people with good income. This is -- next year is electoral year, which benefits our businesses. We are quite positive to this item of growth. From the point of view of efficiency, it's in the DNA of the company. We have quite well designed all the processes. We are converging systems to 1 or 2 single systems to gain on synergy and speed. So we are working in improvement of processes, automation systems, implementing AI. That is something we've been doing since '23. So basically 2 years, almost 3. And this is something that is spreading in our value chain, and it will keep bringing efficiency in gross margin and reduction of expenses. So this is another front that we see opportunities. Experience, the client experience is something that is the core of our decisions. We keep improving the NPS of students and partners. So just for you to understand in this third quarter, we had 4 important awards that are related to customer experience in many segments. So it is still our focus, and we understand that we serve well to reduce the churn and improve the growth. And culture -- people and culture is an important pillar. We are investing a lot in training and development and assessing performance and skills and feedback of our workers so that they know how to develop and external trainings and courses, I think we are progressing a lot in this front. And it's not by chance that we could be in the ranking of the best companies -- Great Places to Work. So we have the GPTW, still, we've had that, but being in the ranking is very difficult, and we are there at the 12th position, and we are in the 6th position, I'm sorry. And it's quite nice and innovation, we are supporting the business areas of the company, speeding up the B2G and new ideas that are under discovery in the initial steps, but I'm pretty sure are the seeds for our growth in education that is a big segment, and our approach is not only one segment. We have a multi-segmentary strategy. We have a broad portfolio, which in fact increases the options of growth to us. From the point of view of ESG, it is still important in the agenda. We held the V Education & ESG Forum this quarter. We were acknowledged in the ranking besides being acknowledged for being the best companies in customer satisfaction by the MESC Institute and some awards among which the best legal department in the education sector. So it's said by other people, which is also more important because it's not our opinion. It's the experts in the sector saying that to us. With that, I finish our presentation, and I open for the Q&A. Thank you. Operator: [Operator Instructions] The first question is from Marcelo Santos, sell-side analyst, JPMorgan. Marcelo Santos: I have 2 questions. First, I'd like to mention Pague Fácil because you've always had the PMT. So I understand that, in fact, you increased the amount of that, but the program would be the same. So I'd like to be sure of that. And was it more focused in DL? Is it -- does it have something to do with competition? I would like to understand why it's stronger in the divisions that you showed. And I would like to know if next year, it will be more normalized. And the second question is related to the cash generation because the fourth quarter last year was very good. So is there any event, any effect to change the seasonality for this year? Or you would bet to say that it would be the same as last year? Roberto Valério: Well, Marcelo, thank you for the question. So regarding Pague Fácil, you are correct. It's the same program we already had. So the mechanism is the same. The only thing is that now we are offering to more students. In general, we would offer the benefits to the students later on in the course when they enter in August or September, and we offer now since the beginning of the intake process when we start offering the benefit beforehand, more students make use of this. So the penetration of the program increases. So it's the same program with the same -- greater penetration for newcomers, which means that looking ahead, we should then see new growth. It should be more stable when comparing the quarters because the penetration was almost absolute, let's say, quite high. Basically, all students enrolled took advantage of Pague Fácil in the period. And regarding the cash generation, Fred will say. Frederico da Cunha Villa: Well, Marcelo, thank you for your question. In the fourth quarter last year, we had a strong operational cash generation. This is the beauty of our business, the diversity that we have. So last year, we had a positive effect of the national program of didactic books and also governmental solutions. And the cash here wouldn't have anything different compared to what happened in Kroton last year. And our expectation is to have a positive cash, and it comes with the same effect that we've had last year with the national program of the didactic books. A point of attention here is that we are a little late. We would imagine that our third quarter would be stronger. The government is late. So it may bring some impact to the cash in the fourth quarter, but our expectation is not different from previous years. It is to receive in the fourth quarter. But if we don't, Marcelo, then we should receive in the first 15 days or the first 2 any -- first days in January '26. But as I mentioned, it is our daily life. Marcelo Santos: Just a follow-up in Pague Fácil, Roberto, it is more concentrated in some of the units due to the competition, it was more in DL or is it general? I would like to understand this point. Roberto Valério: Sorry, you asked this question, and I didn't answer. It's generated. It's not focused in DL, both on-site and DL and the corresponding courses of KrotonMed. Operator: The next question comes from Vinicius Figueiredo, the sell-side analyst, Itaú BBA. Vinicius Figueiredo: I'd like to discuss a little bit about this quarter because we had a more concentrated effect. You mentioned a lot PDA in Pague Fácil that reached the margin. But having that said, a good behavior of all lines in this quarter, along with the fourth quarter not being with such a strong PDD due to the lower intake. So does it make sense that this quarter was quite atypical regarding the performance comparing the margins of the years, and we would see the cycle again an expansion in the fourth quarter? And then in the context of next year, will this effect along with the investments to adequate to regulation, how is that as a whole? And the second point is a follow-up to Marcelo's question. What would you see here as the balance point to Pague Fácil? Outside this context -- this is a typical context of the second semester and looking ahead, what is the participation it should have as a whole? Roberto Valério: Vinicius, thank you for your questions. I think it is quite an important topic to us that you have it quite clear in Pague Fácil and PDD. So as basically all students came via Pague Fácil, there shouldn't have any additional impact in any other quarters. So let's consider that in the third quarter '26, if all students have Pague Fácil, the delta should be only the growth of the enrollment and not the take rate of Pague Fácil. So we have nowhere to go because basically all students took Pague Fácil, whatever grows in the PCLD is related to the intake for the future. So this is the first point. The second point, you are correct. As in the fourth quarter, we don't have newcomers. Therefore, we don't have the pressure of Pague Fácil. The trend is that PCLD comes to the average and reduces to a lower level like the inadequacy and the numbers that we have here, as Fred always mentioned, a PDA of processes of inadequacy would convert to that, therefore, remove the pressure of the PDA improving the margin trend. And you are perfect in your observation. Obviously, we cannot predict -- we cannot give a specific guidance, but this is the specification. I don't know, Fred, do you have any additional comments? Frederico da Cunha Villa: Well, no comments. It's exactly that. The comment I would make is that that as we collected more with Pague Fácil because Pague Fácil and PMT are only different commercial names, but basically, it's the same. So the important is that the PDA is high due to the payment installments if our inadequacy is in X. So this effect is in line and close to 10%. So we'll see the quarters and understand that there's nothing new because it's already provision if we improve the inadequacy and improve the dropout, we will have an upside to the future. Otherwise, the PDD is already correct. So regarding the perspectives for DL, considering the regulation, it's difficult to predict, but we can have some ideas considering 2 important aspects. One that in the beginning -- in May, when it was disclosed, how much of restriction of courses that were DL and now are semi-presential and how it could restrict the movement of the student, I mean, going from DL to on-site. So this is the first doubt. We are seeing that, yes, there is quite a positive migration effect in the first weeks, we are in the beginning of the cycle. But in the first weeks where the nursing courses are not available in DL, we don't have the regulation defined. We see quite a strong growth of the courses, especially nursing in on-site. So the first doubt, well, if the fact we don't have cheap DL, the students won't be able to study. Therefore, we won't have so many enrollments. We don't see that. We see a strong growth in the on-site, which is positive from the growth point of view with the pressures on the margin because the on-site courses have lower margin, but the nominal contribution is much greater. The final benefit to the cash generation is quite positive. So this is the first element. The second one that is in the air, and we expect to have more information in the last weeks is how the fast track of approval of the nursing courses will be and how -- from there on, how many units and colleges will offer this course, and we are quite optimistic that MEC will propose a transition rule to allow that those operating -- keep operating. But this is only an expectation. We don't have any official information. Regarding the cost impact, we keep having the same view that we've had since the regulatory framework was launched. And if you know that from the point of view of cost, we understand it's quite not relevant, both in online and semi-presential or DL. So they are prone to repasses in the average ticket of the student. As you can see, we keep repassing inflation. The average ticket is growing for newcomers and old students. So we have the same view, and we don't have elements to say that DL will have a non-manageable impact, let's say. Operator: The next question comes from Caio Moscardini, sell-side analyst of Santander. Caio Moscardini: Could you talk a little bit more of Vasta ACV, what we can expect in this new cycle? If the 14% that we saw in '25 is a good proxy? I think it helps a lot. And in Saber, just to confirm if this market share of 30% is regarding a new cycle of the PDA from '26 to '29 that the government has a budget close to BRL 2 billion? And what should we expect in terms of EBITDA for Vasta in the fourth quarter, if we can grow this EBITDA of Saber in '26 comparing year-to-year? Guilherme Melega: So thank you, Guilherme here. I'll talk about the Vasta ACV. As shown in the presentation, we are having quite a positive track record in the evolution of ACV. We have a CAGR of 17,000, but I can tell you that we'll keep the growth for '26 at a similar level as we had from '24 to '25. So in the mid-double digit of growth. Roberto Valério: Okay. Thank you, Melega. Regarding your question of Saber, Caio, you are correct. The last purchase of high school government typically makes 1 purchase a year. It can be fund 1 or 2 of the average. In the fourth quarter, we are talking about high school. We've had market shares in schools and teaching systems choosing 30% of all the purchase being with our books from Saber. And we'll have a take rate of 30% of the program compared to a take rate of 22% in '21. So it's 8% more in share. So this is the information. So yes, we do expect to grow our income in this sense. And we know that MEC as FNDE are discussing budget to comply with this purchase. And remember that next year's program is the new high school program. It's different with more disciplines, more content. But your interpretation is correct, basically confirming what you said in your comment. Caio Moscardini: Okay. And regarding Saber in the fourth quarter, going from '24 to '25, it should grow year-by-year. Frederico da Cunha Villa: Caio, Fred speaking here. Our point of attention is only seasonality. If you have a displacement from the fourth quarter to the first one, as I mentioned, due to the delays, but EBITDA should be neutral positive because as it is a year of purchase, as Roberto mentioned, I also have expenses with marketing and advertising, which affects a lot of the cost, but due to the growth of 8%, it can be positive. Operator: The next question is from Samuel Alves, sell-side analyst at BTG Pactual. Samuel Alves: My first question is about receivables and maybe it's related to the comments before about Pague Fácil because we saw an important increase in receivables after 1 year. So can it be related to Pague Fácil so that I get your idea about the aging? This is the first question. And a second question is having a follow-up on the topic of the PDA. If I'm not mistaken, the company had a certain target of EBITDA to '25 in Saber of about BRL 200 million, BRL 230 million, if I'm not mistaken, but something like that. So you were mentioning this point that Fred mentioned now about the marketing expenses and the cycle of purchase as a challenge. So it caught my attention, the comment of EBITDA being neutral or positive compared to the years in the fourth quarter because it would be above that. So was it my misperception of not understanding your comment considering it was BRL 360 million. I guess the EBITDA last year of BRL 200 million was adjusted. Just to make it more clear about Saber's performance. Roberto Valério: Well, Samuel, I'll start with Saber and Fred will talk about the aging. It's important to consider that Fred's aspect is that we are not so certain or clear on the income of high school in the fourth quarter. As the orders are delayed, maybe part of this income will decrease in the first week of January. So it's difficult to be content and understand what is the EBITDA in the fourth quarter considering the uncertainty in the displacement of income. We have almost no doubt regarding the effectiveness of the purchase of the government. Therefore, government needs to handle the books to students in February when classes start. So maybe this misperception is a little more regarding the conviction that we have that the fourth quarter specifically will have a neutral positive EBITDA without knowing exactly what is the displacement of the income. So any displacement should be of weeks because the program must be carried out. I don't know if I made myself clear, if you have any doubts, we can discuss more. And I'll then pass on the floor to Fred to talk about aging. Frederico da Cunha Villa: Samuel, Fred here. About the aging of receivables, you are analyzing the IPR of the company. So I have the growth in the installment programs for Pague Fácil. So I'm growing this potential, but the second effect of growth in the aging above 365 days is not for Pague Fácil. It's the fat effect PP, the program that already finished. And here, we have more than 70% provision. So we have our natural efforts here for charging, nothing different from what we already have, nothing different from previous quarters or years. Operator: Our question is from Lucas Nagano, sell-side analyst, Morgan Stanley. Lucas Nagano: We have 2 questions as well. The first one is regarding Pague Fácil. And first of all, I'd like to check some points on the coverage because you mentioned the provision in the beginning is 40% and inadequacy default is converted to 10%. So if it's 47%, is it the same of the PND of the previous year or it varies in the cycle? And the second one is regarding nursing, considering that the government will facilitate the accreditation. How far it could smoothen the effects of the margin? How feasible would be the implementation and offer of professors and the demand available for this level of teaching? Frederico da Cunha Villa: Lucas, Fred, I'll start with Pague Fácil doubt because our provision uses always the history -- as a criteria, the past history because, as I mentioned, Pague Fácil and PMT are just the commercial trade name. So I need to use the history, and we use it. In the beginning, we provisioned 60%. But as I naturally have returns every month, the index of provision coverage is 47%. So just to make it clear to you, I use the history in the beginning, and I provisioned 60% of the budget. And in the history, it's 47%. You can do the math, okay? Roberto the second question. Roberto Valério: Okay. Thank you, Fred. Well, Lucas, regarding nursing, your question about the feasibility to carry out on-site nursing and this transition, the feasibility on our site is complete. I would like to emphasize 2 things. One, our nursing costs where we would offer nursing in the post already had on-site hours of 42% with the new rule, it's 70%. So I already have tutors and professors and labs and classrooms and everything. So we would be working in a lower percentage. So going from 42% or 52% to 70% is as simple as increasing the amount of hours of the professors and tutors that we have. This is our reality because we always operate with health care courses with off-site labs. We didn't have practice of offering nursing as you asked. In 100% online model, we always have the labs and so on. So if we have a fast track made by MEC based on the evidence that we already have the lab and all the colors, it would be quite fast this impact and it's fast and the impact basically 0 considering that students are migrating from DL to on-site where we have these offers presentially. So this is my understanding. Obviously, we need to leave to be sure that the scenario is the practice, but I have enough elements to say that, yes, that's it. Lucas Nagano: And just a quick follow-up, how should it affect the first point of this post. Roberto Valério: Well, the average price of an on-site nursing course is 30% higher than the semi-presential. This is how the prices were made. And I think that pricing is less related to ability of payment of the students and more related to the level of competition of prices among the many players in the city. If you remove players because they have no labs or professors or so on, the trend is that you can repass the prices and students can pay. So that's why we are seeing a strong growth in the campus even with the on-site being more expensive than semi-presidential or DL. Operator: The next question is from Eduardo Resende, sell-side analyst, UBS. Eduardo Resende: I have 2 questions here. The first regarding the migration of DL students to the on-site or hybrid model as you mentioned. And I would like to understand what was the difference in the commercial strategy now to the next cycle that you see this movement. So anything that you had to do differently in the marketing or other fronts that might be helping that. And the second question is regarding Acerta Brasil and Saber. This year and last year, we had this line contributing a lot to the growth. And I'd like to understand if we have space to expand in the next years or if we now raise the bar too low for that? That's my question. Those are my questions. Roberto Valério: Eduardo now to answer your questions regarding the new commercial strategies to foster the migration from DL to on-site. The answer is no. It's a natural movement on the market. The students had options, and we are talking specifically about the campus. We had the on-site and DL offers as DL is cheaper, we have more demand on DL, but we kept making groups and enrolling students for on-site. We don't have DL. Now they have to enroll for the on-site education. So we keep the levels of enrollment the same, but they simply migrated from a simple line of product to the other one with a higher average ticket, which means a net profit with a greater nominal contribution. As I said, a lower percentage of profit, but with a greater nominal contribution. But directly talking about your question, we have nothing specific. It's a natural movement of the market. And now talking about Acerta Brasil. There's no doubt Acerta Brasil reinforces the learning, especially for Portuguese and math that we deal with the state and Municipal Secretaries of Education. It's a good product. The indicators show that the evolution of the students using this material. And we still have space to grow. Brazil has many states and cities, and we have more than 5,000 cities, and we sell to a small amount of that. So we believe we still have space to grow. Operator: Next question is from Flavio Yoshida, sell-side analyst, Bank of America. Flavio Yoshida: My doubt here is regarding Pague Fácil as well. I'd like to understand better the economics of the students in Pague Fácil when we compare to out-of-pocket students and understanding the dropout and the quality of payment of Pague Fácil. And my second question is specifically regarding the technology CapEx. We know that when we consider the 9 months of '25 compared to the previous year, we had an expressive increase of almost 70%. So I would like to understand the drivers here and if we should wait impressive growth in '26 as well? Roberto Valério: Fred, you start with CapEx. Frederico da Cunha Villa: Yes, I start with CapEx. Flavio, thank you for your question. Regarding CapEx, technology is a product here. So we have strong investments in technology. We are doing this investment and note that in the 9 months compared to '24 and '23, we also grew, and we are here building this too, that is an academic RP, and we believe nobody has that on the market aside from the investments we are also making to improve the student learning and all the development of AI. And here, this is what we look in terms of product view. What we mentioned before is that we don't understand that in the total CapEx of the company, we are not growing nominally here compared to the year. And for the next years, we believe that the CapEx is simply a see-saw reduced technology and invest more in the field, but it's natural. I cannot say only technology, but the CapEx as a whole should even grow nominally comparing the years. Roberto Valério: The second question regarding Pague Fácil. Well, Flavio, it is important. I'll try to explain better because the student Pague Fácil is the out-of-pocket students, they pay, they are not funded. We don't fund any student. All of them pay to us every month. We don't fund -- we haven't funded students for a while, and this is Pague Fácil because the first monthly payments that are -- as they understand latest that they pay in installment. So considering January so that you understand, if the student enrolls in December, for example, December '25 to start studying in February '26, when they pay the monthly fee in December, what are they paying? They are paying the January monthly fee. So the second is February, the third day, March, April, so on. So when it is already March and the student comes late, they say, "Hey, but it's not fair. Why do I have to pay January and February if I didn't study. We still didn't have classes, it's already March," and then we say, "Well, in fact, the point is you pay for the semester in 6 installments as it's already March. I am facilitating. That's why it's called Pague Fácil, easily. So you are late. So I let you pay installments January and February. So you choose 46 or 47 installments." So we explain to the students and to make it clear, Pague Fácil historically is a student that is late in paying the installments. They don't want to pay it all the time. So we facilitate by paying the installments. So there is no difference between Pague Fácil and the one that pays. The difference is that we only had this offer of Pague Fácil start in February, March, April, and now we are offering even for December, January for those who were correcting payments. So that's why we increased the penetration of Pague Fácil. So in this case, there is more quality or less quality. We understand they have more quality because if you enroll previously, you are scheduled to that you organize if you are enrolling in January or December, they are more organized and more engaged, probably a better payer. So in our understanding, the fact of allowing the monthly fees in installments wouldn't facilitate the dropout because they are good students. They come before the ones that are late in their enrollment. So it's important to say that all this process to the students is quite clear. They sign a contract acceptance terms, so they can pay the installments that are, let's say, late or they choose how to participate. So obviously, they have to choose the benefit. That's why they have such a big penetration. So that's why we are completely transparent in all questions that we understand this strategy than simply reducing the prices to be competitive commercially. So this is the strategy plan of Pague Fácil. Operator: The next question is from Renan Prata, sell-side analyst, Citi. Renan Prata: Quite briefly regarding the results, I think this line that we have 4 semesters with gains. I would like to understand your point of view on this funding. And I don't know what you are thinking for this line and the other, if you can give an update of the trade-off of Vasta because there was some delay regarding SEC, but if you can update us, it will help as well. Roberto Valério: Renan, the first question of risco sacado. The risk is something that we know we are keeping that. And in this case, it is in Saber and Vasta that is the installment, the funding of our raw material, mainly paper and printing. There is a correlation with the growth of revenue. As I grow the revenue, I need more paper and print the books and so on. So note that I'm growing the revenue in Somos Educação and not Saber, but this strategy is ongoing. So why? Because today, my average cost of debt is CDI plus 1.5% and risco sacado is 2.9%. So what happens is that we are doing that naturally, Renan, because if I simply remove all the risk and put it into a debt, I have no problems in leverage and the debtor risk was always clear in the company. But if I do that, I reduce the operational cash at the moment 0 in BRL 490 million. So naturally, you will see that this line that was correlated to the revenue will be a line that will reduce quarter-by-quarter until we understand that we do not have to consider the debtor risk is the main reason is the average cost of the debtor risk regarding our debt. First question. The second one regarding the trader offer of Vasta, it's public. So I won't say anything different. So we are just waiting for the American SEC that is the Brazilian CGM that is in the shutdown process due to political problems in North America. So we are waiting for the reopening of SEC so that we can have the operational and legal bureaucracy for the operation. We postponed the operation due to the shutdown of the SEC. And until the deadline that is December 9, our expectation in discussions with our legal consultants in North America that SEC will open in November, and this is a data that I'm just repassing what I've heard. There is no commitment in what I'm saying. So the expectation is that until 9 we can have more elements in this operation to close everything. Operator: The Q&A session is over. So we will now pass on the floor to Mr. Roberto Valério to his final considerations. Roberto Valério: Well, I thank you all for your participation. I'd like to reinforce my thanks to everyone of the 26,000 workers that are working nonstop so that we can reach the results and get better to our clients and students. Thank you very much. And we are still available with our team to clear any doubts necessary. Thank you very much, and we see you in the next quarter. Operator: The results conference regarding the third quarter of '25 of Cogna Educação is over. The Department of Relation with Investor is available to clear any doubts you might have. Thank you very much to the participants, and have a nice afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Agus Aris Gunandar: Good afternoon, everyone. Thank you for joining today's earnings call for PT Lippo Karawaci Tbk. My name is Agus Aris Gunandar, Head of Investor Relations, and I'll be your moderator for today's session. With me is Pak Fendi Santoso, our CFO, who will give you a presentation of the company's results for the 9 months ending September 2025, which will then be followed by a Q&A session. [Operator Instructions] Pak Fendi, can you please proceed with the presentation. Fendi Santoso: All right. Thank you, Pak Agus. Good afternoon, everyone. Thank you for attending this earnings call that will discuss 9 months performance of PT Lippo Karawaci Tbk. So let me just go straight jump into the performance for the 9 months. Probably before we start with the results, let me just give you -- give everyone a context to what we see from the macro point of view. We still see that demand is relatively a bit soft in this quarter. And the overall economy still remains pretty relatively soft with the Indonesian consumer buying power also remain subdued. That being said, we are starting to see that on a quarter-on-quarter basis, third quarter compared to the first quarter and second quarter of this year has improved a lot. And we are also seeing that's happening across our businesses, both in real estate, lifestyle and health care. So for the first 9 months of 2025, our marketing sales for the real estate reached IDR 4 trillion, and this is compared to -- this is 64% compared to our full year target of about IDR 6.25 trillion that we've guided everyone earlier this year. Our revenue continued to post a very strong year-on-year growth, 74%, registering IDR 5.51 trillion of revenue and EBITDA increased by 4% at about IDR 843 billion. And our product launches for the first 9 months includes the premium series as well as the more affordable housing. We'll touch base on real estate performance later on the next few slides. But moving on to the lifestyle. Overall, relatively stable. Lifestyle revenue hit IDR 994 billion with EBITDA increased by about 21%. So our mall is actually doing relatively well with growth of about 6%, 7% on the visitors side, occupancy also improved by about 5 percentage points to 84%. This is higher than the average occupancy rate of mall in Indonesia. But our hotel revenue continued to see headwinds, and this is driven by the government budget cut spending that happened earlier this year. That being said, on a quarter-on-quarter basis, we are actually seeing improvements on our hotel business where occupancy rate improved quite substantially from the second quarter of this year. On health care revenue, Siloam’ performed extremely well for the third quarter. The first 9 months, it recorded about IDR 7.29 trillion, which is 3% increase year-on-year and EBITDA at about IDR 2.08 trillion with margins standing at about 29%. So that's overall on -- I'll spend a little bit more time on each segment later on the next few slides. But just on the statutory level, we will be posting about IDR 6.5 trillion of revenue for the first 9 months of 2025, slight lower compared to what we published last year, but this is because of Siloam’ still was consolidated in the first 6 months of 2024. And as such, the occupancy sits obviously higher. But then if we remove Siloam’ from the first half of 2024, we're actually seeing that the revenue grew by about 52% compared to last year on a pro forma on a like-for-like basis. Similar on EBITDA, we posted about IDR 997 billion for the first 9 months of 2025 compared to last year, lower because of the consolidation of Siloam’ in the first half of 2024. And if we remove this, our EBITDA actually grew by about 4% this year. This is the P&L that we will -- that we published in the 9 months 2025. We will touch base on revenue and EBITDA. Income from associates obviously increased, and this is because 9 months 2025 already fully deconsolidated and assumes and classify Siloam’ as our associate company and as such, contributions from its profits goes to the income from associates. So that's up by about 230%. I think additionally, we have also seen improvements from our [indiscernible] performance and contribution is actually quite positive this first 9 months of 2025. Net interest expense come down and is driven by our liability management as we've reduced our debt quite substantially over the last 12 months. And amortization and depreciation and taxes also reduced because of -- mostly because of the deconsolidation of Siloam that happened last year. And that resulted in our underlying NPAT of about IDR 442 billion, higher by about 8% compared to last year and NPAT of IDR 368 billion, substantially lower from last year, given that last year, we've enjoyed quite a lot of nonoperational and one-off items, including the gain from our deconsolidations of Siloam last year as well as the sale that we did on our Siloam stake last year. This is the cash flow for LPKR. I think relatively, we remain -- our liquidity remains strong. The focus of this year was to complete a lot of our projects that we sold in the previous years. And as such, the payments of about IDR 4.6 trillion that we had in the first 9 months of the year, this is offset obviously by the collection that we've gotten from consumers, from our customers from marketing sales. Net interest expenses, IDR 175 billion. This is substantially lower compared to last year where we spent about IDR 765 billion, and this is reflecting a successful deleveraging initiative and commitment to ensure that we have a stronger balance sheet moving forward. This is also in the cash from financing activity, IDR 1.8 trillion outflow given that we've settled all our U.S. dollar bonds in the beginning of the year as well as continue to repay our loans with the banks. On the financing side, I'm pleased to announce, I think we've shared this in the last -- in the previous earnings call that we've successfully secured a loan from BTN to refinance our syndicated loans. So I'm pleased to announce that we've now successfully reduced our cost of funds by about 60 basis points. So today, we are paying about BI rate plus 1.4%, which translates to about 6.15%. And then this is on [ ideal ] loans, which I think will continue to support our liquidity moving forward. As I mentioned, we fully paid all our U.S. dollar bonds. Now our liabilities are all in rupiah denominated. So and as such, we managed to remove the FX risk that's inherent in our business in the past. So now the revenue and cost and liabilities are matched. And we landed in September 2025 at about $2.75 trillion net debt and an improved debt maturity profile following our refinancing of the syndicated loans. So I'll move on to segment by segment. I'll touch on the real estate first. So on the property development projects sold in the first 9 months, we've sold 22 projects of landed residentials, around 9 projects of low-rise to high-rise residentials and then 16 shop houses projects. We spoke about marketing sales in the previous slides, but 70% of our landed housings -- 70% of our total marketing sales are contributed by our landed housings. We've done about 11 launches in the first 9 months. Lippo Karawaci, we've done 5 launches: Park Serpong 4 and 5, Bentley Homes and Bentley -- Belmont and Bentley Homes in Central and Marq in the heart of [indiscernible] cities. Lippo Cikarang, we've launched 3 launches, The Allegra at Casa De Lago, The Hive Tanamera and The Hive Neo Patio, which is shop houses and also 3 launches in Tanjung Bunga. Financial performance, I think we've touched base on this. But moving forward, we continue to focus on the affordable homes designed for young families as well as moving -- focusing more to the premium residents that meet lifestyle aspirations of the affluent market. Marketing sales, IDR 4 trillion for the first 9 months, 64%, as I mentioned, compared to what we've targeted for this year at IDR 6.25 trillion. I think the majority of the marketing sales are coming from [indiscernible] residentials at about IDR 2.1 trillion, followed by Lippo Cikarang at about IDR 1.2 trillion. We still have plenty of land bank that we can develop and which translate about 25-plus years of remaining land bank that we can develop at the current run rate. Highlights of marketing sales for the first 9 months, Lippo Karawaci is still dominated by landed housing at 77% in terms of value and 84% in terms of number of units. Lippo Cikarang, I think it's more balanced between landed housing, which contributed about 55% of the total marketing sales and commercial area, which is about 34%. In terms of the payment method, mortgage is still dominating the way our customers are buying our property at about 65%, which is lower compared to last year because a lot of people are opted for installments this year. In terms of the ticket size, still dominated by product with price less than IDR 1 billion that contributed about 66% and with -- and then the product that priced at IDR 1 billion to IDR 2 billion accounts for about 25% of total marketing sales. This is the project handover highlights. I think in totality for the first 9 months, we've handed over around 8,000 units. And obviously, predominantly from -- the Park Serpong is just an example of the cluster of Park Serpongs that we've completed and handed over, Cityzen Park East, Citizen Park North and Park West. In Lippo Village, we've also done quite a bit of handed over in the first 9 months, Cendana Essence, Site A Area 1 and 2, Cendana Cove Verdant and Cendana Cove also in Lippo Karawaci and also the handovers that we've done in [ Makassar ]. This is just to give you the highlights of the product innovations. There are a bunch of products that we introduced in the third quarter of this year from a building area of about 35 square meters at price at about IDR 397 million, up to close to 100 square meter property with price at about IDR 897 million in rupiah. I think 2 products that I would just give you a context to what the customers are liking is Treetops Alpha Livin and Goldtops, which is a 3-story homes that we've recently introduced in the first half of the year. This is just a picture of the grand launching of Park Serpong Phase 5. It was done on 30th August 2025, pretty successful at 87% takeup rate. We've sold about -- we've made about IDR 200-plus billion of marketing sales from the launching only. We continue to enhance our offering in Park Serpong. We will be introducing Lentera National, which is a K1 to 12 education school campus supported by Pelita Harapan Group. So this is part of the [indiscernible] Pelita Harapan education offerings. So this is, I think, going to enhance our propositions to -- and our service to the residents of Park Serpong. We've also introduced minimart, some sports facilities just to support the communities. We've also introduced shuttle bus that connects Park Serpong with some key establishment within the areas. And also, we are developing a modern market. We're going to introduce this very soon, situated in Park Serpong. And we've secured about 1.5 hectares for this modern market that will actually enhance our shop houses' marketing sales as when this product launches. So that's on the real estate segment. I'll move on to lifestyle. Just to recap for everyone, we've managed about 59 malls nationwide across 39 cities with net leasable area comprises of about 2.5 million square meters with very well diverse tenant mix comprising of grocery retailing, department store, F&B, leisure, fashions, casual leasings and all that from -- and then supported by well-known tenants, both locally as well as internationally. Performance continued to show a pretty strong growth. Revenue increased by about 7% and EBITDA increased by 15%, given the operating leverage that we enjoyed for this business. The mall visitors also continued to grow year-on-year by about 7% and occupancy rates also improving from 80% last year to 84.4% this year. We continue to do a lot of activities. This is just to give you some highlights to activities that we had in our mall properties. The Lippo Mall Kemang celebrated its 13th anniversary. And then we've held an event of fashion show, live music and community tenants in the month of September and October. Cibubur Junction is undergoing an upgrade. We are repositioning our tenant mix and going to renovate the program starting Q4 2025. So there's going to be more exciting tenants coming in. I believe that once this project is completed, I think it will drive more traffic into Cibubur Junctions. We also done a tenant gathering of Lippo Mall Indonesia and Plangi Nusantara, which received a lot of support from our tenants, too. On our hotel business, we've operated about 10 hotels and 2 leisure facilities across 9 cities in Indonesia. The performance is still facing headwinds with revenue comes down by 6%. And this is, as I mentioned earlier, this is driven by the challenges that we had for hotels that have been enjoying a lot of [ government ] events as the government cut spending and hold budgets of spending in the first half of the year and EBITDA coming down by 24%. Occupancy is lower compared to last year by 7% to 60%. However, just wanted to highlight that in the third quarter of this year, occupancy actually stands at about 71%. And compared to the second quarter of this year, so Q-on-Q, it's actually improving by 10 percentage points. So it was 61%, increased to 71% in the third quarter. So we have started to see things are recovering pretty nicely from our hotel business, but yet still not where we want it to be compared to last year's. Average room rates also improved by about 2% to IDR 635,000 per night. Now moving on to our third segment, which is health care. I think overall, we are starting to see that our health care business in the third quarter improved compared to the soft demand in the first half of the year with revenue actually improved by 7.8%. And then this is despite of a few unfavorable external events happening in the third quarter of 2025. If you recall, in early August, there was demonstrations happening across Indonesia, especially in Jakarta, where it affected our hospital operations as well as in earlier September or late August, there was a flooding also happening in Bali that impacted our hospital operations in Bali, where we had to shut down for 1 week. So those 2 incidents actually contributed to a lower revenue of about IDR 49 billion. So if we added up that loss of revenue to the third quarter of 2025, our revenue actually on a quarter-on-quarter basis improved by about 11%. So hopefully, in the fourth quarter, there's no more unforeseeable external events that's impacting our business, and we'll continue to see the recovery trends happening on the next few quarters. EBITDA, up by 19% also. On the operating metrics, I think overall, it's pretty positive on a quarter-on-quarter basis. Our outpatient visit improved by about 8.5% to 1.1 million in the third quarter of 2025. Our OPD to IPD conversions quite -- remains quite stable at 2.9%. Inpatient admissions also increased by 8.2% compared to the previous quarter. Inpatient days also improved by about 9% with ALOS stands pretty stable at about 3.1% compared to the last quarter. And occupancy rates improved by about 3.6 percentage points to 65.8%. So that's contributing to a relatively strong performance in the third quarter of this year. I think that's all I have for today's 9-month performance of Lippo Karawaci. I'll pause there to see if there's anyone have questions. Agus Aris Gunandar: Thank you, Pak Fendi, for the presentation. We do have received several questions in the Q&A box. Let me read the question as follows. The first one is from [indiscernible]. He's asking for an update on the MSU or [indiscernible] handovers and how much is left as of 9 months of 2025? Fendi Santoso: Yes. So I think mostly we've done all our obligation for the MSUs units that we need to hand over this year. I think in terms of the units already available, I think we are in the process of completing that handover, which the team is going to complete this by end of the month or early December. So I think we've done about 4,600, if I recall correctly, 4,500 to 4,600 for this year. Yes. So I think there's another question here. What is the occupancy rate of Lippo Malls as of current? I think I've mentioned this earlier. In the third quarter of this year, we had about 71%. So that's improving actually from the previous quarter of 61%. Overall, for the first 9 months on average, it's about 60% -- sorry, the Lippo Malls, 84%, sorry. I think we had that 84%, sorry, for the mall. So there's another question on the presales forming 64%. What will be the driving factor for the fourth quarter to reach this target? So we are actually doing a few more launches this year. We just had one launch that happens in Manado, which is getting quite a bit of good traction. And there are a few launches that we are going to do this year. So I think we are still -- the team is still aiming to hit that IDR 6.25 trillion marketing sales target for the year. So yes. Agus Aris Gunandar: Okay. I see there's no more questions on the chat box. So I think we have reached a conclusion of our discussion today. We'll be sharing the presentation material shortly after the session. And once again, thank you for joining Lippo Karawaci's 9-month 2025 Earnings Call. And we do look forward to meeting you again for our full year 2025 earnings call. And we wish everyone a very, very good afternoon. Thank you. Fendi Santoso: Thank you.
Operator: Good afternoon, and welcome to Banco de Chile's Third Quarter 202 Results Conference Call. If you need a copy of the financial management review, it is available on the company's website. Today with us, we have Mr. Rodrigo Aravena, Chief Economist and Institutional Relations Officer; Mr. Pablo Mejia, Head of Investor Relations; and Daniel Galarce, Head of Financial Control and Capital. Before we begin, I'd like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed notes in the company's press release regarding forward-looking statements. I will now turn the call over to Mr. Rodrigo Aravena. Please go ahead. Rodrigo Aravena: Good afternoon, everyone. Thank you for joining this conference call, where we will present the key results and developments achieved by our bank during the third quarter of this year. We are pleased to report that Banco de Chile has once again delivered strong results, reaffirming our solid market position. Our performance this quarter reflects not only robust financial outcomes, but also meaningful progress in a strategic initiative that strengthens our long-term competitiveness. Key highlights for the quarter include net income as of September 2025 reached CLP 927 million, representing a year-on-year growth of 1.9% that resulted in an ROAC of 22.3%. These results were driven by strong customer income, fund asset quality and ongoing efficiency improvements. These achievements are particularly significant given the challenging macroeconomic and political environment marked by subdued loan growth, especially among corporations. In times of uncertainty, solid fundamentals and proven risk management become critical differentiators. Banco de Chile continues to stand out among peers in asset quality, additional provisions and capital strength, providing resilience and a solid basis for the future. Let's now turn to the macroeconomic context. Please refer to Slide #3. Consistent with the trend observed in previous quarters, the Chilean economy continues to show signs of recovery, particularly in consumption and investments. As illustrated in the graph on the left, GDP growth has maintained an upward trajectory since the second half of 2024, supported by a notable rebound in domestic demand. In the second quarter of this year, GDP expanded by 3.1% year-on-year, remaining above the estimated long-term potential growth rate of around 2%, which resulted in a 2.8% year-on-year expansion in the first half of this year. It is worth noting that this acceleration occurred despite a moderation in external demand. Export growth slowed to 5.4% year-on-year in the second quarter, down from 10.5% in the previous quarter. This reflects the trends of domestic demand, which improved significantly from 1.6% year-on-year in the first quarter to 5.8% year-on-year in the second quarter. A key driver behind this performance was the sharp increase in investment, particularly in machinery and equipment, which surged by 11.4% year-on-year during the period. These indicators confirm that the positive trend in domestic demand has persisted into the second half of this year. As shown in the chart on the upper right, imports have accelerated in recent months, driven by stronger domestic expenditure, particularly investments, evident in the sharp increase in capital goods imports. Furthermore, weighted investments for the next 5 years according to the corporation of capital goods rose by 19% in the second quarter, reflecting a substantial expansion in the pipeline of new projects across the mining and energy sectors as illustrated in the chart on the bottom right. All these figures would result in improved economic performance over the next period while positively impacting loan growth and banking activity. Please go to Slide #4 to analyze inflation and interest rate evolution. Inflation remains above the Central Bank target at the chart on the left displays. In September, headline inflation increased to 4.4% from 4.1% in June. The measure that excludes volatile items was relatively stable, rising just 10 basis points to 3.9% in the same period. This suggests inflation is still driven by volatile items such as energy, which increased 11.4% year-on-year in September. In response, the Central Bank maintained the interest rate at 4.75% in the monetary policy meeting held in October. According to the statement released after the meeting, the persistence of some inflationary risk and the slight improvement of macro conditions require more information before continuing to reduce the interest rate towards neutral levels. Despite this decision, it's important to mention that the Central Bank of Chile has already reduced the interest rate by 650 basis points from the peak of 11.25% reached in 2023, positioning it among the most proactive central banks in terms of monetary easing. The Chilean peso has remained volatile, hovering around CLP 150 per dollar in recent months. However, as shown in the bottom right chart, the U.S. dollar measured by the DXY index has globally weakened this year, a trend not yet reflected in the local exchange rate, partly due to faster pace of interest rate cuts. Now I'd like to present our base scenario for this year. Please go to Slide #5. We have revised our GDP forecast up for 2025 from 2.3% in the previous call to 2.5% now. This adjustment is due to stronger-than-expected growth in domestic demand and improvement in some leading indicators, as mentioned earlier. As a result, the economy will likely achieve a similar expansion as compared to 2024 despite weaker global activity, which is expected to reduce the export pace of growth. However, the better outlook for domestic demand has offset this external drag. This scenario is consistent with a gradual decline in hyperinflation to 3.9% by December 2025, assuming no relevant shocks or significant depreciation of the Chilean peso in the coming months. Under this condition, we expect the Central Bank will likely cut the monetary policy interest rate once more in the fourth quarter to end the year in 4.5%. Finally, it's important to reiterate the unusually high level of uncertainty we face, particularly from global factors. Domestically, attention will also be focused on the upcoming presidential and parliamentary election scheduled for November and the presidential runoff expected in December 2025. Before reviewing the bank's results in detail, let's take a brief look at industry trends. As shown in the chart on the top left, the banking industry delivered another solid quarter. Net income reached CLP 1.3 trillion and the return on average equity stood at 14.7%. While below the previous quarter, this figure confirmed the central ability to sustain healthy profitability despite lower inflation. This performance reflects the resilience of core banking activity, particularly concentrated in commercial banking after a long period that was dominated by the extraordinary revenues coming from treasury activities on the ground of extremely high levels of inflation and higher-than-normal interest rate, among others. Turning to asset quality. The chart on the top right shows that nonperforming loans remain relatively stable for the industry at 2.5% with a coverage ratio of 143%, consistent with recent quarters. Despite a challenging macroeconomic backdrop marked by elevated borrowing costs and labor market pressures, banks have managed to keep delinquency under control while maintaining prudent provisioning and strong buffers to absorb potential increases in credit risk. On the credit side, the bottom left chart highlights that the loan-to-GDP ratio stood at 76% as of September 2025, continuing a below-trend behavior from pre-pandemic highs. This reflects the subdued pace of credit expansion relative to economic activity in recent years. Finally, the bottom right chart further illustrated the persistent weakness in real loan growth across all segments. Since December 2019, total loans have contracted 2.3% with consumer lending showing the sharpest decline of 18%, followed by commercial loans at 9.5%. This slow demand for credit has been driven by, firstly, by liquidity surplus caused by pension fund withdrawal in 2021, 2022, which was after followed by high interest rates, increased inflation and cautious corporate borrowing amid economic and political uncertainty and persistent labor market challenges more recently. In summary, while profitability and asset quality remains strong, lending activity continues to lag. Looking ahead, a gradual recovery in loan growth could materialize as uncertainty eases, particularly regarding external risk and in the local front, the outcome of upcoming presidential and parliamentary election, together with revised approval procedures for large-scale investment projects, allowing the industry to return closer to historical GDP multiples. Next, Pablo will share information regarding Banco de Chile developments and financial results. Pablo Ricci: Thank you, Rodrigo. Let's turn to Slide 8, which brings our strategy and ambitions into focus. It's our road map for growth and leadership. The core of our strategy is guided by a well-defined purpose, which is to contribute to the progress of Chile, its people and its companies. Supporting this are our guiding principles that shape how we operate in the medium term, efficiency, collaboration and a customer-first mindset and a focus on creating value in the areas we compete. These elements ensure our agility, innovation and long-term sustainability. On the right, our midterm targets show where we're heading. industry-leading profitability, market leadership in lending and local currency deposits, superior service quality as reflected by a top Net Promoter Score and a strong corporate reputation among the top 3 companies in Chile. We're also committed to efficiency, which translates into a cost-to-income ratio that must remain below 42%, driven by digital transformation and continuous improvements in technology and operational processes. In short, this strategy enables us to deliver sustainable growth and create lasting value for all of our stakeholders. Please move to Slide 9, where we will go over our key business achievements. In the third quarter of 2025, we continued advancing initiatives that strengthen our position as a more efficient digital and sustainable institution. A major milestone this quarter was the successful integration of our former collection services subsidiary, SOCOFIN, into the bank's operations. This merger was completed without affecting productivity metrics for the collection of overdue loans and has generated important cost and operational synergies that have translated into increased efficiency and enhanced customer experience. Productivity also continued to rise in the third quarter of 2025, driven by technological innovation and digital solutions. In consumer loan originations, executives increased productivity by 13% in the number of operations and 11% in the amounts sold compared to the same period last year. These results highlight the positive impact of our digital transformation on overall performance. We also worked to optimize our physical branch network and strengthen customer service. Through branch efficiencies, we aim to keep our service line aligned with clients' evolving needs while improving efficiency and delivering a better experience. On the digital front, we expanded the use of AI virtual assistants for both customers and employees. FANi, our chatbot now supports all FAN accounts, including SMEs through the FAN and Print the Plan. Additionally, we introduced AI tools to assist staff with internal processes, boosting productivity and service quality. To deepen partnerships with businesses, we launched the API store, a platform that enables secure technological integration with corporate clients. This initiative allows companies to automate operations directly with our financial services, adding value to our offerings. In line with this is our sustainability commitment. We introduced a training plan to promote responsible supplier management. As part of this effort, we are developing educational capsules to inform suppliers about our revised purchasing procedures and encourage best practices within their organizations. Another highlight of this quarter was the 4270 project, an unprecedented audiovisual initiative that captured Chile's 4,270 kilometers from north to south through a 90-day drone journey. By documenting the country's diverse landscapes, traditions and cultural richness, this project aims to strengthen national identity and reconnect Chileans with their shared heritage. Beyond its artistic value, this initiative reinforces our brand positioning by associating Banco de Chile with pride, unity and long-term commitment to the country. The project was conceived as a gift to Chile, offering more than 500 royalty-free high-quality images for education and cultural use and has earned international recognition, including a Gold Lion at the Cannes Festival and the showcase at Expo Osaka 2025. Finally, our customer-focused strategy continues to deliver solid results. For the third year in a row, we ranked first in customer satisfaction at the Procalidad Awards, and we were honored as the best of the best among large financial institutions, the only bank to achieve this distinction. These recognitions confirm the success of our strategy and their commitment to serving clients with excellence. Please turn to Slide 11 to begin our discussion on our results. We continue to deliver strong results in the third quarter of 2025, posting a net income of CLP 293 billion, equivalent to a return on average capital of 22.4%, as shown on the chart and table to the left. This represents a net income increase of 1.7% compared to the same period last year despite a sequential decline from the previous quarter, reflecting the impact of lower inflation on margins. It's important to highlight that we outperformed our peers in both net income market share and return on average assets, as illustrated on the charts to the right. Specifically, as of September 2025, our market share in net income reached 22%, well above the closest -- our closest competitors and our return on average assets stood at 2.3%, maintaining a wide gap over peers. These results underscore our consistent focus on customer engagement, prudent risk management, disciplined cost control and above all, the resilience of our core business and recurrent income-generating capacity, particularly centered on customer income, which has continued to grow steadily and enabled us to deal with the expected normalization of key market factors. Our strategy remains firmly oriented towards building a sustainable and profitable bank, and we continue to aspire to be the industry benchmark in profitability. Let's take a closer look at the operating income performance on the next Slide 12. We continue to demonstrate the strongest operating revenue-generating capacity in the local industry, reaffirming the resilience of our superior business model through different market cycles. As shown on the chart to the left, operating revenues totaled CLP 736 billion in the third quarter of 2025, representing a 2.1% increase year-on-year despite a backdrop of subdued business activity and the effect of lower inflation on treasury revenues. This performance was supported by solid customer income of CLP 630 billion, which grew 5.4% year-on-year, while noncustomer income amounted to CLP 105 billion, reflecting a 14.1% decline compared to the same quarter last year. The contraction in noncustomer income was mainly explained by lower inflation-related revenues from the management of our structural UF net asset exposure that hedges our equity from changes in inflation as UF variation dropped to 0.6% this quarter from 0.9% recorded in the same quarter last year. To a lesser extent, revenues coming from the management of our trading and debt securities portfolios also recorded a slight decrease year-on-year due to both lower market mark-to-market revenues due to unfavorable changes in interest rates and a decrease in revenues coming from the management of our intraday FX position. In turn, customer income has continued to grow, supported by a robust performance in income from loans and net fees, which helped offset the pressure from lower inflation-related revenues. Within loans, better lending spreads and growth in average balances drove income generation, particularly concentrated in consumer and commercial loans as our loan book has continued to return to more normalized margins to the extent FOGAPE loans keep on amortizing. Furthermore, net fee income expanded by 10% compared to the third quarter of 2024, led by mutual fund management fees, which increased 19% and transactional services up 6%, together with increased contributions from insurance and stock brokerage fees due to improved cross-selling and credit-related insurance and the participation of our stock brokerage subsidiary in a couple of important transactions carried out in the local capital market this quarter. This performance highlights the strength of our diversified revenue base beyond traditional lending activities. As a result, our net interest margin stood at 4.65% for the 9-month period ended September 30, 2025, maintaining a clear market-leading position in the industry despite margin compression caused by inflation and the financial environment marked by lower interest rates. Furthermore, our fee margin as a percentage of interest-earning assets reached 1.3%, which enabled us to further drive our operating margin to the level of 6.4%, well above the industry average and our main peers, demonstrating the effectiveness of our strategy and our ability to consistently deliver value to our customers and shareholders regardless of prevailing economic conditions. Please turn to Slide 13, where we will review the evolution of our loan portfolio. As shown on the left, total loans reached CLP 39.6 trillion as of September 2025, representing a 3.7% year-on-year increase and a 0.6% sequential growth. This expansion remains contained and continues to reflect subdued credit dynamics across the industry, consistent with the Central Bank's latest credit survey, which indicates that overall demand and supply conditions remain stable, although noticing some signs of recovery in certain segments. Breaking this down by product, mortgage loans grew 7.3% year-on-year, well above inflation, supported by stronger demand through selective origination in middle- and upper-income segments and demand for housing that continues to be driven by demographic issues rather than economic cycle. Consumer loans increased 3.7% year-on-year amid cautious borrowing behavior and interest rates that remain above neutral levels as well as the profile of our customers characterized by liquidity levels above our peers would partly explain our performance in consumer loans. While loan growth in this lending family has been slower than the industry, it's important to note that our strategic focus continues to be centered into the higher income segments, avoiding aggressive expansion into lower income markets targeted by some market players, which explains an overall loss in market share that, however, is consistent with our long-term strategic view. Regarding commercial loans, we posted a 1.3% year-on-year increase in September 2025, constrained by weak investment and uncertainty. However, we'd like to emphasize that we are seeing some early signs of recovery, particularly in the SMEs and certain wholesale banking units, such as the large companies area, which is consistent with higher-than-expected capital expenditures in some industries earlier this year as reported by the Central Bank and national accounts. On the right side of this slide, you can see that retail banking continues to be the main commercial focus by accounting for 66% of total loans with personal banking representing 52% of the whole book. Accordingly, wholesale loans represent 34% of our book and is split between corporate clients, representing 20% and large companies, representing 14%. When looking at the loan growth by segment, we can see some interesting trends. Personal banking expanded 5.8%, driven by mortgage loans, while SMEs and large company segment have also posted positive year-on-year growth levels of 4.8% and 7.1%, both above 12-month inflation. SME loan expansion was supported by demand from non-FOGAPE loans that continues to grow steadily by expanding 8% year-on-year, while the large companies banking unit has managed to grow positively for the third quarter in a row on the grounds of commercial leasing and trade finance loans. Corporate loans, however, contracted 4.3% year-on-year, reflecting lagged investment activity and selective credit demand among corporations, which is highly aligned with findings released by the Central Bank in the last quarterly credit survey. It's important to note that our loan growth remains slightly below the 12-month inflation, and we have experienced a minor decline in overall market share over the last year, mainly due to competitors expanding into segments outside our strategic scope and the countercyclical role played by the state-owned bank BancoEstado. Positively, we gained share in mortgage loans, thanks to our competitive funding and strong customer relationships. Overall, our portfolio remains well diversified and positioned to capture opportunities as business sentiment improves, interest rates continue to converge to neutral levels and the domestic demand strengthens. Slide 14 highlights our strong balance sheet mix supported by long-term financial stability. As shown on the chart to the left, loans represented 71.4% of total assets as of September 2025, while our securities portfolio reached 12.5% of total assets, up 54% from a year earlier. The increase in our securities portfolio was primarily driven by the funding strategy carried out by our treasury in the third quarter, which resulted in long-term bond placements aimed at replacing upcoming amortizations, reducing term spread and currency mismatches in the banking book and supporting future loan growth. In the short run, part of this funding has been invested in high-quality fixed income securities, which has translated into improved liquidity metrics over the last couple of months. In this regard, our securities portfolio is mainly composed of securities issued by the Chilean Central Bank and government, which accounted for 65% of the total amount, followed by local bank instruments, mostly certificates of deposits, representing 28%. As a percentage of total assets, available-for-sale securities represented 5.9%, trading securities amounted to 5.8%, while held-to-maturity represented only 0.8% of total assets, all as of September 30, 2025. On the funding side, deposits remain our main source of financing, representing 53.1% of the total assets with demand deposits accounting for 25.8% and time deposits representing 27%. Given these figures, our noninterest-bearing demand deposits fund 36% of our loan book, which is a key competitive advantage that supports our leading net interest margin, as shown on the chart on the top right. More importantly, our deposit base is highly concentrated in retail banking counterparties, which provide us with more stable sources of funding over time. Regarding debt issued, it increased significantly during the third quarter of 2025, rising from 19% of our total liabilities in the third quarter of 2024 to 20% in the third quarter of 2025 as a result of recent placements. This growth was mainly driven by senior bond issuances in the local market, particularly this quarter, which added CLP 1.6 trillion to our former balances, representing a year-on-year increase of 16%. Prior to this quarter, long-term bond placements had primarily been focused on replacing scheduled maturities of previously issued bonds. However, beginning this quarter of 2025, we reassessed our funding strategy in light of the gradual rebound expected for lending activity, particularly in longer-term loans. Similarly, the gradual convergence of key market factors such as the monetary policy rate and inflation towards neutral levels significantly reduces the opportunity to benefit from temporary balance sheet mismatches. With this outlook in mind, during this quarter, we carried out several placements of bonds in the local market for an amount of CLP 1.1 trillion with an average interest rate of approximately 3% and an average maturity of 11.1 years and a 5-year bond denominated in Mexican pesos equivalent to CLP 50 billion, bearing an interest rate of 9.75% in Mexican currency. Together with raising long-term funding for future loan growth, these bond issuances also allowed us to reduce our structural UF gap from the peak of CLP 9.7 trillion in March 2025 to CLP 8.3 trillion in September 2025, implying a sensitivity of roughly CLP 83 billion in net interest income for every 1% change in inflation. This is aligned with our revised view on inflation that does not significantly differ from the market ones. The placement of long-term bonds also had a positive effect on interest rate mismatches in the banking book as bonds issued were mostly denominated in U.S. with tenures above 10 years, which closed the gap generated by steady growth in residential mortgage loans. As a result, regulatory and internal rate risk in the banking book metrics for short- and long-term rate risk posted a significant sequential decrease of around 20% Furthermore, our liquidity ratios remained well above the regulatory requirements with an LCR of 207% and NSFR of 120%, both well above the prevailing regulatory thresholds of 100% and 90%, respectively, reflecting prudent liquidity management and the positive impact of recent bond placements on this matter. Please turn to Slide 15 for our capital position. As illustrated, Banco de Chile continues to demonstrate a strong capital foundation, comfortably above regulatory thresholds and peer averages. Our CET1 ratio reached 14.2%, reflecting our leadership in the industry. When including Tier 2 instruments, our total Basel III capital ratio stood at 18%, providing wide room to support organic and inorganic growth initiatives and absorb potential market volatility. The solid capital position reflects a disciplined approach to profitability and sustained earnings retention over recent years. Additionally, the modest loan growth has also contributed to maintaining positive capital gaps. Our capital strategy was designed to navigate the final stages of Basel III implementation while preserving flexibility for both organic expansion and potential strategic opportunities. It's worth highlighting that Chile operates under one of the most demanding regulatory environments globally, characterized by higher risk-weighted asset density as compared to jurisdictions where internal models play a significant role. In fact, risk-weighted asset calculations under Basel III in Chile resemble those under the formal Basel I framework. Furthermore, local regulations impose capital requirements similar to those in markets with lower risk-weighted asset densities, including systemic surcharges, Pillar 2 charges and the conservation and countercyclical buffers, all working together and on a fully loaded basis. Despite these stringent conditions, Banco de Chile consistently exceeds all capital requirements, underscoring once again the resilience and the strength of our business and balance sheet by delivering a unique combination of lower risk and higher capital and outpacing in profitability. Please turn to Slide 16 to review our asset quality. We continue to set the benchmark in asset quality, supported by disciplined risk management and a conservative provisioning framework. In the third quarter, expected credit losses only reached CLP 80 billion, marking a sequential decline and reinforcing the positive trend we saw during the year. Despite the year-on-year figure remained almost unchanged, there were notable shifts in the composition of expected credit losses. Specifically, the Wholesale Banking segment recorded a net provision release of CLP 18 billion, mainly driven by a comparison base effect following the deterioration of asset quality of certain customers belonging to the real estate construction and financial services industries during the third quarter of 2024 as well as an improvement in the credit profile of a manufacturing client this quarter. Conversely, the Retail Banking segment posted a year-on-year increase of CLP 4 billion in risk expenses, primarily due to higher level of overdue loans above 30 days when compared to the same quarter last year. These movements were largely offset by a rise of CLP 5 billion of impairment of financial assets explained by a comparison base effect related to lower probabilities of default for fixed income securities issued by local financial institutions in the third quarter last year, a loan growth effect of CLP 5 billion, driven by a 4.2% year-on-year increase in average loan balances, mainly fostered by residential mortgages and a year-on-year increase of CLP 2 billion in provisions for cross-border loans. Mostly driven by a comparison base effect associated with the lower exposures to offshore banking counterparties and Chilean peso appreciation of 4.7% in the third quarter of 2024. As a result, this performance translated into a cost of risk of 0.8% in the third quarter of 2025, which remains below our historical average and highlights the resilience of our diversified loan portfolio amid a still-adjusting credit cycle. Nonperforming loans across the industry remained above pre-pandemic levels, as shown in the top right chart. Our delinquency ratio stood at 1.6%, significantly below peers. This gap underscores the strength of our underwriting standards and the proactive risk management. From a forward-looking perspective, despite fluctuations observed in 2025, we believe that the delinquency indicators will continue to converge to historical levels in both retail and wholesale banking segments. Now in terms of coverage, we maintain the highest ratio in the industry. As of September, total provisions amounted to CLP 1.5 trillion, including CLP 821 billion in specific credit risk allowances and CLP 631 billion in additional provisions. As a result, our total coverage ratio stands at 234%, positioning us with the highest coverage among peers. In summary, our strong asset quality metrics, exceptional coverage levels and prudent risk practices continue to differentiate Banco de Chile and position us to navigate evolving credit conditions with confidence. Please turn to Slide 17. Operating expenses totaled CLP 276 billion this quarter, representing a modest increase of 1.2% when compared to the third quarter of 2024. This growth remains well below the UF variation rate of 4.2% over the last 12 months, highlighting our disciplined approach to cost management. The contained increase reflects our continued efforts to optimize resources and drive efficiency through strategic initiatives and diverse digital transformation projects across the organization. The top chart provides a detailed breakdown of the annual variation expenses. Personnel expenses decreased by 1%, supported by headcount optimization of 5.7% over the last 12 months, which helped offset inflationary pressures on salaries. On the other hand, administration expenses rose by 5.3%, mainly due to higher marketing expenses linked to sponsorship activities aligned with our commercial strategy, increased IT-related costs and to a lesser extent, higher ATM rental costs due to relocations of part of our network. As shown on the chart on the bottom right, our efficiency ratio reached 36.8% for the 9-month period ended September 30, 2025, which significantly outperforms historical levels and competes closely with the market leader in this indicator. This achievement underscores the effectiveness of our ongoing productivity initiatives, which should provide further efficiency gains in the future. Looking ahead, we remain confident that our strong cost discipline, branch optimization efforts and continued investment in technology will allow us to sustain this positive trend. Please turn to Slide 18. Before we conclude, I want to highlight a few ideas presented in this call. First, we have adjusted our GDP forecast for 2025 to 2.5%, up from 2.3%, reflecting a more positive outlook for the Chilean economy. Chile continues to stand out for its strong macro fundamentals, a resilient financial system and a credible policy framework, making it a reliable destination for long-term investment even amid global uncertainty. Second, Banco de Chile remains the clear leader in profitability and capital strength. As shown on the left, we delivered CLP 927 billion in net income with a CET1 ratio of 14.2% and a return on average assets of 2.3%, significantly ahead of our peers. These achievements reinforce our ability to combine strong earnings with robust capital levels. Third, we have revised our guidance for the full year 2025. We expect our return on average capital to be around 22.5%, efficiency near 37% and cost of risk close to 0.9%. These metrics reflect our disciplined approach to both risk management and operational efficiency. Finally, we're confident in our capacity to remain the most profitable bank in Chile over the long term, supported by a strong customer base, solid asset quality and sound capital levels. Thank you. And if you have any questions, we'd be happy to answer them. Operator: [Operator Instructions] So our first question is from Daniel Vaz from Banco Safra. Daniel Vaz: I just want to touch base on your midterm targets. I think the only thing a little bit more distance that we see is the top 1 market share for commercial loans and consumer loans, and we see some stable market shares like in the past few months when we look at the big tables. Just wondering, you're a bank that focused a lot on profitability and focus on maintaining the discipline of the underwriting process. Trying to understand how are you going to tackle this top 1 commercial loans and consumer loans going forward, especially considering that the Chilean market is probably going to a better outlook for commercial loans. We see a little bit more appetite for consumer as well. So how exactly you're going to tackle this first position on both market shares? Like is going to the same clients or going to a more attractive position versus your competitors to still clients or any other things that you would highlight? Pablo Ricci: Daniel, thanks for the question. Maybe Rodrigo will start on the first part there. Rodrigo Aravena: Perfect. Well, thank you very much for the question. Today, we have a more positive view of the Chilean economy in the future. Even though the economic growth expected for this year, which is around 2.3%, 2.5% and probably in the next year, the economic growth will be similar. It's very important to pay attention to the composition of the growth because, for example, in the last year, when the economy grew by 2.6%, we have to remember that the key driver were exports, which are not very relevant as a driver for loan growth, for example, right? More recently, we have seen some positive signs for investment including the acceleration for capital good imports and also the pipeline of expected projects for the next 5 years is also improving a lot, especially in the last quarter. In terms of consumption, we see that the lower trend for inflation is also a positive news for the perspective for consumption as well. So at the end of the day, in our baseline scenario, we're going to have a more dynamic domestic demand, especially on the investment side which will be a positive driver for loan growth in the future. Even though we are not expecting an important acceleration in part of investment because we have to remember that in Chile, between 50% and 55% of investment is related with construction. That part of investment will likely recover not in the short term, but the 45% remaining of investment, which is related with machinery and equipment today is getting better. So that's why even though we are not expecting important changes in the GDP forecast for the next year, we are expecting a more -- a different composition of growth with a more dynamism in domestic demand, which is a good news for loan growth in the future. Also, we have to pay attention to the evolution and the final results of elections in Chile. We're going to have election from the President for the Senate for the lower house as well. So at the end of the day, there are important factors that could accelerate or not the economic growth in the future. But I think that so far, the most important aspect to keep in mind is the potential recovery in domestic demand. Pablo Ricci: So yes, in terms of our midterm targets, these are midterm targets that go beyond not only 2026, but it's a midterm aspiration. And those aspirations, as shown on the slide, we want to be #1 in terms of total commercial loans and consumer loans. So our growth strategy is focused on 3 key ideas. So the first, and we'll go into each one of these a little bit, is digital transformation as a growth engine for the bank. Also as a second area of focus is focus on the high potential segments, notwithstanding all the entire commercial loan book is interesting for us, but it's been more challenging in this environment. And third is operational productivity. So in the digital transformation area, what we've been focusing is leveraging technology to scale the efficiency, enhance customer experience and really drive new growth opportunities across the bank in all the segments. So in that regard, what we're seeing is an increase on digital onboarding. Most of transactions are being done online, and we're expanding our digital capabilities in order to capture this new growth through different channels of the bank in order to grow consumer loans in the middle- and upper-income segments. And we're also implementing the use of AI across the bank in order to improve the service, improve the understanding of our customers and risk management as well. So all of this is improving the customer experience and operational efficiencies and the ability to grow. And in the high potential customer segments or high potential segments, what we're looking to do is to grow and create a larger value creation. And in that area where we're focused on in commercial loans, especially as SMEs, where we see potential to continue growing in the medium term. We've seen good levels of growth recently, especially if we exclude certain government-guaranteed loans. Consumer loans as well, there's a large area to grow. If we look at what's happened today versus prior to the pandemic, this segment has decreased its importance in the overall proportion of loans in Chile. So the loans to GDP penetration has come from levels above 90% to around the 75%. And one of the strongest hit not the most important in the total loan book of the industry is consumer loans. So the strongest hit with a lower percentage in the mix is consumer loans that dropped somewhere almost 20%, 18%. So this area, we think will continue to grow once the economy improves, once unemployment reduces, there's better growth in labor across the board. So here is a very interesting area to grow. SME is very interesting because it's also very cyclical in terms of the economy. So as long as the economy continues to improve, better unemployment, we should see a better activity in these segments and with a better overall view -- business view of Chile, there should be more demand for loans in these 2 segments. And finally, in the large corporate segment, we've seen very little growth, very little demand. But as Rodrigo said, there's a lot of projects in the pipeline with a positive evolution in the future. This should also help drive loan growth for the industry. Saying that, we're in a very good position to capture this growth in organically or inorganically because we have a huge level of capital that allows us to do this. We don't have any impediments that make us more reluctant to grow and take on growth because we have a very good level of capital in order to do this, and that's the idea of the capital that we have. And finally, operational productivity, which is what we mentioned in the presentation, this helps all the areas improve overall and maintain our profitability high. Operator: Our next question is from Tito Labarta from Goldman Sachs. Daer Labarta: Just with the upcoming presidential elections, just kind of curious sort of where you think things stand from here? And depending on which candidates when -- how do you see that potentially impacting the macro-outlook for next year and then also trickling down to the bank's profitability? Rodrigo Aravena: Thank you for the question. I'm Rodrigo Aravena. I think that it's very important to be aware that in Chile, we have a political system, which is based on important counterweight between the central government, the Congress, the system, et cetera. So that's why it's not only a matter of who's going to be the next in Chile. We have also take into consideration the future composition of the Congress as well. According to the surveys, there's going to be a runoff in December, but we're going to have the final results of the Congress in November in the next week. Even though there is uncertainty about the final composition of the Congress and also in terms of who's going to win the election. I think that it's worth mentioning that today, which is an important difference compared to the election that we had 4 years ago, that there are some consensus in Chile between different candidates and different political factors as well. In terms of put on the table, I would say, 3 important aspects in the policy agenda. First of all, there is a consensus in Chile in terms of the need to improve the long-term sources of economic growth. When we analyze all the different proposals, they are aware about the importance to promote more economic growth mainly investment, especially considering that the external environment will be a bit more challenging in the future. So we don't have important differences in terms of the diagnosis of the importance of economic growth. Also, today, there are not important proposals with higher tax rates. In fact, there are some proposals that are based on lower corporate tax rate, for example, which is a good news as well for the future. And also, we also have an important consensus in terms of the importance to improve, for example, the licenses and permit system that we have in Chile, which is an important factor to promote investment in the future. So all in all, today, I, which is the main difference compared to the elections that we had 4 years ago, there are not important differences in terms of proposals for economic growth for taxes, et cetera. So when we consider this scenario and also the recent improvement in some leading indicators, I think that we have good reason to expect a more dynamism in domestic demand in the future, especially in investment and consumption, even though we have uncertainty for the final result of the presidential elections. Pablo Ricci: And in terms of the bank, the most important result of this is more demand and activity in Chile, which should drive loan growth in all the segments. So in commercial loans, large corporates and multinationals concessions and SMEs, consumer loans, et cetera. So what we've seen is a period of low growth, high interest rates. And now we're moving into a more attractive period with better business confidence, hopefully, better consumer confidence, and that should lead to stronger loan growth, and we have the capital in order to grow. So we don't need more capital. So that means additional points in terms of the bottom line for ROE. Operator: Our next question is from Neha Agarwala from HSBC. Neha Agarwala: Congratulations on the results. Just a quick one on the outlook for 2026. What kind of pickup should we -- can we expect in the coming quarters in terms of loan growth? And what would be the drivers for earnings for 2026, given that there should be some pressure on the NIMs with easing inflation? Pablo Ricci: Neha, I think in 2026, well, today, we don't have guidance yet because it's -- we're working on the budget, and it's something that's being discussed internally in the bank. But what we can say is similar to what we've said in the other questions is what we're foreseeing is a better overall aspect of Chile in the next years. And this should allow us to have in the banking industry to have better results in terms of loan growth, the main area, the main driver for growth for us in the following year. The inflation level, what we expect is to return to levels closer to 3%, somewhere similar in terms of the overnight rate, not too much lower. We're already close to the long-term levels there. So in order to really generate a stronger bottom line over the next years, we should see loan growth is the main driver. So what we have and what's very positive for Banco de Chile is that we have an attractive level of CET1 total base ratio, and this is allowing us to grow when the opportunities arise. And hopefully, that's sooner than later. Rodrigo Aravena: And also Neha, this is Rodrigo Gara. Important to mention as well that we are not expecting important changes in interest rate for the next year. Today, it's likely that the Central Bank will reduce interest rate by 25 basis points the next meeting or probably in the first quarter of the next year. Today, the annual inflation is at 3.4%. So for the next year, it's reasonable to expect a convergence towards the target, which is 3%. So I mean we are not expecting important adjustment in the key factors behind the ROE and NIM as well since we are not seeing important room for adjustment in both interest rate and inflation as well. Operator: [Operator Instructions] Our next question is from Andres Soto from Santander. Andres Soto: My first question is for your loan growth next year, which I will assume you are expecting an acceleration versus 2025. Which segments are you expecting to see faster growth? Is going to be commercial lending in your comments about the third quarter results. You mentioned some market share losses in consumer as other players are focusing in the lower segments of the population. So I would like to understand what is missing for you guys to take a more optimistic view on consumer lending. You have mentioned in this call, this is a segment that is still depressed compared to the pre-pandemic levels. So what is missing for you to see faster growth in the consumer? And overall, what is going to be the driver in 2026 for the total loan growth? Pablo Ricci: Well, in terms of loan growth, what we're seeing the main driver, as you know, commercial loans is the largest mix of the portfolio. So -- and what's been most impacted over the last 5, 6 years has been commercial loans as importance in terms of volumes. So in terms of volumes, we should see a recovery in terms of commercial loans. Within that, we're expecting with better business confidence with more -- less uncertainty, we should see a return of larger corporate demand in Chile. SMEs as well should have a very good activity in this environment with a better global activity in GDP, unemployment, they're much more cyclical, as I mentioned. And in consumer loans, we should see slowly as we should continue to see slowly that the consumer loans will continue to improve in line with unemployment rates. For what's happened in the consumer loan segment is that some players in Chile have implemented or have focused on the lower income segments where we're not active today, penetrating that market more than us. Probably we have a customer base that's a higher net worth customer base. as well that it's not demanding as much loans. But we continue to grow well. So in a new environment next year with better business and consumer confidence, we should see more attractive loan growth in this segment, and we're implementing different digital initiatives to understand the customers in order to offer them products to the channels that they desire with business intelligence, much more focused on each customer rather than global plans that are focused over the entire segment. So we're trying to personalize much more of the information that's going to these customers. Next year should be a more positive year overall. Andres Soto: My next question is regarding capital. Your core equity Tier 1 is 400 basis points above all your peers, basically. What level do you guys feel necessary for the growth that you see ahead? And how you imagine the capital normalization of Banco de Chile taking place? How long is going to take place for you to get to a level you see as the adequate level for capital? Daniel Ignacio Galarce Toro: Andres, this is Daniel Galarce. From the capital point of view, as we have said, of course, we have today important buffers and favorable gaps over the regulatory limits. Basically, everything depends on how the portfolio will normalize in terms of loan growth in the future. And basically, in which products we will increase and we will expand our portfolio in the future as well. As Pablo said, we are expecting to grow more in commercial and consumer loans. We want to be leaders in those lending products and those products are more intensive in terms of use of capital, of course. So everything depends on the evolution of loan growth in the future. So probably we will have a normalization in terms of capital buffers probably over the midterm, 3 years or something like that, depending on the economic activity in the country. Andres Soto: And which level will be that? Daniel Ignacio Galarce Toro: Well, we don't have any specific target, but in the long run, we will -- we need and our aim is to be always at least 1.5%, 2%, something like that in the range of 1% to 2% above regulatory limits. Operator: We would like to thank everyone for the questions and the participation. I will now hand it back to the Banco de Chile team for the closing remarks. Pablo Ricci: Thanks for listening, and we look forward to speaking with you for our full-year results next year. Operator: That concludes the call for today. Thank you and have a nice day.
Operator: Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Third Quarter 2025 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Before we begin the call, I advise you to review the disclaimer included in the press release and presentation, which outlines important information about forward-looking statements and non-IFRS financial measures. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. [Operator Instructions] Joining the call today is Stone's CEO, Pedro Zinner; the CFO and IRO, Mateus Scherer; the Strategy and Marketing Officer, Lia Matos; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed. Pedro Zinner: Thank you, operator, and good evening, everyone. I'd like to start with a brief update on our key performance metrics and our capital allocation strategy. In the third quarter, we continue to make solid progress toward our 2025 objectives, even in a more challenging macro environment. Our adjusted gross profit grew 15.2% year-to-date despite our ongoing share buyback program, which has had some impact on this metric. Meanwhile, for the first 9 months of 2025, our adjusted basic EPS reached BRL 6.9 per share, up 37% year-to-date, keeping us well on track to meet our full year target. Despite external headwinds, our team is performing with discipline and focus, delivering consistent value to our clients and shareholders. Turning to capital allocation. We have maintained a disciplined approach to returning capital to shareholders through our share buybacks. In the last 12 months, we have returned BRL 2.8 billion to shareholders, about 10% yield for the period. Building on the BRL 3 billion in excess capital we identified last year, I'm pleased to report that by the end of October, we had already returned 74% of that amount to investors. This underscores our commitment to return excess capital through buybacks or dividends when we don't have immediate value-accretive investment opportunities. Our goal remains the same, exercise financial prudence while maximizing long-term value creation for our clients and shareholders. With that, I'll now hand it over to Lia for a closer look at our quarterly numbers. Lia, please go ahead. Lia de Matos: Thank you, Pedro, and good evening, everyone. Starting on Slide 4, we dive into our consolidated bottom line and return on equity results. We are pleased to see another quarter of consistent performance towards our goals despite a continued challenging macro environment. Our adjusted net income grew 18% year-over-year with a 13% increase in continuing operations. This performance was driven by 3 key factors. The first one relates to the successful adjustment to our pricing policy implemented earlier this year, which helped offset the impact of higher interest rates in the country. Second, the strategic use of client deposits as a funding source helped improve efficiency by lowering our average funding spreads. And third, a lower effective tax rate compared to the same period last year also contributed to the results. These effects were partially offset by our decision to more evenly distribute marketing expenses this year, which negatively affected the year-over-year comparison. Our adjusted basic EPS reached BRL 2.57 per share, growing 31% year-over-year. The above net income growth was supported by continued execution in our share buyback program. Regarding returns, our ROE continued to expand sequentially. Consolidated ROE expanded 8 percentage points year-over-year to 24%, while Financial Services ROE from continuing operations increased 4 percentage points over the same period to reach 33% in the quarter. Now let's detail our continuing operation’s top line performance on Slide 5. Total revenue and income grew 16% year-over-year, reaching BRL 3.6 billion, driven by continued solid execution in our core business. Importantly, this growth was achieved despite lower floating revenues as we began deploying client deposits as a funding alternative in our operations starting earlier this year. While this strategy naturally reduces floating revenues, it generates savings in financial expenses, reinforcing the strength of our funding model. Our adjusted gross profit from continuing operations was BRL 1.6 billion in the quarter, growing 12% year-over-year. This growth was largely aligned with TPV as higher revenues were partially offset by increased financial expenses driven by the higher CDI rates. On Slide 6, we highlight our operating metrics, beginning with our payments business for MSMBs. Our active client base grew 17% year-over-year, reaching 4.7 million clients with 38% classified as heavy users, leveraging more than 3 of the solutions we offer. This demonstrates not only growth in the scale, but also the engagement across our product ecosystem. MSMB TPV grew 11% year-over-year in the third quarter, reaching BRL 126 billion. Such growth comes from a combination of a 49% growth in PIX QR code volumes, which continues to outpace card TPV and capture share from debit transactions and the 6% growth in card volumes. Compared to the previous quarter, the yearly growth showed a slight deceleration reflecting a more challenging macro environment and softer same-store sales among our clients, trends that are persisting in the fourth quarter, and we're monitoring carefully. On Slide 7, we highlight the performance of our banking operation. We're pleased to report continued growth in our active client base, which increased 22% year-over-year, reaching 3.5 million clients. This sustained expansion reflects both strong client acquisition and the evolution of our payments and banking bundle offers. Client deposits grew 32% year-over-year and 2% quarter-over-quarter, reaching BRL 9 billion during the period. While we observed a slight decline in our deposit base relative to MSMB TPV from 7.2% in the second quarter to 7.1% in the third quarter, this primarily reflects daily seasonality driven by clients' cash out obligations, and we saw a quick rebound on the days that followed. Viewed from another perspective, the average daily deposit base increased 40% year-over-year and 6% quarter-over-quarter, expanding relative to TPV. The composition of deposits in the quarter moved slightly towards more time deposits, which now accounts for 84% of total deposits, slightly up from 83% in the previous quarter. This growth underscores increased adoption of our investment solution, leading to a higher engagement with our banking features. Now turning to Slide 8. We review the evolution of our credit operation. In the quarter, we observed an acceleration in portfolio growth, combined with disciplined asset quality and in strict alignment with our risk appetite statement parameters. The total credit portfolio grew 27% sequentially, accelerating compared to the previous quarter and reaching BRL 2.3 billion. Of this, BRL 2.1 billion is attributable to our merchant solutions, primarily working capital financing for MSMBs, which grew 28% quarter-over-quarter. Additionally, just over BRL 200 million relates to credit cards, which increased 18% over the same period. Despite the acceleration in portfolio growth, our credit quality remains strong. NPLs 15 to 90 days reached 3.12%, while NPLs over 90 days stood at 5.03%. The rise in NPLs over 90 days reflects the natural maturation of the portfolio, whereas increase in NPLs 15 to 90 days was primarily due to specific client payment delay, which has already normalized in the fourth quarter. As you may recall, in the second quarter, we made a deliberate decision to increase coverage ratio levels in response to the weaker macro outlook. With no additional adjustments required this quarter, the coverage ratio declined slightly to 265%, yet remaining at a conservative level. Similarly, our cost of risk, which reflects provisions recorded during the quarter, decreased from 20.2% to 16.8% sequentially, staying within the expected mid-teens range and reflecting disciplined risk management. Following the provision adjustments in Q2, we implemented corresponding pricing changes. This ensures a disciplined balance between risk and return while supporting sustainable growth. As you can see in the slide, the average monthly credit rate was 2.9% in Q3, up from 2.7% in Q2. The metric is calculated by dividing the credit revenues by the average credit portfolio. However, the result is significantly impacted by product mix as the inclusion of nonfinance credit card portfolio and higher growth in specialized debt disbursements can dilute the rates. In summary, I'm pleased with how our company has evolved and remained resilient despite ongoing macroeconomic headwinds. We continue to execute with focus on our clients, confident that there are multiple opportunities to help them grow further and manage their business in a more seamless and effective way. Now I want to pass it over to Mateus, who will discuss our financial performance in more detail. Mateus? Mateus Schwening: Thank you, Lia, and good evening, everyone. Let's discuss our adjusted consolidated P&L for continuing operations, which is shown on Slide 9. Our cost of services increased 12% year-over-year, decreasing 90 basis points as a percentage of revenues. This reduction reflects the combination of efficiency gains in logistics, lower transaction and technology costs and lower provision for acquiring losses, which were partially offset by higher loan loss provisions in the period. Administrative expenses increased 7% year-over-year, resulting in a reduction of 50 basis points as a percentage of revenues, driven by continued operating leverage across our support functions. Selling expenses increased 21% year-over-year, increasing 50 basis points relative to revenues. This reflects a more evenly distributed marketing spend in 2025 compared to last year, when they were skewed towards the first half of the year given the strong investments in sponsoring a specific reality show. Financial expenses increased 28% year-over-year, representing a 280 basis points increase as a percentage of revenues. This was largely due to a higher average CDI rate year-over-year, which was partially mitigated by increased use of client deposits as a lower cost funding source, which intensified since the end of the first quarter. Lastly, I would just like to remind that the execution of our capital distribution strategy negatively affects our financial expenses. Other expenses increased 2% year-over-year and reduced 40 basis points relative to revenues, which was mainly due to an increase in gains related to the sale of POS. Our effective tax rate was 15.3% in the quarter, down from 18.6% in the third quarter of '24. The year-over-year decrease was primarily driven by an intragroup interest on equity operation and higher benefits from Lei do Bem. Moving to Slide 10. Our adjusted net cash position ended the quarter at BRL 3.5 billion, decreasing BRL 140 million sequentially despite BRL 465 million in share buybacks executed in the quarter. Excluding these buybacks, adjusted net cash would have increased by BRL 325 million. Once again, I want to thank you all for your time and continued support. Our focus remains on executing our strategy effectively and in a value-accretive manner while listening closely to our clients, meeting their needs and ultimately creating long-term value for our shareholders. With that said, we are now ready to open the call to questions. Operator: [Operator Instructions] Our first question comes from Kaio Prato with UBS. Kaio Penso Da Prato: I have 2 on my side, please. First, on your prepayment business, would you say that you are at the all-time high level of spreads in the business post the pricing adjustments now? And how do you see the sustainability of this level going forward, given the current competitive scenario and the potential beginning of the cycle? So, this is the first. And then my second, which is also linked. Looking forward, what do you think are the main drivers for earnings growth of the company apart from the policy rates that should be a clear support. So, what do you think should be the main source of growth? Is this an acceleration in credit growth? Is this efficiency or any other initiatives? You can help us understand what should be the drivers for 2026, given the slowdown also on TPV that we are seeing, except from the policy rates would be good. Mateus Schwening: [Audio Gap] overall gross profit. But in terms of pricing specifically, I think what we did successfully was to pass through the increase in interest rates, but I don't think we are at the all-time high spreads. The second question around earnings growth levers… Lia de Matos: Kaio, can you hear us? Kaio Penso Da Prato: Now I can hear you, but I think we missed the answer. Lia de Matos: Oh okay. Sorry, we just got noticed that you weren't hearing. I think maybe Mateus... Mateus Schwening: Can you hear me well? Lia de Matos: Worth replaying the answer. Kaio Penso Da Prato: Yes. Now I can hear you. If you can repeat, please. Mateus Schwening: Okay. Sorry for that. Let me replay the answer. So, the first one around prepayments and pricing. I would not agree with you that we are at the all-time high spreads. I think when we look at the gross profit yield, so gross profit as a percentage of TPV, it is higher than it was in the past at 1.26% for the third Q '25 versus, for example, 1.21% in the beginning of '24. But that increase has been mostly due to the increased penetration of banking and credit over time and not a result of prices on prepayments on a stand-alone basis. And I think this is consistent with the overall strategy. I think what we did quite well was indeed to pass through the increase in interest rates that we saw in the country. But I wouldn't say it's all-time high. I think when we look at spreads, we think that they are at a healthy level. And then in terms of earnings growth levers for next year, I think we've been growing especially the credit portfolio in a pretty good pace according to the plan. But when you look at the contribution for credit in the P&L now in '25, it is still quite small because whenever we grow the portfolio, we upfront the provisions. Now as we go into 2026, I think probably credit is going to be of a larger contribution to the overall P&L, simply as a result of maturing the offering and having a much higher base to start with. And other than that, I think OpEx in general is something that we are paying special attention given the weaker macro environment. So, we feel that there may be some levers in terms of OpEx management to boost earnings growth in 2026 as well. Operator: Our next question comes from Guilherme Grespan with JP Morgan. Guilherme Grespan: My question is going to be on the payments TPV and environment. I know this is basically a common question in every call, but we have been seeing a deceleration on part of the volumes, and we see some players starting to come up more hitting the tape. To mention a few, we have iFood going after, I think, a very important part of your base, which is restaurants. We have BTG launching [ acquiring ]. We have smaller players such as CloudWalk also appear a little bit more. So, my question to you is how you're sensing the competitive environment in your base, if you're feeling is there any specific player being an aggressor here? And how do you see the pricing trends going forward? Because the rate that Kaio mentioned, I think it's been postponed a little bit, the potential tailwind coming from the funding cost. So, I wonder just to check if you see any environment for the spreads in the business to stay where they are or even increase in the next 6 months? Lia de Matos: Thank you, Guilherme. Let me start maybe elaborating a little bit on market share and TPV dynamics and then pass it over to Mateus to talk a little bit about thoughts on pricing. So -- we still have to wait for the official ABECS numbers, right? But in our view, the third quarter should be roughly stable in terms of market share. In the second quarter, we did see a bigger market share loss as a result of our decision to reprice, as we've said before. This was sort of a onetime effect as we see it, in the quarter. We expect this to stabilize somewhat in the third quarter. And we reinstate that this decision was accretive overall for the business. That said, when we look ahead in terms of TPV growth, we continue to see gradual deceleration, and this is primarily a reflection of industry dynamics, meaning industry itself decelerating, but also a weaker macro environment, which we expect to impact more the smaller clients within our base, right? So, I think that's the message regarding market share and TPV dynamics. But looking ahead, we remain confident in our ability to continue to evolve in our plan consistently, like Mateus mentioned, more and more, we expect credit to be a driver of profitability and growth looking forward. And we're not with the sole purpose of pursuing market share at any cost. So, profitability remains our priority. And the path forward is not -- it's not simply through pricing adjustments, right? It should be through enhancing our value proposition to clients, evolving on our product offerings, scaling credit, evolving on our bundling strategy and really making sure that we can consistently win clients within the segment overall, in line with our strategic priority. Mateus Schwening: And if I may add and then talk also about pricing, I think you mentioned other new players or new entrants in the market. I think we've seen these kinds of movements before, players bringing new offerings or expanding their sales footprint. They tend to come in waves. At any given point in time, there's always someone trying something new in the market, and I think this is normal. That said, when you look at the actual economics behind these new players or new initiatives, it seems that overall players remain rational, and I don't see anyone pursuing growth at any cost. That said, when we talk about rate cuts, I think we've been vocal about this a couple of times, which is short term, for sure, there is a positive impact to us. Every 100 basis point cut in interest rates, there's a positive benefit of around BRL 200 million to BRL 250 million in EBT. But in terms of overall spreads, I don't think it's reasonable to assume that we're going to keep the benefit from interest rates long term. I think it's a matter of timing, how long we can keep these prices until we pass it through. So, I think the message here is, yes, there's going to be a positive impact 2026 if rates goes down. I don't think we should assume that we're going to be able to keep those spreads longer term. I think overall, the level of spreads are healthy in our view. Operator: Our next question comes from Renato Meloni with Autonomous Research. [Technical Difficulty] I believe we are having some technical issues with Renato. I'm going to go with Eduardo Rosman with BTG. Eduardo Rosman: My question, I think, would be to Pedro, right? Where do you believe the company stands in the organizational redesign, right? I think you've been highlighting over the last few quarters that the goal is to be like a stronger unified brand and product offering with a more kind of a team-oriented culture and trying to build like a truly kind of a customer-centric mindset. How do you feel about the progress so far on that front? Pedro Zinner: Rosman, thank you for the question. I think this is -- I think we evolved a lot. I think as you mentioned, we made a big shift from a kind of a BU organization, very much silo-centric in some ways to a fully functional organization as we have as of today, right? I think this is really helping us in terms of setting the strategy from a bundle perspective and how we actually put this bundle offering into our clients in the best way for them and for the company. So, I think in a nutshell, I think we are almost there. I think there are some pain points that we have to adjust over time. But in a nutshell, I think we are in the right direction. Operator: Our next question comes from Antonio Ruette with Bank of America. Antonio Gregorin Ruette: So, I have 2 questions on my side. So, first on credit, you mentioned that now your credit product is more mature and it should start to represent more on your P&L. So, if you look at your portfolio today, do you have a better estimate on what should be your cost of risk, your NPL and your ideal coverage ratio now that you have a better sense of what your portfolio should be? Also, I have a second question on your revenue composition. If you look at your accounting statement, you can see like revenues for transactions declining over 20% and revenues for the financial income growing more than 30%. I understand here that there is an allocation that you can do between these 2 revenues in terms of prepayment and MDR. But -- and the ideal answer here would be -- would look at both together. But if you were to split, what would explain the movements? If you could go through them, it would be great. Mateus Schwening: Thanks for the question, Antonio. So, let's just start with credit first. In terms of cost of risk, I think the expectation is that they should remain in the mid-teens going forward. I think we've mentioned this before, but part of the impact that we saw in second Q '25 was retroactive, movement that we did due to macro and now it's normalized in third Q '25. That said, when we look ahead, we do expect cost of risk to stay above the levels we had in the first quarter of '25 due to the macro-driven updates we did in our credit models. So that's the expectation on that end. In terms of NPLs, I think the answer is actually dependent on the rate of growth for the portfolio. When we look at the expected credit losses that we have for the product, they should be in the very high singles or either very low double digits. When you look at the NPL metric, it now stands at around 5%. But the main reason for that is because we have still a lot of vintages that are not fully mature, right? The portfolio is still growing. So, as we mature, NPL over 90s, they should continue to grow probably towards that very high single-digit mark. But in terms of targets, I think we're not really targeting a level of cost of risk or a level of NPL metrics. I think what we're trying to maximize here is the NPV of the cohorts and especially the NPV of the client relationships. And I think a good point around that is that when you look at the interest rates that we charge for the product, we had an increase in the cost of risk in the past 2 quarters, but that increase was also followed by an increase in the interest rates that we're charging to our clients. And as long as we see this opportunity to make these kinds of trade-offs, we're happy to do as long as it increases the NPV for our client relationships. So that's on the credit piece. On the revenue side, I think you touched on the answer, which is these movements between transaction revenue and financial income is mostly a result of rebalancing between the 2 lines. Now that we have most of the volume from the company flowing through a single platform, we have a lot more flexibility in how we set up these bundles and how we allocate revenues internally. So, I know you asked us to try to segregate these lines. But when you look at the bundles that we're offering nowadays, there is no such thing. So, the client usually pays a single fee and embedded in that fee, we have the prepayment revenues and the transactional revenues. So honestly, I think the best way to look at it is looking at both lines combined. Operator: Our next question comes from Marcelo Mizrahi with Bradesco BBI. Marcelo Mizrahi: I have a question regarding the changes on the stages of the credit. We saw in the last quarters, especially in this last one, the cure of the Stage 2, Stage 2, a higher amount. So can you guys please explain a little bit the concept of what's the kind of the credit that is classified at Stage 2 that are the ones that come back to Stage 1. So why we were seeing such a lot of changes on the stages in the last 2 quarters? And probably it's because of the type of the credit. So just to understand how do you guys classify this credit? You know that -- we know that looking forward, the company will grow a lot. So, it's very important to understand. Mateus Schwening: Yes, for sure. Thanks for the question, Mizrahi. So, around Stage 2 and 3, especially, I think when you look at Stage 3, it's much simpler. So, most of the increase that we had in Stage 3 amounts from the balances overdue over 90 days. So that's pretty much the maturation of the portfolio. When it comes to Stage 2, I think we have 2 different factors here. The first is actually the maturation of the portfolio as well, but we also have the entry of some credit restrictions affecting a portion of clients in the market. So, for example, if a merchant defaults somewhere else, even if that merchant is not defaulting our portfolio, we move that client to Stage 2. And this can create a lot of volatility between the stages because, as you know, credit restrictions in Brazil are quite volatile. So that's the main explanation. Operator: Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Pedro, Lia, Mateus, just to go back to Lia's comment on the credit side, I think it was something about increasing the pricing, right? I just wanted to touch base on that and elaborate a bit more on what exactly this scenario refers to. I mean, should we interpret this repricing or upward pricing as a reflection of a somewhat riskier environment? And just to double-click on that, how sensitive have the clients been to these adjustments, right? So, I think when we see, for example, on the retail end, not a good comparison, but new bank has been like testing a lot pricing upwards, and we don't see too much elasticity on that. So, it will be good to hear on the elasticity of your product and how sensitive clients have been to these adjustments. Mateus Schwening: Daniel, Mateus here. Thanks for the question. So, I think that's actually a great point, which is I think credit is probably the product that we started the latest. So naturally, when we think around pricing credit, it started as a cost-plus model, and we are now starting to test real sensitivity from our clients and test the right pricing point. So I think what we did in second Q and third Q, if you look at Slide 8 from the earnings presentation, the average yield of the portfolio increased from 2.6% in the first Q to 2.9% in the third Q, even though we have a higher mix of credit cards in the portfolio, which have no interest right for the part that is on [indiscernible]. And I think that happens at the same time that the macro environment is becoming more complex, but it's not a response from the macro environment. I think the reason why we've been able to price upwards is mostly because we are maturing on the overall pricing process for the product. And I think like you mentioned, other players were successful in terms of increasing pricing without too many sensitivity from the customers. And I think we're figuring out the same thing on our side. Daniel Vaz: If I may follow up, have you just tested like way higher yields on the credit and to some group of clients, to control group of clients? How have this test performed so far? If you could comment on that, it would be great as well. Mateus Schwening: Yes I think we are early beginnings on the testing side. We avoided to do like huge spikes in prices because of selection bias on the cohorts. So, I think what we had here were gradual increases. But again, I think it's early beginnings in terms of actually figuring out how much the clients are willing to pay in the product. And I think there's more opportunity to come. Operator: Our next question comes from Renato Meloni with Autonomous Research. Renato Meloni: Can you guys hear me? Mateus Schwening: Yes. Lia de Matos: Yes. Renato Meloni: Sorry, I had an issue with my mic earlier. I wanted to ask on the COGS reduction, and you mentioned about the efficiency gains on logistics or transaction technology costs. So, I wonder if you could expand a little bit on those gains. And I'm trying to understand here if this is a one-off or you can still keep doing this and maybe what's a normalized level that you could see? Mateus Schwening: Thanks for the question, Renato. So, in terms of cost to serve, I think broadly speaking, when we look at the metric, excluding the credit provisions, we're starting to see signs of operational leverage, particularly in customer service, where the adoption of AI has been driving a lot of efficiency gains and in logistics, where scale is generating also meaningful cost benefits. In the quarter, specifically, we also benefited from lower transactional costs in tech and lower provisions for acquiring losses, which were partially offset by higher amortization of intangible as we are completing a lot of projects that were started in previous years. Now in terms of what is one-off or recurring, I think the only portion of cost to serve that is not recurring is the level of provisions for acquiring losses because they were positively impacted by a specific collection initiative in the quarter. And when we look ahead, we do expect more amortization of technological projects to come because we are more and more completing a lot of projects that were started a couple of quarters ago. So, this trend of elevated D&A should continue throughout the next year. So, I think the message in terms of cost of service, overall, we are indeed seeing a lot of efficiency and operational leverage coming, but I wouldn't take the third quarter levels as a new normal. Operator: Our next question comes from Neha Agarwala with HSBC. Neha Agarwala: Congratulations on the results. A quick one on asset quality. I think in your opening remarks, you mentioned there was one particular case regarding nonpayment or delay in payments. Could you elaborate on that? What happened? And my second question is on the volumes. I think Lia mentioned that we expect deceleration in volume growth in the coming quarters. For the MSMB segment, we are already at 11% year-on-year for this quarter. What do you mean by deceleration in the coming year? Should we expect something like 8%, 9% or it could go lower than that? Any color about the level in the next 2, 3 quarters would be very helpful. Mateus Schwening: Thanks for the question. I will start with the asset quality and then Lia can add on the TPV side. So, on the asset quality, I think it's quite simple. We had a specific issue with a client in the specialized desk, which delayed a couple of days, but it's already normalized. This was not a big case. So, we're talking around 40 basis points of the NPL 15 to 90 days. So, if you do the math, it's around between BRL 2 million and BRL 4 million, so a very small low one. But again, I think the main message here is that it affected the NPL 15, 90 days in the quarter, but it's already -- it has already been addressed. Lia de Matos: Good. Neha, just complementing on the question regarding TPV dynamics and what to say looking ahead, right? It's hard to pinpoint a number, but the general trend and what we've been monitoring and what we've been seeing is growth which is slightly above the industry growth. The general trend of deceleration is mostly driven by the industry, right? We are seeing this year more specific macro impact to our client base, but we expect that to soften throughout next year. But in general, I think what we can say is industry deceleration as we've been vocal about for several quarters already and our growth sustaining above the industry with slight market share gain in the long run. So, I think that's the overall trend that we can talk about. Pinpointing whether it's 11%, whether it's more or less, I think it's a little bit more difficult. Our perspectives on industry growth for next year is on high single digits, low double digits, but hard to pinpoint specific figures. We prefer to wait and see how the year will close out. Operator: Our next question comes from Gustavo Schroden with Citi. Gustavo Schroden: Sorry to insist about the interest rates topic, but I think that we've seen changes regarding the expectations for interest rates next year. So maybe the easing cycle should be less pronounced than before expected, right? So especially assuming yesterday's minutes from the Central Bank. So, my question here is that you are -- I mean, I think that everybody here is modeling and thinking on Stone assuming this low interest rates next year. But if you take into consideration that the average interest rates next year should be also even slightly above this year. So my question is how sensitive is Stone funding costs to this average interest rates for next year? So again, we've seen you increasing prices. Lia mentioned about the higher interest rates for SMBs. And so my point here is, in this scenario of a higher average interest rates, how should we think the funding costs and prices next year? Mateus Schwening: Thanks for the question, Gustavo. So first of all, in terms of the actual environment, I don't think we have a strong view. So we set up the operation in a way that we respond to the changes that we have in interest rates. We don't spend a lot of time trying to forecast the scenario. But indeed, if you were to look at the scenario now, there is a small decline embedded in the yield curve. And our sensitivity to that decline is that for every 100 basis points reduction in interest rates, all else being equal, so meaning no price reductions, we have a positive impact in our pretax earnings of around BRL 200 million and BRL 250 million. Now in terms of what's actually going to happen, I think our intention and our desire is to keep our time. So we tend to pass it through to clients, but there is kind of a lag every time interest rates decline. But like I said a couple of answers ago, long term, when you look at the actual gross profit yield that we're having on the payment side, we think it's in a very healthy level. So I don't think it's reasonable to assume that we're going to keep it long term. As for the trend for financial expenses, again, I think it's very dependent on the level of interest rates. So we're going to see the scenario and adjust accordingly. Gustavo Schroden: Great, Mateus. Just let me do a follow-up here because you said the sensitivity that you mentioned for each 100 basis point decrease, it is for, I mean, end of period interest rates or average interest rates? Mateus Schwening: It is for average. So whenever we have an average decline of 100 basis points, then we will have the impact for the full year. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: My question is on your gross profit, right? I mean you're still on track to deliver your guidance for the year, but it has been decelerating. Given some of the questions on slower TPV growth, rates are stable, you're mostly done repricing, should we expect the gross profit to continue to decelerate a bit from here, at least all else equal, just given the trends in the industry? Should we expect any positive seasonality in 4Q? And we did see a bit of a jump in your loan book this quarter. Like at what point do you think you could get to where the loan book is enough that it starts to boost that gross profit, right? I think it's still -- it's growing fast, but from a low base, right? So just to think about the evolution of gross profit given where we are today and when that can maybe inflect and maybe grow faster from here? Mateus Schwening: Tito, thanks for the question. So, I think when you look at the gross profit yield, usually 4Q is seasonally lower because we have more debit and PIX transactions in the mix, which tend to have a lower take rate on the payment side. But I think in general, when we look long term, I think the expectation is that payment spreads, they are at a healthy place. So, we don't see a lot of pressure, but also not a lot of upside in that part of the business. I think what's going to be the defining factor for '26 on that end is actually the interest rate movements that we just discussed. But other than that, I think the expectation is indeed that banking and credit will continue to grow at a faster pace than the TPV growth. And then over time, that should be accretive to gross profit yields. In terms of the credit that you asked, I think we are already starting to see the signs of a bigger contribution in the P&L. So, if you look at the revenue jump versus the delta in provisions that we had between the second Q and the third Q, it was already significant. Of course, when you look at gross profit as a whole, it is still a very small factor. But I think it has already started, and I think it gets more significant throughout 2026. Daer Labarta: Thanks Mateus. That's helpful. And yes, I understand the negative seasonality on the gross profit yield, but you should also have some positive seasonality on volumes. So net-net, I mean, not asking for guidance, but just a little bit how that could potentially impact gross profit in 4Q? Mateus Schwening: Yes. I think when you look at gross profit on a nominal basis, then the seasonality in the first Q is positive for sure. I think when you look at the yields, then you have a negative seasonality because of the mix. But overall, I think if you're thinking about nominal terms, then the seasonality for first Q is positive. Operator: Our next question comes from Pedro Leduc with Itaú. Pedro Leduc: Congrats on the results. Two quick questions. I know you guys have lifted the 2027 guidance once you did the Linx deal. I know it's not in the presentation here. But wondering if you plan on reinstating it at some point, maybe with the 4Q release, if it's '27, maybe it's something another period of time? It seems like you're tracking for this year extremely well and for most of the 2027 figures as well. But just trying to get a sense if you guys plan on reinstating it, if it's in the same time period, same inflows. And then the second question, kind of tying up to this one as well. In that previous '27 slide, you talked about a 20% effective tax rate. You're running at 15%. In the meanwhile, we're having changes in taxation for several of the Brazilian entities. Just trying to get a sense from you how we can think about this income tax rate maybe next year and then thinking whenever you guys plan on releasing a longer-term guidance. Pedro Zinner: Pedro, Pedro here. I'll address the first part of the question, then I'll turn it over to Mateus. I think it's true that TPV performance has been more challenging than we initially anticipated back in 2023. And I think as Lia mentioned, partly, I think it's due to the macro environment, which is worse than we initially expected. But we want to see how the year will close out first before we can talk more concretely about 2027 guidance revision, right? So, in fact, we plan to adjust gross profit indicator to reflect only continuing operations. And we may take the opportunity for a more comprehensive review of 2027 guidance when we do that. But that said, I think it's important to note that when we look at the long-term plan as a whole, our execution remains broadly on track with the credit book, deposit base and the overall profitability, I think we are on the right track since we established back in 2023. I'll hand it over to Mateus. Pedro Leduc: Thank you, Pedro. Mateus Schwening: Yes, so on the effective tax rate, I think 2 messages here. So yes, we are indeed operating below the 20% mark that we provided at the long-term guidance. And if you look at the 4Q, usually 4Q tends to be lower than third Q because of seasonality and also we have more [ lead ] demand in the last quarter. But longer term, if we're thinking about the effective tax rate for 2026 and onwards, I think it's still too early to provide a precise view as there are too many moving pieces. I think you have also seen the number of proposed changes that are being discussed through provisional measures and draft bills. But that said, when we take everything into account, we continue to believe that the effective tax rate should land in mid- to high teens over time. More specific than that, I think we still need more visibility on how the proposed changes will ultimately unfold. But that's the perspective we have at this moment. Pedro Leduc: Okay. So mid- to high teens without seeing if there's any changes, right? Mateus Schwening: Yes, I think mid- to high teens broadly, then whether it's going to be mid or high, I think it's dependent on the changes. Operator: The question-and-answer session is now closed. We would like to hand the floor back to Pedro Zinner for closing remarks. Pedro Zinner: Well, thank you all for participating in the call and for the questions made. And I'm looking forward with the team to see you in our full year-end results in March next year. Okay. Thank you. Operator: Stone's conference call is now closed. We thank you for your participation and wish you a good evening.
Operator: Greetings, and welcome to Marcus & Millichap's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin. Thank you, operator. Jacques Cornet: Good morning, and welcome to Marcus & Millichap's Third Quarter 2025 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steven DeGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking statements due to a variety of factors, including, but not limited to, general economic conditions and commercial real estate market conditions, the company's ability to retain and attract transaction professionals; company's ability to retain its business philosophy and partnership culture amid competitive pressures, company's ability to integrate new agents and sustain its growth and other factors discussed in the company's public filings, including its annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2025. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website, represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. The conference call is being webcast. The webcast link is available on the Investor Relations section of the company's website at www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that, it's my pleasure to turn the call over to CEO, Hessam Nadji. Hessam Nadji: Thank you, Jacques. Good morning, and welcome to our third quarter 2025 earnings call. I'm pleased to report that we delivered a strong quarter with total revenue increasing 15% over Q3 2024. This marks the fifth consecutive quarter of year-over-year revenue growth as we continue to navigate the severe and complex market disruption of the past 3 years. Adjusted EBITDA for the quarter was $7 million compared to approximately breakeven in the prior year period. This year's third quarter results included a $4 million legal reserve that Steve will address in his remarks. Excluding this reserve, the company's SG&A was modestly lower than the prior year, reflecting our ongoing focus on cost management while still making strategic investments in technology, talent and branding. As noted on prior calls, the expensing of investments made over the past several years in talent retention and acquisition during a period of hampered revenue production has been a significant drag on our earnings. We expect this dynamic to shift into operating leverage as the market improves. During the quarter, our results outpaced the market based on transaction growth of 25% for MMI versus an estimated market growth of 12% in transactions based on RCA data for sales of $2.5 million plus assets. This was driven by momentum in our private client brokerage business, which was up 17% in revenue and 22% in the number of transactions. This critical segment, defined as transactions in the $1 million to $10 million price range is improving, thanks to more banks and credit unions returning to the market, gradual price discovery and more investors finally coming off the sidelines. Private client apartments and single-tenant retail posted strong revenue gains of 35% and 16%, respectively. The company's mid-market segment also contributed to the quarter's results with a revenue increase of 35% from deals in the $10 million to $20 million price range, mostly dominated by larger private and quasi-institutional investors and developers. Our team's elevated client outreach campaigns and countless opinions of value that did not culminate in transactions over the past 2 years were instrumental in staying close to our clients during a time of uncertainty and providing guidance when they became ready to execute. This is the essence of Marcus & Millichap's client-centric and relationship-driven culture and business model that continue to differentiate us. Our larger deals valued at $20 million or more declined 12% in revenue and 13% in transaction count for the quarter, similar to what we have reported last quarter. Once again, this is a result of outsized growth in larger deals last year, which led the recovery from the 2023 market shock. Our $20 million and above transactions grew by 19% in calendar year 2024, 30% in the third quarter of 2024 and 59% in last year's final quarter. As a result, we faced a very difficult comparison this year. Given this dynamic, our overall brokerage volume in the third quarter posted a 2% gain compared to a 17% increase in market volume as reported by RCA, again for the $2.5 million plus asset sales. Our IPA division continues to deepen its institutional client base, which we're taking to the next level by the recent addition of 2 new executives, Andrew Laehy, who heads our IPA Multifamily division; and Dags Chen, our new Head of IPA Research. Each of these is a seasoned institutional executive with more than 20 years of experience with some of the most renowned institutional investors in the industry. The added leadership, which we're very excited about, combined with our healthy pipeline and robust exclusive inventory position us well to continue the expansion of our institutional platform as a supplement to our private client market dominance. Financing revenue once again exhibited strong growth, up 28%, reflecting improved lending conditions and our team's ability to leverage our extensive network of active lenders. So far this year, we've closed over 1,100 financing transactions with nearly 350 separate lenders, enabling our team to pivot when lenders move in and out of the market. Revenue growth has been widespread with contributions from our veteran originators, IPA Capital Markets as well as recent additions of experienced originators. We're also seeing steady progress in integrating our sales and financing teams, offering combined services to our private and institutional clients. Our loan sales and advisory division, Mission Capital, is also seeing a significant uptick in activity and has posted solid revenue growth this year as more lenders are finally moving both performing and nonperforming loans to the marketplace. Other developments of note include the net addition of 29 investment brokers in the quarter. As I've shared on previous calls, restoring and improving the company's organic talent development after a post-pandemic disruption has remained a priority, and our actions are starting to produce results, although the turnover rate of newer professionals is still elevated due to a difficult market environment. The quarter's improvement is encouraging as is our continued success in attracting and integrating experienced professionals. Our team also made progress in expanding MMI's brokerage transaction services, which is designed as a centralized resource for analytics and production support to our sales force. We see this as an area that can directly benefit from AI, technology and bringing more efficiency and expanded output to our team and to our clients. Lastly, I'm pleased to report that our auction division, which started in 2022, continues to gain traction, particularly in its collaboration with our investment brokers who are bringing this added marketing channel to many of our clients. So far this year, we've closed 191 sales through our auction platform, accounting for an estimated 25% share of total commercial property auctions in the U.S. Looking forward, we're encouraged by the ongoing improvement in our key operating metrics, including shorter marketing timelines, fewer significant price reductions and near-record exclusive listing inventory. Marketing and closing timelines still remain longer than usual and continue to weigh on productivity, largely due to persistently tight underwriting by lenders and a narrow margin of error on valuations among buyers and sellers. However, the trend is improving, which allows us to allocate more bandwidth to new business development as the market regains alignment. From a market perspective, this year's rate reduction failed to bring down long-term yields and did not spark a significant boost in the transaction pipeline as it did going into the fourth quarter of last year. Nonetheless, we remain cautiously optimistic about the start of a new sales and financing cycle as the market resets with measured improvement in the trading environment for 3 key reasons. First, we believe the Fed will continue to reduce interest rates over the next year, notwithstanding what may or may not happen in December to shore up the labor market. Although long-term rates are likely range bound, the more accommodative Fed and the end of quantitative tightening will be constructive for real estate transactions. Second, the price adjustments that have occurred over the last 2 years are making many assets compelling on a replacement cost basis. Although there is clearly a flight to safety with capital preferring high-quality assets in strong locations, investor confidence and fear of missing out are becoming more evident in the marketplace. This is most pronounced in apartments, industrial and retail in the majority of the metros we serve. The recovery in the office sector is clearly broadening with the growing return to office mandates and average daily attendance at 80% of pre-pandemic levels. This measure was at 50% just 2 years ago and 57% just last year. Last but not least, the pullback in new construction driven by limited risk appetite by equity capital and high construction costs will set the stage for stronger occupancies and rent growth across most property types in 2026 and 2027. Again, this is most pronounced for apartments and industrial, which were the most active in new deliveries over the past 5 years. Self-storage was also affected by this, and we'll see improvements in the coming years. For MMI, our vision of expanding market coverage through improved organic hiring and scaling our experienced professional recruiting as well as synergistic acquisitions remains our primary growth path. These are the parallel paths we have set to expand our private client market share and continue building on IPS success. Going into 2026, we're expanding our growth strategy in retail and industrial in particular, both of which offer significant growth or opportunity in the majority of the markets we serve. We also believe that further scaling of our financing capabilities has much room to run as we're proving through the success of many senior level originators who have joined MMI in the last several years. On the acquisition front, we continue to see a wide bid-ask spread and misaligned expectations on the guaranteed portion of valuations and therefore, capitalizing on more accretive opportunities to recruit experienced individuals and teams. Given the fragmented nature of our core business and the limited number of large viable M&A targets, most of our efforts focus on boutique firms with highly concentrated ownership, which presents its own challenges. We're expanding our recruiting team and resources to increase capacity for additional experienced talent acquisition, while we continue to explore complementary business expansions. From a capital allocation standpoint, our dividend and share repurchase program over the past 3.5 years has enabled us to maximize shareholder value while maintaining an exceptionally strong balance sheet. In the near term, we face a particularly challenging comparison to last year's exceptional fourth quarter, which benefited from the significant reduction in interest rates. That said, we expect to see continued sequential improvement in our business as the drivers of transaction activity continue to improve. Our strategy remains focused on leveraging our unique platform, expanding our market reach and investing in the tools and talent that will drive long-term growth. With that, I will turn the call over to Steve for more details on the quarter. Steve? Steve Degennaro: Thank you, Hessam. As mentioned, total revenue for the third quarter was $194 million, an increase of 15% compared to $169 million for the same period in the prior year. Year-to-date, total revenue was $511 million, up 12% compared to $456 million last year. Breaking down revenue by segment, real estate brokerage commissions for the third quarter accounted for 84% of total revenue or $162 million, an increase of 14% year-over-year. While transaction volume declined 2% to $8.4 billion, the company closed nearly 1,600 transactions at an average commission rate of 1.9%, which was nearly 30 bps higher than last year. The increase in private client volume drove a 4% decrease in average fee per transaction due to the higher mix of smaller deals. We are not experiencing any notable fee erosion in the marketplace in any of our price tranches. For the 9 months year-to-date, real estate brokerage commission accounted for 84% of total revenue or $427 million, an increase of 10% year-over-year. The year-to-date improvement included 8% growth in transaction volume to $23 billion across 4,136 transactions and a 2% increase in the average commission rate. Average transaction size year-to-date was $5.6 million compared to $5.8 million a year ago, reflecting a higher proportion of private client revenue for the 9-month period. Within brokerage for the quarter, our core private client business accounted for 63% of brokerage revenue or $102 million, up from 62% and $87.5 million in the same period last year. Private Client transactions grew 24% in volume and 22% in transaction count. Year-to-date, private client contributed 64% of brokerage revenue or $274 million versus 63% and $245 million last year. Middle market and larger transaction segments together accounted for 32% of brokerage revenue, generating $52 million in revenue compared to 35% and $49 million last year. While we achieved a 4% increase in the number of transactions within these segments, the overall dollar volume decreased 17%, reflecting a change in mix to more middle market activity and fewer transactions in the larger transaction space. Large transactions significantly outgrew the market last year, creating a tough year-on-year comparison. Year-to-date, middle market and larger transaction segments combined represented 32% of brokerage revenue or $136 million compared to 33% and $126 million last year. Revenue from our financing business, which includes MMCC, grew 28% year-over-year to $26 million in the third quarter. The strong growth was driven primarily by a 34% increase in transaction volume totaling $2.9 billion across 406 financing transactions, which was a 28% increase year-over-year. The average financing commission rate was nominally down 4 bps as expected due to an increase in larger deals closed in the quarter. The overall performance reflects the continued momentum and progress in scaling our financing platform. For the 9-month period, financing revenue was $71 million, a 33% increase compared to last year. This growth was driven by a 40% rise in transaction count and $8.2 billion in volume, up 46% year-over-year. Other revenue, primarily from leasing, consulting and advisory fees was $5 million in the third quarter compared with $6 million in the same period last year. For the 9-month period, other revenue totaled $13 million compared to $16 million in the prior year. Turning to expenses. Total operating expense for the quarter was $196 million compared to $180 million a year ago. For the 9-month period, total operating expense was $540 million compared to $496 million last year. Year-over-year increases in absolute dollars for both the quarter and year-to-date period are largely attributable to the increase in cost of services resulting from higher revenue. Cost of services for the quarter was $121 million or 62.4% of revenue compared to 62.2% last year. For the 9-month period, cost of services totaled $316 million or 61.8% of revenue, up 50 basis points year-over-year. The increase in cost of services as a percentage of revenue was primarily driven by year-over-year revenue growth resulting in producers achieving higher commission thresholds. SG&A expense for the quarter was $73 million or 37.4% of revenue compared to $71 million or 41.9% of revenue in the same period last year. The current quarter results include a $4 million reserve for a litigation matter that we believe has a number of legal rulings we intend to aggressively appeal. Also, as Hessam pointed out, our SG&A expense would have decreased by $2 million year-over-year, excluding the legal reserve as a result of tight cost controls. I'd also like to reiterate that we have continued to make investments in key strategic areas throughout the market disruption with an eye towards long-term competitiveness. For the 9-month period, SG&A totaled $216 million or 42.2% of revenue, down from 44.9% in the prior year. For the third quarter, we reported net income of $240,000 or $0.01 per share, which includes an $0.08 per share charge for the legal reserve that we took in the quarter. This compares to a net loss of $5.4 million or $0.14 loss per share in the prior year. In spite of the $4 million legal reserve, the year-over-year earnings per share improvement of $0.15 marks a notable return to profitability. During the third quarter, we maintained the same tax methodology we adopted in the second quarter and recorded a provision for income taxes of $1.2 million. For the 9-month period, the net loss was $20.9 million or $0.54 per share compared to a net loss of $23.8 million or $0.61 per share in the same period of the prior year. Adjusted EBITDA for the third quarter was $6.9 million compared to breakeven adjusted EBITDA in the same period last year. Year-to-date, adjusted EBITDA was nearly breakeven compared to a loss of $8.7 million in the prior year. Adjusted EBITDA for both the quarter and year-to-date would have been $4 million higher if not for the legal reserve, underscoring the substantial progress in operating performance over the prior year. Moving to the balance sheet. We continue to be well capitalized with no debt and $382 million in cash, cash equivalents and marketable securities, a $49 million increase over last quarter. Subsequent to quarter end, we returned $10 million in capital to shareholders through a dividend paid in early October. During the 9 months ended September 30, the company repurchased nearly 265,000 shares of common stock at an average price of $30.33 per share for a total of $8 million. Since August of 2022, the company has repurchased more than 2.4 million shares of common stock at an average price of $32.03 per share for a total price of $77 million. From the inception of our dividend and share repurchase programs over 3 years ago, we have returned a combined $200 million in capital to shareholders. We remain committed to a balanced long-term capital allocation strategy, which includes investing in technology, recruiting and retaining the best-in-class producers, strategic acquisitions and returning capital to shareholders. We are encouraged to see signs of market stabilization evidenced by improved listing activity, a stronger pipeline, a better lending environment and renewed investor engagement. Ongoing uncertainty around global macro conditions, inflation, tariff policy and the labor market still exist, but the Fed has signaled a more accommodative environment, which should drive more transactional activity. For the fourth quarter, we anticipate quarter-over-quarter sequential revenue growth consistent with normal year-end seasonality. However, being mindful that our prior year results benefited from an exceptional surge in activity as investors capitalized on rate declines. Cost of services as a percentage of revenue should follow the usual pattern as revenue builds through the year and be sequentially higher than the third quarter. As for SG&A, after normalizing for the legal reserve in the third quarter, SG&A for the fourth quarter should increase modestly on a dollar basis. With the current tax methodology, tax expense is expected to be in the range of $4 million to $6 million for the fourth quarter. With that, operator, we can now open the call for Q&A. Operator: [Operator Instructions] Our first question is from Mitch Germain with Citizens. Mitch Germain: I appreciate the chance to ask a question. And I know you talked about some of the tougher comps in the larger transaction segment of your business, but your hiring efforts have been on more experienced producers. So maybe just talk about that dynamic in terms of the ability to get some of that larger deal activity accelerating again. Hessam Nadji: Sure, Mitch. The look sort of beyond the headline numbers in that category for us shows that in the usual price ranges where our IPA division and more senior Marcus & Millichap professionals execute transactions in the $20 million to $50 million price range. Our business has been fairly steady. There was pretty much a same amount of deals done this year in the third quarter than last year. What happened last year is that we had an outsized number of very large deals, $70 million plus that we executed, which is predominantly why the comparison has become tough. Last year, we executed 21 deals priced above $71 million and this year, there was $7. And there is no particular pattern to that or reflection of any change in strategy. It's just a matter of the size deals that many, many of our institutional clients and large private clients happen to execute at a given time. So the strategy, both on the support levels of our existing IPA and senior Marcus & Millichap teams that are doing larger deals is unwavering, is on track. No changes at all have been executed there other than adding more leadership, adding a new Head of Research and investing more in expanding the IPA platform and capturing more share of the larger market transaction because we really believe it integrates well with our private client business, particularly as we see more and more of our private clients move equity from smaller assets and multi-decade held portfolios into larger institutional quality assets as they get closer and closer to retirement and estate planning. That bridging of the capital migration from private owners to the institutional market is a huge value proposition of IPA and Marcus & Millichap. And we're just really at the beginning stages of building that out, especially as the demographics continue to move in that direction. On the hiring front, the experienced brokers that we target for acquisition or recruiting are very select in terms of which markets we have what need and what product type we have what need. And it's those needs and avoiding overlap with our existing capacity in a market that drives the recruiting strategy. So it's a very market-by-market, property type-by-property type effort, and it takes a long time because you have to develop relationships with those individuals. They have to get to know the platform over time. And many of them are with other brands where they may not be maximizing their potential. And frankly, that's the reason that a number of them have joined IPA Marcus & Millichap over the last 5 years. Mitch Germain: Got you. That's super helpful. Curious about the conversations you're having with some of your customers. I know that many of them have really been on the sidelines last several years. And it does seem like some of them are now returning to the markets. Are you getting a sense that they've either, A) Just accepted the new pricing dynamic that's in the market? And B) Are you seeing them begin to feel a little bit more constructive about transacting in this backdrop? Hessam Nadji: Yes and yes. We're seeing more motivation to put property on the market because of the reality that there is no Fed miracle. Many of our private clients over the last 1.5 years were expecting a much more dramatic drop in interest rates, the evidence for which wasn't there. And we've been very consistent in our analysis of the market where we did not believe interest rates would go back down significantly, and they haven't. That realization is now creating more motivation is the first thing. The second is more and more of our private clients that didn't have a reason to sell are now facing reasons to sell because of loan maturities, maybe some operational issues and death, divorce, partnership breakups and all the other private client motivation. So we are seeing motivation also pick up due to that reason. Most importantly, though, Mitch, is a combination of moderately better interest rates. We have seen lender spreads come in, which is favorable. But the price adjustments is the primary reason there is now more alignment in the market where we had a lot of unsuccessful listings on the market over the last 18 months due to unrealistic pricing. And frankly, for us, there was a process of price discovery because there was so much moving around in the marketplace. It was hard to tell where the market really was. You had to put product out to market the best you could with great underwriting and see what the market response was going to be. The number of listings that are now basically aging or becoming unsellable at the expected price of the seller is dropping, which is telling us that the market is finding that realignment. And then more and more of our deals are having less significant price adjustments and fewer are falling out of contract, all of which tells us that this alignment in price expectation is starting to happen. Is it there all the way? Absolutely not. We still have a ways to go. There's still plenty of owners that believe their assets are worth more than they actually are based on real numbers and especially year 1 and year 2 operations, which is where we're finding the most friction between buyers and sellers. Mitch Germain: Great. Last one for me is I checked your financials to see when was the last time you had a similar level of revenues and you're extremely more profitable back then. And so I'm curious, and I really appreciate Steve's discussion around some of the legal reserve and some of the platform scale. But what's the new magic number to get back to producing the type of profitability that you did before? Obviously, you've had cost of living adjustments and numerous issues that may have changed in your business from 4 years or 5 years ago. I'm just curious, how do you become a bit more scalable and start to see a little bit greater improvement in bottom line when you start producing, I don't know, 200 plus in terms of revenues per quarter? Hessam Nadji: Mitch, this is Hessam. Let me share some comments on that one, and then I'll turn it over to Steve. The most important difference over the last, let's say, 6 years, 7 years of our operating structure is the fact that we have invested capital in talent acquisition, talent retention and essentially talent development at levels that the company hadn't engaged in prior to this period. And as a result of that, we have more experienced market leaders that have joined the company from the outside. Our retention of our top-level producers has been stellar, and we have invested in their careers by bringing them on or keeping them at Marcus & Millichap over the long term. As you know, all of those kinds of long-term agreements have performance thresholds, have stickiness for the company's ultimate margin protection over the term of an agreement. But that capital that's been invested is actually being amortized on an ongoing straight-line basis at a time when all of that talent is facing a disruptive marketplace that has not been functioning. Therefore, their normal just long-term average revenue production capability has been significantly hampered. So you have an additional expense line of a noncash item in the amortization of the capital that has been put out in getting this amazing talent pool retained and added to our company, yet the revenue component from all that talent has been significantly held back. As that starts to change, what has been a drag should become an operating leverage for us. In terms of the comparison of cost structure, that's probably the largest item, and it's a noncash item, as you know. Other investments in the platform do include a much bigger commitment to technology that we have implemented over the last 5 years than previously to when I became CEO. because, frankly, the company needed to move a lot faster and be a lot more nimble on things like a CRM system on things like automated matching of buyers and sellers to our website. And a lot of it was really sprung out of the pandemic because we pivoted and took major leaps forward in internal automation and a lot of automation we now offer to our clients through MyMMI, which is a major investment in a platform where clients, buyers, in particular, can tell us what they're looking for and the matching of their investment parameters to our fresh inventory is an amazing sort of mechanism for bringing efficiency to both our clients and to our sales force. So those are some key elements of why the expense structure has changed. We're building the firm for a much larger revenue base than where we are today. And because of the talent that's been brought on board and retained and these investments, we really believe in a normal market operating environment, we'll be able to achieve that leverage. So I just want to give that context, but let me turn it over to Steve. Steve Degennaro: That's pretty broad context. I guess a couple of additional points I would make and specific to your question, Mitch, that significant leverage, you're starting to see it happen at this revenue level. We're just shy of $200 million in this quarter. you can kind of do the math that sands the legal reserve, what results would have been. So we're kind of at that inflection point where you really see an acceleration of profitability, perhaps not all the way back to where we were at comparable revenue levels 6 years, 7 years, 8 years ago for reasons Hessam mentioned. But this is the inflection point. One additional point, the investments in not only retention and recruiting of those senior agents, the technology as well that Hessam mentioned, but central services where we will also gain additional leverage by adding more value and therefore, connectivity to the firm with our producers. So just a couple of additional points to tack on there. Operator: Our next question is from Blaine Heck with Wells Fargo. Blaine Heck: Hessam, you mentioned the banks and credit unions expanding lending, which is clearly a positive for the transaction market. But I'm wondering if you can give some context around the scale of that expansion and how you feel about their willingness to lend today, especially on smaller transactions just relative to their activity maybe last year and relative to a more normalized level of activity in a functional transaction market. Hessam Nadji: Happy to, Blaine. There is a marked difference from even a year ago in just the number of lenders at any given time willing to give us quotes on certain assets, number one. Number two, with quotes coming back so out of market about a year ago, a good number of lender quotes were just not usable. And if you contrast that to where we are today, we have more lenders signaling to us that they're back in the market and the quotes that are coming back are a lot closer to consummating a transaction than they were even a year ago. The loan to values are improving. And the -- part of that is lender spreads having come in. And probably the most important change is that it seems like what was clogging up the banking system in terms of loans that had to be extended, loans that needed workouts and so on has largely been addressed or there are plans to address them and fewer lenders appear to be clogged up versus a year ago. So it's taken our team of 100 or so originators across the country that are technologically connected to our -- to each other on a collaborative basis where we have real-time information sharing on what lenders are quoting at what levels based on specific loans that are being requested or mandates that we have. And that information sharing is another reason we're able to move faster in securing the right financing for each of our clients. In terms of the composition of where the capital is coming from for our financing, something close to 50% is now being funded by banks and credit unions. That percentage hasn't changed a whole lot from a year ago, but the time that it's taking and the number of lenders you have to knock on doors with a year ago is where the improvement has been. So it's taking less time to secure loans from banks and credit unions. We're seeing that also predominantly from the regional banks, a lot of regional banks were out of the market a year ago that are back in the market, which is for us as a local private client provider that regional bank connectivity has been significantly important over the history of the firm, and it's improving. Blaine Heck: Great. That's great color and seems like a marked improvement over the last year. I guess to the second part of the question, when you compare the activity today to maybe what you saw in pre-pandemic periods, are we all the way back? Are we halfway back? How would you compare the activity versus kind of optimal capital efficiency? Hessam Nadji: On an overall basis, we believe the market is still somewhere around 15% to 20% below normal as a whole. But if you look at various price points and property types, the real answer is in that level of detail. So for example, if you look at Southern California, for example, or if you look at other regions like Texas, some markets are a lot closer to the velocity in what we consider a normal period, and we used 2014 to 2019 as the last sort of 5-year period of a normal, less choppy environment. The Texas markets are a lot closer to that normal than, let's say, the California markets are. Large apartments are still well below their normalized 5-year average pre-pandemic as are small apartments and single-tenant net lease. I would say that small apartments and single-tenant net lease are about 20% to 25% below where that average trading in a normal environment should fall. Blaine Heck: Got it. Very helpful. Switching gears, can you talk a little bit more about the auction business? I don't think we've discussed that in very good detail in past quarters. Just how large you see that segment growing in the next few years? And maybe touch on any differences in the fees you generate from that business versus your more typical brokerage business? . Hessam Nadji: Absolutely. Well, first of all, it goes back to specialization and expertise. We built the capabilities that are now in place organically by bringing on auction specialists that had significant experience -- and then shortly after we knew that there was a real market for it, both internally in terms of the collaboration and externally, we brought on Jim Palmer as the executive in charge. That goes back to our philosophy that you have to have management that has had practical experience in the niche. And Jim certainly brings that with his years and years of involvement in the auction business. So the combination of auction specialist producers that are dedicated to the auction business that's all they do, strategically located in various regions under the direction of a dedicated executive with experience, Jim Palmer, is the combination that has made this very successful for us. And one of the benefits is that for our investment sales force that is out there, especially in a disruptive market with conventional marketing -- and as we've discussed and I've made comments on just earlier on this call, the response to listings, aging listings and listings that weren't movable in a conventional way over the past, let's say, 24 months, we've found that more and more of them are good candidates for marketing through an auction platform. And the auction platform obviously has the benefit of having prequalified bidders where we know that they're financially capable and committed to executing transactions. And as we've not only been able to find the right niche in executing the auction model, the benefit of the internal collaboration is that we collect the brokerage service fee for the seller and then there is the auction-related fees on top of that and a buyer premium that is added. So it's a win-win for the client. and it's multiple fee generation opportunities for the firm. Blaine Heck: Got it. That's very helpful. Last one for me. With respect to the litigation, was this a onetime event? Or do you expect some ongoing headwinds? And maybe you can just give some color on the nature of the litigation. Is this related to ongoing segments of your business such that there could be more coming or just a more nuanced situation? Hessam Nadji: Yes. Blaine, I'll take that. First of all, I'll refer you and everyone to the 10-Q that will be on file with the SEC later today for some additional context. In addition to that, I'll say that we do anywhere from 8,000 to 10,000 transactions a year. So inevitably, from time to time, disputes of varying nature will -- are going to arise, most of which go away in the normal course of business. A very small number of those actually go to trial. And this matter, unfortunately, which involves a disputed disclosure-related claim actually did go to trial. It certainly is an outlier. We believe that the verdict, which went against us was rendered in error. And therefore, we have very strong grounds for appeal. We intend to exhaust all our legal avenues to have the award reduced or reversed entirely. The -- so no, it's not an indication of any greater pattern or a specific segment of the business. It's an extreme outlier. No -- not an indication of any greater issue. With respect to the amount, just based on the information that we've got available and our assessment at this time, we felt that was the appropriate amount to reserve. Operator: There are no further questions at this time. I'd like to hand the floor back over to Hessam Nadji for any closing comments. Hessam Nadji: Thank you, operator, and thank you, everyone, for joining the call. We look forward to seeing a lot of you on the road and having you back on our next earnings call. This call is adjourned. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to Amadeus Third Quarter 2025 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Luis Maroto, President and CEO of Amadeus. Please go ahead. Luis Camino: Good afternoon. Welcome to our Q3 results presentation, and thank you for attending today. I'm joined by Caroline Borg, our CFO. So let's begin. We'll start on Slide 4. Amadeus had a strong third quarter full of momentum, which drove revenue growth acceleration and margin expansion. Year-to-date, group revenue has grown by 8% and adjusted EBIT increased by 9%, both at constant currency. Our prospects remain strong, and we entered the last quarter of the year with confidence to deliver on our outlook for the year. Amadeus is a B2B technology partner of reference in travel, and it is deeply integrated into the travel ecosystem. Many of the world's most important travel players leverage on us for their core technology. In the quarter, we continued to span our relevance. We grew our customer relationships with airlines, hotels, travel sellers and airports. We won new customers across our portfolios and broaden our offering. We are pleased to announce we have won the Ascott Limited as a new customer for Amadeus Central Reservation System in hospitality. Ascott is Singapore based and its portfolio expands more than 230 cities in over 40 countries through Asia, EMEA and North America. ACRS market leading attribute-based selling capabilities will empower Ascott to deliver uniquely personalized merchandising, enhance guest experiences and drive growth across its portfolio. The current scope of our ACRS agreement covers Ascott's global portfolio, excluding Quest-branded properties and those located in China. Further expansion is expected as Ascott continues to execute its global growth strategy. Investing for the future has been key to our success. In the year, we have deployed over EUR 1 billion in R&D into our solutions, technologies and capabilities to extend our reach in travel and to further connect the travel ecosystem. Today, we want to take the opportunity to serve some further insights into how we are leveraging AI to generate further opportunities. As you know, as a leader in the travel and technology space, we have been evolving and applying AI into our products and solutions for almost 20 years. Our journey began with operations research, machine learning continued with deep learning and introduction of generative AI, revolutionizing essential functions like flight scheduling and search, airport resource management, passenger disruption handling and revenue management systems. We use AI to optimize airplane usage to reduce the impact of disruption on passengers, to improve hotel occupancy forecasting and to improve the creation of shopping recommendations among others. We use AI at an enormous scale. We have been investing for an AI-driven future, and we are building the technological foundations to excel at Agentic AI in travel. As we complete our cloud transformation, we are also creating the first data mesh in travel, a trusted industry data source with several insights across domains and solid governance. For the potential of Agentic AI to be realized across travel, this is key. We are embedding Agentic AI as a capability of our platform for the benefit of our portfolio and we are uniquely placed to infuse Agentic AI across the travel ecosystem in the years to come. At Amadeus, we are also leveraging on strategic partnerships with world-leading technology players to boost our strengths. We are focused on our strategic partnership with Microsoft and Google to propel our AI innovation, deploy effective multi-public cloud operations and develop unique business collaborations. Garv is a recent example of AI co-innovation. Garv is an AI agent built on top of our airport data platform. Airport employees with Microsoft teams can ask questions using natural language and Garv reasons through problems, make decisions and learns from experience. Please turn to Slide 5 now for a strategic update. Amadeus is leading the airline retailing transformation with Nevio, our AI powered next-generation airline IT platform. Nevio's leading capabilities are being recognized by existing and prospective customers, increasing our competitive advantage and further deepening our customer proximity. Nevio has a distinct value proposition. It allows us to offer our customers the possibility of doing much more, and it also allows Amadeus to better attract new customers, thanks to its modularity. We are active in numerous RFPs. We continue to advance negotiations and we aim to expand our group of Nevio customers. In the quarter, we continued to deliver new Nevio capabilities. Finnair has introduced a significant step in airline retailing becoming the first airline to launch native ancillary combos, powered by Amadeus Nevio product catalog. This is part of our offer management offering and consolidates our products and services into one catalog. It is a single repository for all content that an airline can offer to travelers. These products and services can then be provided by the airline directly or by third parties, and they can be offered individually or bundled into an offer tailor to the traveler, and they can also be self-service purchases by the traveler. In hospitality, we have become a leading IT provider to the hospitality industry. We believe the Amadeus platform offers the most comprehensive portfolio of core capabilities to the hotel industry and is the most probably connected ecosystem of partners. We are uniquely placed to address industry needs and expand in this large and growing market. We are progressing well with the implementation of Marriott International and Accor to the Amadeus hospitality platform. The first Marriott International properties are now live in -- on ACRS and progressing well with more to be rolled out around the world over the next few months. Feedback on capabilities has been positive. InterContinental Hotel Groups, MGM, Marriott International, Accor and now the Ascott Limited, we are creating a global community platform of world-leading hotels and a mission to transport relationships with guests. Amadeus' travel platform is a platform that enables travel providers around the world to retail through third parties everywhere on the globe. This quarter, we expanded its reach by adding new travel sellers and increasing our share of wallet with existing travel seller customers, for example, with Trip.com. We also expanded the content bookable on our platform, for example, with low-cost carrier flyadeal, enhancing the platform's attractiveness. We also continue to sign new NDC agreements. Our goal is to become the undisputed aggregator of NDC content and we believe Amadeus has the most advanced and compressive NDC technology in the industry, and we aim to do NDC at scale. Finally, regarding our technological capabilities, including AI, Agentic AI promises to transport travel in positive ways, bringing increased personalization to travelers as well as productivity and efficiency gains across the value chain. We are uniquely placed to deliver Agentic AI functionality into our installed customer base and into new customers. Amadeus can build solutions for the travel industry that others cannot easily replicate. Our technology is natively integrated into travel players covering critical end-to-end flows and managing vast amounts of extensive data in travel. We have identified over 500 potential use cases whereby applying generative AI, we can bring value to our vast customer base through the announcements of our products or the creation of new ones as well as for internal efficiencies. We are enhancing our solutions together with our customers with very positive feedback. Some that had been launched already are Cytric Easy AI assistant for employees to plan and book personalized corporate travel with the Microsoft teams, Amadeus Advisor for leveraging business intelligence in hospitality. We have trained and deployed several productivity boosting AI agents for travel sellers on top of our selling platform, Connect. We are additionally investing in call center automation for airlines. We have received huge interest for this and it is a clear opportunity for all travel providers and travel sellers to gain efficiency and productivity at call centers. We are expanding our hospitality platform as well with Ascott for an AI automated call center powered by Amadeus and Salesforce. And we are also actively engaging with AI platforms to assess how we can best serve them within the travel industry. Please turn to Slide 6 for our most recent developments in Air IT Solutions. We continue to see great success in revenue management through the quarter. Amadeus innovative modular AI power and data-driven revenue management technology enables customers to optimize pricing, enhance operational efficiency and respond dynamically to market changes. Qatar Airways, Vietnam Airlines and Jazeera Airways have contracted for Amadeus Revenue Management solutions. Also as part of its acceleration towards modern retailing, Singapore Airlines has implemented Amadeus Dynamic pricing. We expanded our Altéa customer base in Asia with both Sun PhuQuoc Airways and Air Borneo contracted for our Altéa PSS. Several customers expanded the scope of solutions adopted from our portfolio, including Wizz Air, Aeroitalia, Malaysia Airlines, FireFly and Air Sial. In Airport IT, we continue to deliver innovative solutions. As I previously mentioned, we introduced Garv, an AI agent that enables better decision-making. Also together with Lufthansa, we successfully tested the biometrics enabled EU Digital Identity Wallet. This is an initiative led by the EU Commission that aims to have a digital version of EU ID, passport and driving license in an EU Digital Identity Wallet by the end of '26. We also have commercial wins with customers such as Manchester Airport, Changi Airport, Aeropuertos Mexicanos and Alyzia Handling who added solutions from our portfolio. Moving on to our volume performance in the first 9 months of the year, Amadeus PB grew by 3.7% or 4.3%, we exclude the leap year effect in the base driven by the global traffic evolution in the period, supported also by the Vietnam Airlines implementation, which slapped in [ April '25 ]. All of our regions, excluding North America reported solid growth. Asia Pac was our fastest-growing region, reporting 8% PB growth. In North America, Amadeus PB evolution was impacted by soft performance of some of our customers in the region. Western Europe and Asia Pac were our largest regions. In the third quarter, Amadeus PB grew 2.2%, moderating slightly relative to quarter 2, mirroring global traffic growth but with an improving trend within the quarter. You will see PB volume growth moderation in the quarter was more than offset by revenue growth by an accelerating revenue per PB. In the first few weeks of October, we have seen our PB volume growth trending ahead of quarter 3. Slide 7 for our developments in hospitality and other solutions. In the first 9 months of the year, the segment's revenue grew 8% at constant currency, supported by positive trends and evolutions by new customer implementation and increased volumes at both hospitality and payments, particularly in quarter 3, which supported revenue growth acceleration in the quarter. We have commercial wins in the third quarter across our business domains. I was saying before, we are pleased that the Ascott Limited has contracted for Amadeus Central Reservation System, represents a step forward in Amadeus' journey to transform the hospitality industry through its ACRS community and it demonstrates the value of our open and scalable technology for hoteliers of different sizes and needs. We'll also span our hospitality platform with Ascott with our AI power automated call centers for hoteliers. Our Business intelligence solutions continue to attract new customers, such as EOS Hospitality and Scandic Hotels. Our Business Intelligence solutions include Amadeus Advisor and AI agent designed to simplify that access and empower hoteliers with smarter insights to drive more informed decisions. Further on the AI front in hospitality, we have built an AI power solution within meeting broker to automate and accelerate hotelier's responses to group and events RFPs. Trip.Biz part of Trip.com Group expanded its hotel distribution agreement with Amadeus to support its continued growth outside of China, and Abu Dhabi's Department of Cultural and Tourism, and Adeera Hotel Group based in Saudi Arabia are adopting Amadeus Digital Media Technology. In the quarter, we expanded our partnerships. We have partnered with Shiji, a global provider of hospitality technology solutions to offer hotels a combined offering, including industry-leading reservation, property management, guest experience solutions through a single provider. We have also partnered with Sensible Weather, the leading weather warranty provider for travel and hospitality to integrate automatic reimbursement capabilities for unexpected adverse weather conditions into the Amadeus iHotelier Central Reservation System. In payment, Outpayce has made progress in scaling our payments offering. We have initiated the issuing of prepaid virtual cards and implemented various new customers such as HBX Group, who are now in production. Also Sweden-based tour operator Sembo and Hong Kong-based Junting Travel has expanded their B2B wallet agreements with Amadeus. Please turn to Slide 8 for our distribution highlights. During the third quarter, we signed 14 new contracts or renewals of distribution agreements with airlines, including low-cost carrier flyadeal, taking the total to 43 for the first 9 months of the year. To date, we have signed 75 NDC agreements with airlines, including Riyadh Air in the third quarter and 35 airline services in content accessible to the Amadeus travel platform. We had great commercial developments with major travel agencies. We expanded our travel seller customer base with travel management companies such as Corporate Information Travel in Malaysia an UOB Travel in Singapore as well as with leading French tour operator Voyageurs du Monde. All of these travel sellers will benefit from access to the broadest range of travel content, including NDC. We strengthened our relationship with online travel agencies such as Trip.com, which expanded its agreement with us and Fareportal, which continues to scale its NDC option through the Amadeus travel platform. Retail travel agency, Internova Travel Group and tour operator Cercle de Vacances expanded their partnership with Amadeus to also include NDC content. To review our volume performance in the first 9 months of '25, Amadeus bookings grew by 2.7% or 3.1%, excluding the leap year effect supported by continued commercial gains across regions most notably in Asia Pac, which was our fastest-growing region, growing 12% over prior year. In third quarter, Amadeus booking growth accelerated to 4% from a softer Q2 growth backed by a more stable overall global environment compared to first half. Growth accelerated across most regions, particularly the Middle East and Africa, Asia Pac and Western Europe. The volume growth acceleration in the quarter offset the expected moderation we saw in revenue per booking growth in quarter 3, which can sometimes be lumpy. And to the first weeks of October, we have seen a moderation in our booking growth relative to quarter 3. With this, I will now pass on to Caroline to review our financial performance. Caroline Borg: Thank you, Luis. I'm delighted to be presenting our strong Q3 results today. So please turn to Slide 10 to review our solid financial performance to date with high single-digit revenue and adjusted EBIT growth at constant currency coupled with steady free cash flow generation, reinforcing our expanding relevance in travel. Given that the first 9 months of the year, the U.S. dollar has depreciated significantly in relation to the euro, we are displaying our performance of revenue, EBITDA, adjusted EBIT and free cash flow versus prior year also at constant currency to facilitate understanding of Amadeus' underlying financial performance. More details on our exposure to FX on our constant currency calculations as well as complete information on our IFRS figures and their evolution are available in the appendix of this presentation and in the Amadeus' January to September 2025 management review. In the first 9 months of the year, we've delivered strong growth across many of our key financial metrics. Revenue of EUR 4,895 million, 8% growth at constant currency, 6% reported growth. Operating income of EUR 1,420 million, 8% reported growth. Adjusted EBIT of EUR 1,471 million, 9% growth at constant currency, 8% growth reported. Profit of EUR 1,088 million, 10% growth and diluted EPS at 11% growth. Adjusted profit of EUR 1,109 million, 8% growth and diluted adjusted EPS of 9% growth. Free cash flow of EUR 955 million and expected 2% below prior year. Leverage at 0.9x net debt to the last 12 months EBITDA as at the end of the period. And as you know, we've been ongoing -- we have an ongoing share repurchase program for a maximum investment amount of EUR 1.3 billion, which I can announce just completed yesterday. Our 2025 outlook at constant currency remains unchanged. So now let's go to Slide 11 for our revenue evolution at constant currency. Our group revenue grew by 8% as a result of revenue expansion across all of our segments. Air IT Solutions revenue growth of 7.9% was driven by the PB volumes that Luis has just described previously and a 4% higher revenue per PB, which is fundamentally resulted from positive pricing impacts from new agreements and renegotiations, upselling of our incremental solutions, including those from Nevio and inflation. And in addition to that, we delivered strong growth of our airline expert services and our airport IT businesses. These effects were partially offset by a negative platform mix as Navitaire New Skies outperformed Altéa. We expect that revenue per PB growth to moderate in Q4 relative to Q3. Hospitality and Other Solutions revenues grew 8.1%, which was largely driven by the hotel IT, hotel distribution and business intelligence domains, supported by customer implementations and increased volumes. As we communicated in H1, Digital Media revenue growth showed an improvement in Q3. Revenue growth was also driven by payments where both our merchant services and payout services businesses expanded notably. As we have communicated previously, we expected revenue growth for this segment to accelerate into the second half of the year. In Q3, we have delivered faster revenue growth relative to the prior quarter, and we expect this growth to continue to accelerate again in Q4. Air Distribution revenue growth of 8% was driven by the booking evolution that Luis has just described previously, coupled with a strong revenue per booking growth of 5.2%, primarily resulting from positive pricing effects, including contract renewals, new agreements and inflation. As Luis mentioned, these effects can be lumpy in nature. And as we communicated in our half 1 results, revenue per booking growth in Q2 was exceptionally high with revenue per booking growth in Q3 moderating as expected and we expect that moderation to continue into Q4. So now let's go to Slide 12 for a review of our adjusted EBIT evolution. At constant currency, our adjusted EBIT grew 8.7% resulting from the 8% revenue evolution discussed on the previous slide. And in addition, our cost of revenue growth of 3.1% is fundamentally driven by an increase in transactions such as in air distribution and hotel distribution bookings and in payments due to the B2B wallet expansion. Reported fixed cost growth of 8% mostly resulted from, firstly, an increase in resources, particularly in our R&D activity, coupled with a high unitary cost. Secondly, higher cloud costs due to a combination of our own volume growth and also to our progressive migration of solutions to the public cloud as we continue to mature. And thirdly, to the Vision-Box consolidation impact in Q1. Fixed cost growth is expected to moderate in Q4 relative to Q3. Ordinary D&A expense increased by 4.2% as a result of higher amortization of internally developed software, partially offset by a lower depreciation expense at our data center given the migration of our systems to the public cloud. At constant currency, EBITDA margin was 39.1%, slightly below prior year, and adjusted EBIT margin was 29.8%, a small expansion versus last year. So now on to Slide 13 for a review of our adjusted profit evolution. Adjusted profit grew by 8.2% as a result of our adjusted EBIT growth, lower net financial expenses and higher taxes than last year. Diluted adjusted EPS grew by 8.9% in the period. Net financial expenses declined driven by lower average gross debt and cost of debt and taxes increased as a result of higher taxable income and a higher effective tax rate at 22%, which was impacted by the changes in local tax regulations and lower tax credits expected for the year. Adjusted profit evolution in Q4 2025 will be impacted by the unusually low effective tax rate that we had in the same period last year, Q4 2024, resulting from positive effects coming from previous years compared to the 22.1% tax rate expected for Q4 2025. Now on to Slide 14 to review our R&D and capital expenditure. As Luis was saying before, reinvesting into our business is the #1 priority for us. To evolve our technology capabilities and solutions for the benefit of our customers is something we are proud of, and it is hugely important to continue to enrich the competitive advantages we have built through the years of leadership in travel. At September, our year-to-date R&D investment grew by 10.6%. Half of our investment was dedicated to the expansion of our portfolio and the evolution of our solutions and AI capabilities, including Amadeus Nevio, Navitaire Stratos for airlines, our hospitality platform, NDC technology for airlines, travel sellers and corporations and solutions for our airports and payment services. 1/4 to 1/3 was dedicated to customer implementations across our business such as Marriott International and Accor for ACRS, our new Nevio customers, as Luis was previously saying and airline portfolio upselling, and customers implementing NDC technology as well as efforts related to bespoke consulting services provided to our customers. The remainder was dedicated to our migration to the cloud and our partnerships with Microsoft and Google as well as the development of our internal technology systems. In the 9-month period, our capital expenditure increased by EUR 80.5 million or 15.3%, mainly driven by higher capitalizations from software development. Capital expenditure represented 12.4% of revenue in the first 9 months of the year. And now on to Slide 15 for a review of our free cash flow generation and net debt evolution. In the first 9 months, we generated EUR 955.2 million of free cash flow. Free cash flow was slightly below our prior year by 2.1% as we expected and as a result of increase in our capital expenditure, as I just previously discussed, deployed to elevate our portfolio of solutions and to strengthen our value proposition. We also had an increased change in working capital outflow and taxes, partially offset by our EBITDA expansion and a reduction in interest payments backed by lower gross debt and cost of debt versus prior year. In Q4 and the full year free cash flow growth will be impacted by nonrecurring tax collections that increased free cash flow in 2024 by EUR 107 million in Q4 and EUR 116.2 million in the full year, as we described in the full year 2024 management review. Net debt amounted to EUR 2,219.9 million at the end of September, EUR 108.6 million higher than at the end of December due to the acquisition of treasury shares under the share buyback programs, including our ongoing EUR 1.3 billion program, which, as I said previously, has just completed as well as the dividend payment and a small acquisition in the Travel Intelligence space, partially offset by our free cash flow generation and the conversion of bonds into shares. Our leverage is 0.9x net debt to EBITDA as at the end of September. And finally, please turn to Slide 16 for our current views on 2025. In the first 9 months of the year, we've delivered steady and profitable growth, demonstrating the resilience and diversity of our business. We entered the last year of the year with confidence to deliver our group results within our 2025 outlook guidance range at constant currency, with revenues growing at the lower end of the range and EBITDA and adjusted EBIT growing faster than revenues. With that, we have finished the presentation, but before we open to questions, I'd like to share that this year we'll be presenting our full year 2025 results in person in London at the London Stock Exchange. We will be publishing a save the date on our website and circulating the information soon. We look forward to seeing you there. With that, we can now open the call to take any questions. Operator: [Operator Instructions]. We'll take our first question comes from Alex Irving with Bernstein. Alexander Irving: Two from me, please. First, on our distribution. Do you see the LLM, ChatGPT and so on, becoming a major distribution channel for airlines? And what steps are you taking to position for this? Second, if you do see this becoming an important channel, then does this create the ability for airlines to reduce their dependence on GDSs given the LLMs should have both the scale and the technological competence to plug directly into airline APIs. And would you expect airlines to offer content parity with GDS channels or to advance their own channels when selling through LLMs? Luis Camino: Okay. Look, let me see how I see things. Of course, we will need to see how things evolve. But you know the travel space is complex. There is a lot of content fragmentation that in my view, needs to be aggregated and standardized and if we also think about the transition to offer an order and dynamic pricing capabilities, this will even add more complexity in the future in the way to really connect to travel providers and to really get the content. So whoever wants to consume travel, we'll need to work in my view, with people that can provide this content in a perfect way. I mean we are not just talking ourselves. We are talking about the need to be service and we also need to see that the look-to-book ratio is reasonable. You know that with NDC is already a challenge in terms of the number of transactions per booking. And with AI, this could be even more costly. So based on all that, we don't believe the goal of the AI platforms will want to become merchants, to be content aggregators and deal with all this complexity, we feel that these platforms will need real-time pricing, not static content. And you have seen many of them reaching today agreements with online TAs to get this content. So yes, there will be changes. This is a constant in our industry. We will target that as an opportunity. I mean, as you probably know, we are the largest provider of airline.com engines. We are the largest processor of online travel agency, and we work a lot with metasearchers. So this is -- the metasearch was also something that appear and we work with the majority of them. So our goal really is to keep our role. Of course, as an IT provider. And as I mentioned during my presentation, we have a lot of cases. This is going to be normal for any technology company, and we also feel in distribution we can play a role to orchestrate what is coming. And yes, the AI platforms will be a new channel of getting into the final booking, and we are engaging with them as we do with the metasearches to see how we can play a role. So we feel quite confident about that, but also we need to see how things evolve in the future and what is the final intent of the AI platforms. Operator: The next question comes from the line of Adam Wood with Morgan Stanley. Adam Wood: Maybe first of all, you made an interesting comment about the opportunity in call center automation. Maybe first of all, could you just talk a little bit about how far along you are from a technology point of view on that? And then maybe more importantly, from a strategy point of view, I guess that's a very labor-intensive industry today. It's not going to be a technology replacement cycle immediately. There's going to be a need to move from one to the other. I guess you don't want to hire a lot of labor to help manage that transition. So can you just talk a little bit about what the strategy is to help people move from your labor incentive call center operation to one that could be powered by your technology. And then secondly, we're obviously seeing flight restrictions in the U.S. Would that be included in the guidance range that you've given? Or would that potentially create downside if that was to persist through the end of the year? Luis Camino: Okay. Again, we don't know what will be the impact in the U.S. But with our current figures year-to-date, I mean, we feel confident we can manage I mean again, it depends how things evolve, but it's already assuming that in the U.S., there may be some impact. As you know, we have more or less 20% of our volumes in the U.S., less in PBs. Hopefully, this will be short. But again, I think an impact may happen. Of course, this may impact us in that part of the world, but we expect to be within the range that we have provided to you. With regards to the call center automation, we are working in pilots and working very closely with customers. We believe this is an opportunity. Again, I mean, is not new to us because we have been delivering technology on this front, and there will be a transition to things that we are delivering, both for our customers, but also internally in the way we operate. So we are quite advanced in working with airlines. And of course, in many cases, we are in pilot mode. In other cases, we have launched the technology, but all that is moving well. That's what I can say. Operator: The next question comes from the line of Sven Merkt with Barclays. Sven Merkt: Maybe one on hospitality. Obviously saw a very good improvement in growth in the third quarter, and there are reasons to believe that we should see a further improvement in Q4. That said, you still need a substantial acceleration in the fourth quarter to hit the low end of the full year guidance. And therefore, it would be great if you could comment on your confidence on getting there? And then secondly, could you please give us an update on the cloud migration. Is there anything you can say more precisely when this will be completed? And what impact we need to take into account in our cost and cash flow modeling for the upcoming quarters? Caroline Borg: Yes. Great. I can take both of those. So let's start with the hospitality acceleration. We've seen well, firstly, we mentioned that half 2 would accelerate beyond half 1. We also mentioned that we would be starting to see some recovery in our media slowdown from half 1. So elements of our hospitality business that have really benefited in the Q is our Hospitality Distribution business. As I said, recovery of Media, our Business Intelligence operations and our operations in payments around our merchant services and our B2B Wallet. So we've been very pleased with the improvement and the growth in hospitality. And we do expect that to continue to accelerate into the future -- into Q4, particularly. We also mentioned, Luis mentioned our implementation of Marriott, and we're starting to see that ramp up come through within Q3 and Q4. So we do feel confident in our Q4 projection for hospitality to continue to accelerate its growth. With respect to your cloud migration cost, we are in the high 90s percent complete, I think about 96% complete. We expect to complete early in 2026 and we're starting to see the evolution of our cost base as we transition through our cloud migration. It is true that there'll be some costs that we will not recur once we move to the cloud migration. Those costs are costs that are purely related to the migration activities. But given our ethos of reinvesting ourselves into our solutions and product offerings, we expect to redeploy a lot of those people into other activities. So the impact, we will see fixed costs growth moderating, continue into Q4, but the impact will not be that big from the cloud migration per se in terms of cost evolution. Operator: And the next question comes from the line of Toby Ogg with JPMorgan. Toby Ogg: Perhaps just on the growth side. So you've been running at 8% year-to-date ex FX revenue growth so far, and you're continuing to steer towards the lower end of the 2025 growth guidance. Just thinking about the midterm growth guidance of 9% to 12.5% growth CAGR that, I think, implies that growth next year should accelerate. Could you just give us a sense for how confident you are around that acceleration? And then what gives you that confidence? And then just secondly, just on the comments around the first week of October. You mentioned an improvement in the PB growth versus Q3, but a moderation in the air bookings growth versus Q3. We're now a week into November. Is there any color that you can share just on how those metrics have been trending through the remainder of October? Luis Camino: Okay. Look, it's -- again, there are seasonality matters. What we have seen overall is that October was a bit weaker. But again, there are some seasonality effects, mainly in Asia Pac as we had in India, some holidays and in Korea, some specific volumes. So you always have these kind of cases. So this was the main reason, which is not happening in November. It is true that in November, and in the last part of October, we have seen some impact in the U.S., as I mentioned before, not much, but yes, some weakness there. So I will say bookings underlying are healthy. We don't see in the rest of the regions, any change compared to what we have seen in the previous months. But again, in October, there were some specific matters just in Asia. And in November, this was not there, but we have seen some weakness in the U.S. So if we exclude these effects, the volumes will be quite positive. Caroline Borg: Yes. And if I take the question on our FY '26 growth trajectory. Look, firstly, we're not going to give '26 guidance today. We will come back in February with our 2026 guidance. However, to your question, we did communicate our midterm guidance, which covered 2026 at our Investor Day a number of years ago. We've delivered a strong 2024. We are on track to deliver a good 2025. So we are quite confident in our midterm guidance at a group level to maintain those CAGRs of 9% to 12.5%. But as I said, we will come back with more details on segments in February and tell you more about our evolution on how we see things once we've closed FY '25. Operator: And the next question comes from the line of Victor Cheng with Bank of America. Hin Fung Cheng: Maybe, first of all, do you see potentially more risk maybe from Direct Connect given NDC is now maturing at version 24.1 and AI is helping build these pipelines. I think in Q3 earlier, there is one large tech savvy TMC that switched from using GDS to direct connect for NDC content. So is that -- do you see that as a risk of more of that happening? Or is it more of a one-off scenario? Luis Camino: We don't see an increase in direct connect to be honest. And I think I have mentioned myself that I don't believe on direct connect in general, it is expensive for both parties, requires adaptation. And if we think about NDC, there are new versions, that, of course, both parties will need to really support airlines and the travel agencies and adapt to that. There are not so many travel agencies that have global systems. And that means that, yes, when you deal with one system different in each country, you need to connect and try to really do this direct connect per country. Of course, you need to aggregate all these direct connects and then the rest of the content. So -- and then yes, I mentioned already the look-to-book ratios and the fact that the GDS has optimized that, and we are working really in trying to see with NDC and also with AI, how this is going to be handled in the sense of having intelligent search that is not hitting the inventory of the airlines every time there is a request because otherwise, this will be difficult to manage. So I don't think direct connects will be the norm. Again, we have said there are some specific reasons for some specific parts of the inventories that can work. But in our conversations, we don't think there is any push today in general, of course, there could be exceptional or specific cases in general from the travel agencies to really move into that direction and deal with the airlines. So we feel the contrary. There are more conversations about how we can bring back part of this content with the right technology and in the right way. Hin Fung Cheng: Very clear. And if I can have one more follow-up. I think you have detail of interesting AI developments from Amadeus. But maybe can you help me understand on a high level, how you view Agentic AI can disrupt the distribution market either from a workflow perspective or from a structure or an economics perspective, any potential channel shifts or how Amadeus can participate and position itself in the new workflow? Luis Camino: I mean, again, I tried to explain before, probably without much success. But I mean, again, we feel -- it depends how things move, of course, but we are extremely well positioned to really deal with whatever technology, including that. There will be a new channel. Yes, there will be a new channel of search and shopping. This has happened. Again, if you think about the way the metasearch works, including Google, of course, we will need to see how the AI platforms move and what is their intention. We don't think they will become a merchant, as the metasearchers are not doing so. And therefore, we are in a position to really provide them with the content that is required. I mean, moving -- because they don't need a static content, they need real pricing if they really want to move ahead and we don't think it's in the interest to really integrate vertically and try to really deal with all the complexity of the servicing and all the complexity of the pricing that is required, which is not an easy task. Therefore, our goal is to really be content aggregation to really orchestrate the needs of the AI platforms. But of course, yes, there will be a new channel of sales and inspiration and they will need to really go through the process with providers. Some of them are already working with some travel agencies, some of them, we can provide IT services as we do. I mean, we also announced in the last quarter our partnership with Google to deal with our Meta Connect, and this is a proof that both as they deal with metasearch and now the Agentic AI, we'll need to work with partners, and we feel we have this capability. And again, I was mentioning, of course, the huge amount of transactions that this may generate if -- I mean, this is not for free. As you know they need to use a lot of data, a lot of hits to the system and therefore, we aim to be orchestrating all that as the key technology provider. And that's our goal. And again, we engage with AI platforms. We engage with airlines about all that and as we have done at the times of other technology changes, we aim to be playing that role in the middle. Operator: The next question comes from the line of Charles Brennan with Jefferies. Charles Brennan: Great. Maybe I'll just start with a clarification on the hospitality side, actually. You seem to attribute the revenue increase more to the media side and maybe payment side. In the prepared remarks, I didn't hear you reference Marriott. Can you just confirm that Marriott did start as planned in Q3? Or were there any delays in that contract? And then with Ascott, we've seen these hotel chains take years to come on board and contribute to revenue. Should we assume that's the same for Ascott. Is it more of a '27 revenue event than '26? And then separately, can I just ask about pricing and the pricing algorithm that we should expect more broadly across the group. I think you're flagging in both Air IT and Distribution, we're going to see pricing per booking and PB declining in Q4 relative to Q3. I know you said you weren't going to give us guidance for 2026, but can you just talk through the broad algorithm that gets us to the pricing dynamics for '26 between underlying inflation and perhaps the non-volume-related revenues that feed into that pricing equation? Luis Camino: Let me deal with hospitality. I mean we didn't mention as a key impact because the impact is already happening, but it's small. We started to really work with properties, but it's completely according to plan. And in the coming months, well, as we speak, we keep rolling into more properties. But the main impact, as we said for months will happen in '26, so there is no delay. Everything is moving according to the plan, but we started slower than we will have in the coming months when we see everything is working properly, which is the case. With regards to Ascott, yes, we will start the migration in '26. So it will not take so much time because the platform is much more mature, but we should expect the impact in '27. Caroline Borg: Yes. And then in relation to the revenue growth, maybe I'll bring it a little bit more into the FY '25 because we wanted -- we want to deliver FY '25 first as a jump-off point for '26. And as I said, we'll give some FY '26 information in February. I think Luis adequately said that there is still some volatility in the macroeconomic environment, so we could see a moderation in group revenue growth in the Q4. And that's driven by what we're already seeing in terms of booking volume moderation that we've started to see in October. We've also seen some softening of our revenue per booking due to the timing of our customer, negotiations and renewals. We are seeing some softening revenue per PB due to pricing dynamics and we will -- we do expect to have a lower growth in service -- in our service revenue in Q4, but all of that is offset, as Luis was mentioning, by the acceleration that we are delivering in hospitality. We are seeing some really good implementation on our customer implementations and ramp up. And I apologize if I missed that off the script, but that's definitely a key part, recovery of our media business and the activities and commercial momentum that we gain across our payments businesses. Operator: And the next question comes from the line of Michael Briest with UBS. Michael Briest: Great. It's good to see distribution back at, I guess, nearly 90% of 2019 levels. But looking at the regional color, it's very diverse. So I mean, Europe is still maybe 30% below Latin America, nearly 40% below, while Asia is over nearly 25% above 2019. Can you talk to the dynamics in that market? Is that your win rates and competitive dynamics? Is it the way the airlines and the agents have adopted NDC and direct connects? That would be the first question. And then on the buyback, you're almost 80% done, leverage is the same as it was at the start of the year. Presumably you're completed in Q4, conceptually, do you feel comfortable if there's no M&A that we could maybe see further buybacks in 2026? Luis Camino: Okay. In terms of volumes, again, it's difficult to really come back to 2019. But as we have mentioned, there can be in the distribution business as in the past, the fact that low-cost carriers were growing faster during many, many years, including in '25, in many parts of the world, okay? I don't remember exactly where all the details of the comparison with '29. We also move out of Russia at one point. So there are a number of effects where we have been impacted. And yes, there has been a move that has happened in the previous years of full service carriers selling more direct and less to the travel agency. So some of the most easier in the disintermediated volumes have moved to alternatives, mainly the direct sales more than really direct connects, okay? Some direct connects, but the majority of that has been the normal way of airlines pushing more direct sales. So that has been mainly what has happened when you talk about 6 years not very, very different when you compare 2019 with 2012, to be honest, we have always seen this disintermediation effects. We are seeing less in '25, as you see from the volumes that we are reporting and when you see the growth of passengers. But still, yes, I mean there are some of these dynamics that are still there. And that's clearly a reality despite that fact. I mean we have been able to really offset part of that with share, with bringing back some volumes and we feel optimistic about this business moving forward. Caroline Borg: Yes. And maybe I'll take the question on buybacks, which effectively talks to our capital allocation policy, which, as you know, and you will expect me to say, we do have a disciplined capital allocation policy, prioritizing the investments that we're making to drive organic revenue growth. I think we mentioned that a lot. In addition to the dividend policy, we also completed the buyback this year and M&A still remains and has been a really key relevant part of our growth strategy. So we continually review all of those pillars and what other potential uses of our funds moving forward. And we will come back in February when we're in the process of setting our budget expectations at the moment and we'll come back in February with any changes to that dynamic. Operator: The next question comes from the line of James Goodall with Rothschild. James Goodall: So firstly, just sort of coming back to Investor Day, where you outlined your medium-term targets. You also gave us a TAM for all of your various business segments of EUR 41 billion. I guess, since then, we've seen a fairly material evolution in terms of the products that you're offering and where you're sort of headed. Does that mean that you'd see a larger TAM today than you did back at Investor Day? And then secondly, on Nevio and Stratos, we haven't seen a new customer for a while and Nevio was still waiting for one on Stratos. Are you comfortable with the current pace of agreements there? Is there any color you can give us in terms of how conversations are going with network airlines and LTCs and what we should sort of expect over the next sort of 12 to 18 months? Luis Camino: Let me start with the last one. Yes, I mean, we have a lot of engagements as we speak. So the probability of having something close is high. I will say. But more than that, it's difficult to say because nothing is done until it's really done, okay? So hopefully, this will happen. But what I can say is that engagement is high. We feel and we believe the potential of that is very good for airlines. And therefore, there will be a natural move into offer an order in the medium term. The question is when but we have the feeling things are accelerated in terms of engagement with carriers. But of course, from that, we need to get the agreement with them and sign a contract, but the prospects are positive. And with regards to the TAM, I mean, in theory, you are right. I mean we are expanding our solutions in many parts of our business. We have not revisited that number, so I cannot give you what will be the number today. We don't have that -- but in theory, yes, I mean we are addressing more parts of the travel industry. So in theory, this should extend the EUR 41 billion. Operator: The next question comes from the line of Laurent Daure with Kepler Cheuvreux. Laurent Daure: I also have 2 questions. The first is on the Air Distribution business. You commented on the higher pricing and in particular, renegotiation and new agreements. I was wondering how in this kind of environment, what are the pillars to convince your customer to pay higher prices. And my second question is on Nevio. I understand it's tough to estimate the closing of some deals, but I was wondering whether the long sales cycle in your view, mostly comes from a tough environment. Or do you believe some of your potential customers are looking to see how the first implementation will be going in the near future? Luis Camino: I mean, look, I think it's a matter of priority. This is not just about our sales providing the technology. It's also about the way the airline is aiming to really deal with our retailing capabilities. Again, I mean if you see and you listen some of the presentation of the airlines, what they talk about that, I mean they are objectives that they have. So it's a matter of when they are ready to really jump into the pool. It is also true we are developing and implementing some of the solutions. Some others are ready. So I really feel that will be traction. And then as we implement some of these carriers to really get the full benefits, of course, there will be some need for -- especially with the ones that they are working in the same alliance or with the partners that they have to really in the same logic. Otherwise, we need to be reaching between the new times and the old times. And therefore, there will be an additional pressure between them to really move into this logic. So that's why I said, look, I'm optimistic. We have seen already in our P&L already in the third quarter some revenues coming from the Nevio implementations. So progressively, we will see revenue upside in the years to come. But of course, it will depend on the timing of the signatures and the timing of the implementation. Caroline Borg: And I can take the distribution question. So you asked a question about what's the commercial kind of foundations around distribution. Well, clearly, things like commercial success, market share gains, contract renewals, agreement, inflations all affect the pricing dynamic. We also have said that traditionally, quarters can be lumpy because of the combination of those things happen. But another criteria that can also affect the pricing dynamic is really the content that is being provided. So as we transition -- as the industry has transitioned from full content agreements into relevant content agreements, we offer more discount to -- for our providers with the more content that gets provided. So there's a mix also in terms of the dynamic of content that's being shared and what the pricing drives that as well. Operator: And the next question comes from the line of Thomas Poutrieux with BNP Paribas. Thomas Poutrieux: I just have one, please. And I was wondering if you could elaborate on the nature of the expansion of your relationship with Trip.com in particular. I think this one is interesting given their own relationship with Travel Fusion. So are you basically adding NDC concerns or LCC concerns? Or is it just that geographical expansion of your historical relationship? Any color here would be helpful. Luis Camino: Yes, it is both. I mean, we are expanding with them. We have a very close relationship with them. We are increasing our set of wallet, expanding in different countries. So it's increasing the volumes we are having with them. They have been extremely -- yes, they have the ownership with Travel Fusion, but we have been independently of that, working very closely with them and getting very healthy volumes from Trip.com, and we have a very close relationship with them, definitely. So it's an expansion of a relationship, but we have had that should translate into incremental volumes for us. Operator: And that concludes our question-and-answer session. I would like to turn it back to Luis Maroto for closing remarks. Luis Camino: Thank you very much for attending the call and your questions, and we're looking forward to meet in London at the end of February. Thank you very much. Operator: And the conference has now ended. Thank you for participating. You may all disconnect your lines.
Operator: Greetings. Welcome to Rand Capital Corporation Third Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Craig Mychajluk, Investor Relations. Please proceed. Craig Mychajluk: Thank you, and good morning, everyone. We appreciate your interest in Rand Capital and for joining us today for our third quarter 2025 financial results conference call. On the line with me are Dan Penberthy, our President and Chief Executive Officer; and Margaret Brechtel, our Executive Vice President and Chief Financial Officer. A copy of the release and slides that accompany our conversation is available at randcapital.com. If you're following along with the slide deck, please turn to Slide 2. I'd like to point out some important information. As you are likely aware, we may make forward-looking statements during this presentation. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release and other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we'll also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with generally accepted accounting principles. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's earnings release. Craig Mychajluk: With that, please turn to Slide 3, and I'll hand the discussion over to Dan. Dan? Daniel Penberthy: Thank you, Craig, and good morning. I want to emphasize how we have been navigating a market that continues to present challenges. New deal origination across the BDC landscape does remain sluggish and borrowers are still contending with tighter senior credit conditions and higher financing costs. Thus, we have had to be patient and selective in our deal origination. However, I believe we are seeing some positive turns now in our favor. We've remained somewhat active in the quarter and deployed $2.9 million in new and follow-on investments. We are also seeing, as many peers have noted a greater use of PIK or PIK interest by borrowers as they adapt to today's financing environment. This is something we monitor carefully and will need to reduce over time, but it also reflects the flexibility that our capital can provide and helping companies bridge through tighter credit markets. Most importantly, we finished the quarter with nearly $28 million in liquidity and no debt outstanding under our senior credit facilities. That kind of balance sheet strength is our real differentiator in this environment. It gives us the flexibility to support our dividend, remain patient when deal flow is muted and quickly move when compelling opportunities arise. Even though total investment income declined year-over-year, the steps we have taken to control expenses enabled us to grow net investment income. This quarter really underscored our ability to execute with discipline and maintain a resilience in our dividend for our shareholders. Please now turn to Slide 4. I want to highlight the consistency of that dividend. We declared and paid our regularly quarterly distribution of $0.29 per share, marking the third consecutive quarter at this level. We recognize how important this income stream is for our shareholders, and we are proud that we have been able to sustain it even as new investment activity has slowed. One of the advantages of our model is that it is built to support this dividend through different parts of the economic cycle. Even in periods when repayments outweigh new originations, our expense management and strong liquidity allow us to maintain the payout. Many BDCs talk about dividend stability as a marker of portfolio strength and the strength and quality of the BDC. We believe our results demonstrate exactly that. Moving to Slide 5. Let's take a closer look at our portfolio. At September 30, our investments had a fair value of $44.3 million across 19 companies. That represents a decline from year-end and sequentially, largely due to significant repayments from our portfolio companies and some valuation adjustments. Our mix at quarter end was 83% debt and 17% equity with a weighted average yield of 12.2%. That yield reflects the sub-debt investing nature of our portfolio structure. As we move to Slide 6, I will touch on the puts and takes in the portfolio this quarter. We stayed selective, yet active, adding 1 new investment, and we supported an existing portfolio company. First, the new investment, we committed $2.5 million to BlackJet Direct Marketing, structured as a $2.25 million term loan at 14%, plus 1% PIK interest. We also contributed or invested rather a $250,000 equity investment alongside our debt instrument. BlackJet focuses on targeted direct mail for the travel and tourism, home services and legal services verticals. These are areas where precise customer acquisition remains critical and where our capital can support growth also delivering an attractive risk-adjusted return for Rand. Equally important to the financial aspects of the transaction was the involvement of the lead equity sponsor and our sub-debt co-investor, both of whom we have partnered with and our deal team had on prior transactions. We also funded a $400,000 follow-on investment in a debt instrument to food service supply. That business specializes in design, distribution and installation work for commercial kitchen renovations and new builds. It does remain a contributor to our income, which supports our dividend. After quarter end valuation adjustments, our total debt and equity investment in FSS stood at a fair value of $4.3 million. On the realized side, activity was meaningful. Seybert's or The Rack Group repaid $7.6 million of principal. We continue rather to hold an equity position in Seybert's with a value of $500,000. That preserves our participation in the business' long-term potential. Seybert's or the Rack Group's repayment illustrates the natural progression of a growing enterprise as operational success within the portfolio company translates into their sustained revenue and profit growth, the business becomes eligible for a more favorable commercial bank financing, which is often taken on to refinance prior obligations such as Rand's debt. This does support further development and growth in the company and that is a key critical item to why we hold these equity interest, which we will directly benefit from. We also exited Lumious, receiving $713,000 in loan and principal, recognizing a $77,000 realized loss. It is a small step back, but it does return capital in excess of our prior quarter's valuation, and we can redeploy these funds into new opportunities. And finally, we recognized a $2.9 million realized loss on Tilson Technology Management following its Chapter 11 process and asset sales, we had valued this at $0 during the prior quarter so this was posted as a realized loss now. While Tilson's outcome was disappointing, it's important to note that our separate investment in SQF Holdco, which is now called Verta is not part of the Tilson bankruptcy. This remains on the books of Rand at $2.0 million and continues to operate independently. Verta stands for vertical infrastructure, think 5G antennas on telephone poles or cell towers or on the top of water towers for businesses like T-Mobile. Stepping back now, this mix of new deployment, support of follow-on and repayments is exactly how our model is designed to work, recycling capital for maturities and exits into yield orientated structures. It does keep the portfolio resilient while preserving the optionality to lean in as origination conditions improve. With that context, let's look at how these moves reshaped our industry mix for the quarter. On Slide 7, you will see how our portfolio is spread across industries as repayments and adjustments came through this quarter, the mix shifted modestly. The most notable change was within consumer products as that exposure came down following the Seybert's or Rack Group repayment. That business is in the niche industry of Billiards supply. While individual positions may change, what's important is that our portfolio remains balanced which we believe reduces overall exposure to any single sector and does give us the ability to participate in growth across a range of industries. Slide 8 highlights our 5 largest portfolio companies, which together represent about half of our total portfolio value. Each of these investments is structured to deliver attractive yields generally between 12% and 14%, with features such as PIK that provide for flexibility for borrowers while still supporting Rand's income stream. Following the Rack Group repayment and the FSS valuation change, INEA or EFINEA and Caitec now rank among our largest positions. The strength and consistency of these holdings is what gives us confidence in our ability to support the dividend and protect shareholder value. With that, I'll now turn it over to Margaret who will walk you through our financials in more detail. Margaret Brechtel: Thanks, Dan, and good morning, everyone. I will start on Slide 10 which provides an overview of our financial summary and operational highlights for the third quarter of 2025. Total investment income was $1.6 million, down from $2.2 million in last year's third quarter. The change reflects both debt repayments and a slowdown in originations, dynamics consistent across the BDC space this year. Of note, 39% of investment income was attributable to noncash PIK interest compared with 24% in the same period last year. Also during the quarter, 15 portfolio companies contributed to investment income versus 21 companies in the prior year period. That said, while income came in lower, we were able to offset that decrease on the expense side. Total expenses decreased to $596,000 from $1.3 million in the prior year period. The improvement was driven by lower incentive fees, reduced interest expense and a decline in base management fees. The result was net investment income of $993,000 which compared favorably with $887,000 in the same quarter last year is a strong example of how expense discipline and conservative balance sheet management can drive earnings resilience even when portfolio activity is muted. It is worth noting that on a per share basis, net investment income for the quarter was down $0.01, which reflected the increase in shares outstanding following the fourth quarter 2024 dividend which was distributed in the first quarter of 2025 and partially paid in common stock. Moving to Slide 11, we can see the quarter's impact on net asset value. At September 30, 2025, our net asset value stood at $53.6 million or $18.06 per share compared with $19.10 per share at the end of the sequential second quarter. This decline was driven primarily by valuation adjustments across the portfolio alongside the dividend we paid in the quarter. While these adjustments are challenging, we believe they reflect a conservative and transparent approach to valuation, one that ensures net asset value fully incorporates the realities of market conditions and company performance. The waterfall chart shows that we generated nearly $1 million of net investment income, which helped partially offset valuation changes. Importantly, the balance sheet remains healthy, liquid and debt-free as noted on Slide 12. We closed the quarter with $9.5 million in cash, and our senior secured credit facility provides up to $25 million in borrowing capacity with $18.3 million available at quarter end. This liquidity gives us significant flexibility to respond quickly when market conditions improve and quality opportunities arise. Turning to the dividend, we declared and paid a regular quarterly distribution of $0.29 per share. This continues the consistent run of dividends throughout 2025, maintaining that payout through a period of repayments and lower originations speaks to both the strength of our portfolio and the discipline with which we are managing expenses. We will announce our fourth quarter dividend in early December. With that, I will turn the discussion back over to Dan. Daniel Penberthy: Thanks, Margaret. Moving to Slide 13. Looking ahead, I want to bring together the themes you have heard throughout today's presentation. We are navigating a cautious market, but we are doing so from a position of strength. We have a portfolio of income-generating assets, a balance sheet with no debt and nearly $28 million in liquidity and an ability, we believe, which can preserve the dividend even in these interim periods, which are slower investment cycles. These are not small achievement given the current lending environment, which is challenging. What stands out to me is our ability to remain both disciplined and flexible. Disciplined in terms of sticking to our underwriting standards, carefully managing expenses, and protecting shareholder value. Flexibility in having the liquidity in capital resources and staffing to move quickly when the right opportunities surface, and they will. We are beginning to see early signs that anticipated interest rate reductions could also help stimulate deal origination in the quarters ahead. If that momentum builds, Rand is well positioned to deploy capital into yield-focused debt investments that can support earnings growth, NAV stability and ongoing dividend coverage. So while Q3 reflected some headwinds, repayments from our portfolio, valuation adjustments and muted origination, we believe these are transitional dynamics. Our job is to keep brand positioned to capitalize when this market turns. We are confident in our ability to continue creating long-term value for our shareholders. Thank you for being a shareholder, and we look forward to updating you on our progress in the fourth quarter. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good evening. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the FiscalNote Holdings, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] With that, I will now turn the call over to the company to begin. Please go ahead. Bob Burrows: Good evening. My name is Bob Burrows, Investor Relations for FiscalNote, and we are pleased you all could join us. The purpose of today's call is to discuss FiscalNote's third quarter 2025 financial results and guidance for both the fourth quarter and full year of 2025. Joining me with prepared comments are Josh Resnik, CEO and President; and Jon Slabaugh, CFO and Chief Investment Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments. Please note today's press release, related current report on Form 8-K and updated version of the corporate overview presentation can all be found on the Investor Relations portion of the company website. In terms of important housekeeping, please take note of the following. During this call, we may make certain statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and important factors that could affect our actual results as well as the risks and other important factors discussed in today's earnings release, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release or the updated version of the corporate overview presentation for a reconciliation of these measures to the most directly comparable GAAP financial measure. And finally, we use key performance indicators or KPIs in evaluating the performance of our business. These include annual recurring revenue or ARR, and net revenue retention, or NRR. And with that, I'd like to turn the call now over to FiscalNote's CEO and President, Josh Resnik. Josh? Joshua Resnik: Thank you, Bob, and thanks to everyone for joining us today. I'm glad to be here to discuss FiscalNote's third quarter 2025 results and to share an update on the progress we've made on our strategic objectives. We've been clear and consistent as to our priorities. Put simply, we continue to take a disciplined, focused approach to managing the business, and you see that reflected in our adjusted EBITDA profitability as well as our management of the balance sheet and progress towards free cash flow. This, in turn, enables us to build a durable foundation for long-term profitable growth. In Q3, revenue totaled $22.4 million, in line with guidance, and adjusted EBITDA was $2.2 million, exceeding guidance. This translates to a margin of 10% and represents the fifth consecutive quarter of adjusted EBITDA margins at or above 10%, reflecting the ongoing benefits of our cost discipline, sharper prioritization of core growth initiatives and improving operating leverage. On a pro forma basis, excluding noncash and other nonrecurring charges and the impact of the 2024 divestitures, OpEx decreased by approximately 8%, reflecting continued cost discipline and operating efficiency. On this front, we're adopting additional automation-based approaches to certain aspects of our operations, which should drive higher productivity across the enterprise and yield incremental improvements to our overall profile over time. During the quarter, we also shored up our balance sheet with maturities extended out by 4 years, thus strengthening our capital structure and providing long-term flexibility to execute on our strategy. I'll turn to growth and commercial momentum now. This quarter, we stabilized ARR with a modest quarter-to-quarter increase on a pro forma basis. This signals an initial stabilization of the core business and underscores that the strategic actions we're taking are starting to produce tangible results. Most importantly, it reflects early traction as we continue building a product-led organization positioned for higher levels of long-term growth. I'll explain some of the factors behind the current results, and we'll also walk through how this fits in the context of our transformation of the business. Inbound demand remains strong, indicating a continued need for our solutions as well as specific interest in Policy, and our teams are maintaining a healthy sales pipeline. Corporate new logo sales also showed continued momentum in Q3. I noted last quarter that win rates among enterprise clients rose 400 basis points quarter-over-quarter. In Q3, we saw that momentum continue with another 400 basis point improvement in that segment when compared with Q2. Year-to-date, across all corporate segments, win rates are up 500 basis points overall. And equally important, we're not just winning more, we're winning higher-value deals. Average contract values have trended meaningfully upward over the course of the year. And notably, corporate multiyear contracts for our policy data now account for approximately 50% of new logo ARR, up from about 20% in early 2024, a 2.5x increase that strengthens revenue visibility and is expected to support further improvements in gross retention in 2026. This progress in corporates is especially noteworthy in light of the ongoing volatility in the federal space, including continued disruption this quarter due to the extended government shutdown. Strong corporate performance has helped offset that pressure and should serve as a solid foundation for further growth as conditions in the federal sector stabilize over time. Our product innovation continues to underpin this progress. And in Q3, we released a series of meaningful enhancements to policy notes, including AI-powered legislative drafting, social listening to identify early policy signals, upgraded reporting and AI-generated tariff impact reports. More recently, we launched Bill Comparison, an AI-driven capability that allows users to instantly redline and compare versions of pending bills, a powerful example of our ability to leverage advanced AI to deliver meaningful incremental value to our users and increasingly move towards automating customer workflows. Year-to-date, our product team has now launched more than 35 major enhancements to the PolicyNote platform since its launch in January. These continuous improvements are reinforcing PolicyNote as a cornerstone of our ecosystem and a key contributor to strengthening customer engagement and retention. Usage trends on PolicyNote remain overwhelmingly positive across all nature of metrics that we track internally, including the behaviors that indicate high usage frequency, product stickiness and highly valuable integration into customer workflows. We view these patterns as early indicators of future improvements to gross and net retention. And combined with our increasing success in new logo sales, they are expected to serve as the foundation for durable long-term growth. This is why we have placed a focus on moving our existing customers on to PolicyNote. And to that end, migration to PolicyNote continues to go well with the vast majority of accounts using our legacy FiscalNote platform having been successfully transitioned to PolicyNote. This will put us in a position to have completed the migration from the legacy FiscalNote platform by the end of this calendar year as planned. As for our 2025 guidance, Jon will walk through that in more detail. But importantly, the update we've given for both total revenues and adjusted EBITDA remain within our previous ranges and reflect our current outlook on the business with 2 months before year-end. In summary, we continue to see growing momentum in our corporate pipeline and steady progress in our migration of PolicyNote, which together provide a clear path to renewed sustainable growth. These results reflect steady execution, disciplined management and tangible progress against our strategic priorities. While there is still work ahead, the trajectory is positive, and we remain confident in our ability to deliver sustainable growth, expanding profitability and long-term value for shareholders. With that, I'll turn it over to Jon to walk through the financials in more detail. Jon? Jon Slabaugh: Thank you, Josh. Good evening, and thank you for joining us. In the third quarter, FiscalNote successfully met its previous guidance for both total revenue and adjusted EBITDA. As a result, we're updating our full year revenue guidance to a range of $95 million to $96 million with adjusted EBITDA projected to be approximately $10 million. Both figures remain within our previously established ranges. This updated guidance reflects the strong performance observed in our core business while also accounting for the specific impacts of our public sector business due to unusual disruptions in the federal sector. Overall, operationally, the business is showing resilience and indications of stabilization in the core policy products. Underlying our operations, we also secured our capital structure in a way that affords us the runway and flexibility necessary to execute on our product-led strategy. On that note, FiscalNote previously had several convertible notes on its balance sheet, all subordinate to our senior term loan. These notes carried significant payment and maturity obligations starting in 2025 and continuing into 2026 and 2027, preventing the company from refinancing its senior debt. The August transactions replaced and/or amended these convertible notes, reducing their balance and eliminating most of our annual PIK interest. These transactions enabled FiscalNote to refinance its senior term loan and collectively, the transactions allow us to better manage our capital structure and provide a stronger foundation for our product-led growth strategy moving forward. The new debt stack can be found in both the revised corporate overview presentation issued today in conjunction with our earnings release and in the Form 10-Q. With that as a backdrop, let me dive into some of the key drivers behind our third quarter financial results. Total revenue for Q3 2025 was $22.4 million, above the midpoint of our forecast of $21 million to $23 million. When compared to the prior year, revenue was $7 million lower, primarily due to the divestiture of ACL in October of 2024, Oxford Analytica and Dragonfly at the end of Q1 2025 and TimeBase at the end of Q2 2025. Subscription revenue, which remains the cornerstone of our business, was $21.2 million for the quarter, $6 million lower, again, largely due to divestitures. Subscription revenue accounted for 94% of total revenue, slightly higher than our historical trend of 92%. On a pro forma basis, after adjusting for the impact of the mentioned divestitures, Q3 2025 subscription revenue was $1.8 million lower than the prior year period, reflecting our continued transition to PolicyNote from the legacy FiscalNote platform. As of Q3 2025, annual recurring revenue was $84.8 million versus $92.2 million in 2024 on a pro forma basis, a decline of $7.4 million. As Josh spoke to earlier, on a sequential basis, Q3 2025 ARR increased by $100,000 versus Q2 2025 on a pro forma basis, adjusting for the divestitures. This is an important indicator of our mounting momentum for our PolicyNote platform launched in January of this year. For the third quarter 2025, net revenue retention was 98%, level with the prior year and up 200 basis points over the second quarter on a pro forma basis. Principal operating expenses in Q3 2025 extended the trend of year-over-year decreases, reflecting the impact of ongoing efficiency measures initiated in 2023, advanced in 2024 and maintained across 2025. Such discipline is essential to our path to expanding operating margins and adjusted EBITDA going forward. Looking at expenses in more detail. Q3 2025 cost of revenue decreased by $1.5 million or 23% versus prior year. R&D decreased by $1.2 million or 36% Sales and marketing decreased by $2.8 million or 31% and editorial decreased by $1.4 million or 30%. As for G&A, we saw an increase of $3.3 million or 31%, which included approximately $3.1 million of noncash charges and approximately $4.3 million of cash costs related to our refinancing activities, the sale of TimeBase as well as other nonrecurring costs, which we recorded in G&A during the quarter. Excluding these items, G&A would have declined year-over-year as well. Total Q3 2025 operating expenses fell by $4 million or 11% versus the prior year. On a pro forma basis, excluding noncash and other nonrecurring charges and the impact of the 2024 divestitures, OpEx decreased by approximately $1.7 million or 8%. Q3 2025 gross margin was 79%, level with the prior year on a GAAP basis. Q3 2025 adjusted gross margin was 87% as compared to 86% in the prior year. Both reflect the impact of disciplined cost management. Adjusted EBITDA was a positive $2.2 million, a decline over the prior year due to the mentioned divestitures but slightly above the guidance we gave and the ninth consecutive quarter of positive performance on this important profitability metric. Going forward, we will continue to drive increasing operating leverage across the business while steadily expanding our top line through product-led growth. Cash and cash equivalents, including short-term investments at the end of Q3 2025 were $31.8 million, reflecting a sufficient cash level to fund our continuing progress turning around the core business and transitioning into a durable and sustainable growth engine. Finally, let me speak to guidance. We are updating our guidance remaining within our previous guidance range. Specifically, we are narrowing the forecast to now expect full year 2025 revenue of approximately $95 million to $96 million from a previous range of $94 million to $100 million and full year 2025 adjusted EBITDA of approximately $10 million from a previous range of $10 million to $12 million. As a consequence, we are expecting fourth quarter 2025 total revenues of $22 million to $23 million and adjusted EBITDA of approximately $2 million. Overall, our Q3 and year-to-date performance demonstrate a healthy business with increasing strength and resilience. Our streamlined operating plan prioritizes innovation, consistently generating positive customer feedback and highlighting the value of policy Notes enhancement since its January launch. We are also committed to prudent cash management, controlling capital expenditures, reducing cash interest expense and operating expenses. These efforts are all aimed at accelerating our progress towards positive free cash flow and sustainable, profitable long-term growth. Year-to-date, we have achieved a great deal in 2025, and we are encouraged by the clear positive trends we are seeing across the product and customer metrics, which drive everything. We know we are on the right path, and we look forward to reporting our continued success in establishing durable growth in the business and creating substantial value for customers and shareholders alike. That concludes my prepared remarks. I'll turn it over to the operator to begin the question-and-answer session. Operator? Operator: [Operator Instructions] Your first question is from the line of Mike Latimore with Northland Capital Markets. Mike Latimore: Good to see the ARR, NRR improvement here. Nice to see. Josh, on the -- I think you said that ACV of deals or ACV overall is getting bigger. Can you give a little more color on that? Is it more users at current customers, more usage across the customer base or some solid cross-sells like global data? Joshua Resnik: Sure, Mike. Thanks for the question. The single biggest driver behind the higher ACVs really is leveraging global data more. We've done some work to restructure our global data packages, and I think have done a very good job bringing those to market. That, in turn, extends use cases through the enterprise, which makes it prime for our larger corporate clients, so the larger enterprise and extending down through to mid-market. So we see a lot of potential for that going forward as well. Mike Latimore: Got you. Okay. And then you've been migrating customers to policy node. Sometimes when companies do those kind of migrations, they see churn pick up. It seems like you haven't seen any change materially in churn with these migrations. Is that fair? Joshua Resnik: Yes, that's correct. We haven't really seen any meaningful migration-related churn. We've had a very positive experience moving customers on to PolicyNote, both in terms of how the migration itself has gone, but also as we've mentioned, with the usage metrics and engagement that we see once customers are on there. Mike Latimore: Got it. And then I think you highlighted new logo bookings were good again. I just wanted to clarify that you said that. And then was that trajectory as expected or any different from what you were thinking? Joshua Resnik: So Mike, yes, that's correct. So we did see continued improvement in new logo bookings for corporates in particular, where we do expect to see continued improvements in advancements over time. What we've seen has been success on win rates, success on the higher ACVs and success in continuing to sign new customers to multiyear commitments. And again, we think that's a factor of better execution that we've seen, better offerings that we have, both in terms of policy note, specifically the global data packages and the like. We believe that we're delivering significant value to these customers and can continue to drive improvements in ACVs over time. Mike Latimore: Got it. And then just one question on kind of operating efficiency. I think you mentioned that there might be opportunity for more automation within the business over time. I guess, can you just provide a little more detail on that and maybe the magnitude of the effect there? Joshua Resnik: Sure, Mike. I'd be happy to do that. So what I'm referring to there are areas where we're really starting to see some tangible success in different areas of the business, leveraging automation in different ways. And so for example, we've been doing a better job of taking advantage of opportunities with using Agentic AI and our coding with our R&D teams. And we've seen that reflected in tangible success with new features that we've been able to launch much more quickly, leveraging Agentic AI than what we would have been able to do without. And that's an example where I expect to see much higher productivity, which will enable us to drive more advanced features for our customers more quickly, which should help improve productivity and top line. And again, with our -- the way we're operating the business, our expanding margins, more and more of those top line dollars will flow right to the bottom line. There are also other areas of the business where we're leveraging more automation and actually driving internal efficiencies, being able to accomplish more with less. And I expect we'll see both flavors of improvements continue over time. It will be a real focus of ours for 2026. So no tangible discussion around that until we get to talking about 2026 numbers at a later point, but it's something that we're really starting to see some uptake and opportunity there. Operator: [Operator Instructions] Your next question is from Zach Cummins with B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Zach Cummins. To start, it sounds like good news with ARR stabilizing. Can you maybe speak a little bit to your expectations with regard to a time line for renewed year-over-year ARR growth? Joshua Resnik: Thanks for the question, Ethan. So we don't guide on ARR. So we're not providing specific guidance there. And again, as we -- at a later point as we talk about 2026, we'll start to talk specifically about what that looks like. What I'll say is that, generally speaking, we're encouraged by the progress that we're seeing in the business. We've talked a lot about the transformation that we've made operationally, the transformation that we've seen through PolicyNote, and we're encouraged by this early traction and stabilization that we're seeing now. The single biggest lever for us in the long term is going to be -- will be around gross retention and net retention. And again, as we've said, part of the foundation for those improvements in gross retention will come through PolicyNote, the better product, the higher engagement, better experience, et cetera, as well as what we're able to do with multiyears from a new logo standpoint. And we're going to keep pushing on the new logo improvements as well. And -- but again, when we're talking about kind of what you can expect on a year-over-year basis in the future and so on, that will be a discussion at a later point. Ethan Widell: Understood. I appreciate that color. And then with regard to the federal government shutdown, can you maybe quantify the impact that you're seeing there? And when you speak to volatility in the federal space, is that primarily from the shutdown? Or are there other elements at play there? Joshua Resnik: Yes. In regards to federal government, we've talked about this throughout the year as we've been seeing the developments in federal. And we've talked previously about the fact that just through the efficiency efforts within federal, limitations on spending and the like that we were seeing some friction and impact. to that segment of our business over the course of the year. We're now seeing some added impact through the extended shutdown. The extent of that impact is not perfectly clear because, again, the kind of the length of shutdown is still remaining unclear. I would say, though, for the full year, you could estimate the overall impact at somewhere between $2 million and $3 million. Operator: There are no further questions. Mr. Burrows, I'll turn the call back over to you for closing remarks. Bob Burrows: Thank you, Tamika. That concludes our call this evening, and we appreciate everyone's participation and look forward to speaking with all of you again in the future. Good night. Operator: This concludes today's conference call. You may now disconnect.
Operator: [Interpreted] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the third quarter of fiscal year 2025 earnings results by KT. We would like to have welcoming remarks from KT IRO, and then CFO will present earnings results and entertain your questions. [Operator Instructions] Now we would like to turn the conference over to KT IRO. Jaegil Choi: [Interpreted] Good afternoon. This is Choi Jaegil, KT's IRO. We will begin the third quarter 2025 earnings presentation. Please be reminded that today's presentation includes K-IFRS-based financial estimates and operating results, which have not yet been reviewed by an outside auditor. We, therefore, cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So please note that these figures may be subject to change in the future. With that said, let me now invite our CFO, Jang Min, to discuss KT's Q3 2025 earnings. Min Jang: [Interpreted] Good afternoon. This is Jang Min, KT's CFO. Before going into the earnings for Q3 2025, I would like to extend my sincere apologies to our customers and investors for the unauthorized micro payments and infringement incident perpetrated through the illegal base station connection. KT is currently implementing a comprehensive plan to compensate customers affected by such unauthorized micro payments and personal information breach. Starting November 5, KT is replacing used SIM free of charge for all of its customers. Going forward, KT will do its utmost to put in place technical and system-based guardrails to protect customers, and to ensure that such incidents are prevented through preemptive and far-reaching security measures. On November 4, we officially began the process for CEO nomination. KT's Director Candidate Nomination Committee, comprising of all of the independent auditors, will select a pool of candidates from various different channels to recommend one candidate to the Board of Directors before the end of the year. BOD will then make the final confirmation and the new CEO will be appointed at the General Meeting of Shareholders. Now I will move on to KT's third quarter earnings for 2025. Based on our telco business and continuing growth of group's core portfolio, as well as real estate profit gained from Gwangjin District development, KT sustained growth in revenue and operating profit this quarter. We are also collaborating with global big tech companies to launch specific services, and have secured a solid footing for AX business execution by opening KT Innovation Hub, placing momentum behind the transformation towards an AICT company. We released consecutively our proprietary model, Mi:dm2.0, SOTA K, which is a model developed in collaboration with Microsoft, as well as Llama K, based on Meta's open source technology, introducing AI LLM lineup catering to Korean requirements. Under the AI multimodal strategy, we will expand AI-driven usage base across various verticals including media press, education, public and financial domains. In October, we opened KT Innovation Hub under strategic partnership with Microsoft, where we can hold exhibitions on AX and AI experience and provide industry-specific consulting services. AI experts of both companies, together with our clients, will be working together in the hub to explore new AX business opportunities. Third quarter dividend is KRW 600 per share as we maintained 20% higher dividend payout year-over-year as was the case in Q1 and Q2. Corporate value enhancement plan also is ongoing as planned. We had concrete results in securing capacity required for structural transformation into becoming an ICT company, with SOTA K launch being one of such endeavors. We continue to work on streamlining assets and driving profitability enhancements through rationalizing low-margin businesses and liquidation of noncore assets. As part of the value enhancement plan, we also completed KRW 250 billion share buyback on 13th of August. Next on financial performance for Q3 of '25. Operating revenue was up 7.1% year-over-year, reporting KRW 7.1267 trillion and sustained growth from core businesses, including telecom, real estate, cloud and data center and profitability improvement efforts as well as onetime real estate sales gains. Operating profit was up 16% Y-o-Y, reporting KRW 538.2 billion. Net income was up 16.2% Y-o-Y, recording KRW 445.3 billion, driven by increase in operating profit. EBITDA increased 5.2% Y-o-Y, reaching KRW 1.5039 trillion. Next page, I will walk through the operating expense items. Operating expense increased 6.4% year-on-year to KRW 6.5886 trillion, an increase in cost of goods sold, cost of services and selling expense. Next is the financial position of the company. Debt-to-equity ratio at end of September 2025 was 123.3%, while our net debt ratio went up 4.2 percentage points year-over-year, reaching 34.5%. Next, on CapEx. Total CapEx up to the third quarter of '25 of KT and its main subsidiaries accounted for KRW 1.9637 trillion. KT's separate basis CapEx was KRW 1.3295 trillion, while major subsidiaries spent KRW 634.2 billion. Next, performance breakdown by business. Wireless revenue was up 4% year-on-year, reaching KRW 1.8096 trillion. Subscriber base expansion around 5G drove the top line growth, with 5G penetration as of third quarter end reaching 80.7%. Next is fixed-line business. Broadband internet revenue increased 2.3% year-on-year to KRW 636.7 billion on the back of GiGA Internet subscriber growth and value-added services. Backed by higher IPTV subscriber net addition and sale of premium plans, media business posted growth of 3.1% year-over-year. Home telephony revenue fell 6.6% year-over-year to KRW 160.9 billion. Next is B2B business. B2B service revenue reported 0.7% year-over-year growth on the back of enterprise messaging, corporate broadband and network-based business growth, despite streamlining of low-margin businesses. For the AI and IT business, revenue came down 5.7% year-over-year due to structural enhancement work done on certain businesses in line with our selective focus strategy, notwithstanding AICC project wins from large customers and ongoing monetization. Next is performance of major subsidiaries. Revenue from content subsidiaries dipped 1.8% year-over-year due to less number of original title production. KT cloud revenue was up 20.3% year-on-year, following higher data center usage by global clients and AI cloud demand growth. KT Estate revenue was up 23.9% year-on-year to KRW 186.9 billion, backed by good performance from hotel business and new development projects. This ends report on KT's third quarter earnings results. Once again, I would like to extend my sincere apology for causing concern over unauthorized micro payments and the infringement incident. KT will cooperate with the government's investigation process and exert our utmost effort in ensuring network security and stronger customer protection. Also, we will bring true AI CT transformation. And by successfully implementing corporate value enhancement plan, we'll endeavor to drive stepwise upgrade in KT's corporate value. Once again, thank you to our investors and analysts for your continued interest and support. Jaegil Choi: [Interpreted] For more information, please refer to the document and materials that we had previously circulated. We will now begin the Q&A session. To give as much opportunity as possible, I would like to ask that you limit your questions to 2 per person. Operator: [Interpreted] [Operator Instructions] The first question will be provided by Hoi Jae Kim from Daishin Securities. H.J. Kim: [Interpreted] I'm Kim Hoi Jae from Daishin Securities. You were able to record good financial performance up until the third quarter. I know that for the fourth quarter, usually there is a seasonality expense-related impact, so it will be hard to make that projection. But still I would like to get some color as to what your projection is going forward for the fourth quarter. And you've decided to pay out dividend per share of KRW 600 up until Q3. Just wondering whether there is further upside to the dividend payment for -- when the fourth quarter comes? And also until -- so in 2025, you had decided to do a share buyback and cancellation in the amount amounting to KRW 1 trillion. Just wondering whether in 2026, you will be able to grow that size of share buyback and cancellations? Min Jang: [Interpreted] Thank you for that question. Responding to the question on Q4 outlook. As you have correctly mentioned, in the fourth quarter, there are usually seasonality issue. And also, we have to consider all the measures to compensate for customers. And also, there are certain uncertainties that currently exists relating to the fines or the penalties that we will be subject to. So at this point, we are making a quite conservative stance when it comes to making a forecast going forward, but we are putting our utmost efforts to minimize any impact or any damage to our customers and also to our financials. Now, however, because we were able to report a quite solid performance up until Q3, if we were to make projections on the full year 2025 financials, thanks to our efforts in growing our top line growth, at the same time, improving the profitability and considering that there was also a one-off gain from the NCP business, the real estate, and also due to the fact that we are able to drive our core business-centric group affiliate growth, we believe that both on a consolidated and separate basis, we could achieve a year-over-year growth. On the second question, basically, when it comes to the dividends, yes, there will be a onetime impact coming from this hacking incident, and there will be certain uncertainties in terms of its impact on the financials. However, we will be considering the annual based financial performance as well as the expectations that the shareholders have, based upon which I am most certain that our BoD will make a reasonable decision. So lastly, regarding our announcement of the plan to do the share buyback and the cancellation amounting to a total size of KRW 1 trillion, so for this year, we had already conducted the buyback and cancellation amounting to KRW 250 billion. And your question was whether for next year, can you expect about the same amount or more bigger as we go forward. I can tell you that our value up plan will continue to be implemented. And in consideration of the confidence that the market is giving us, we will make sure that either this could happen on the same size basis as it was for this year, for next year or there could be certain adjustments. We will very flexibly and nimbly respond to changes in the overall operational backdrop and deciding on the specific size. Next question, please. Operator: [Interpreted] The following question will be presented by Chan-Young Lee from Eugene Investment & Securities. Chan-Young Lee: [Interpreted] I am Lee Chan-Young from Eugene Investment & Securities. My question relates to the recent hacking incident. I would like to understand as to what the financial impact will be in line with your compensation to the customers and your subscribers, and also for the measures that you are putting in place to make sure that you prevent a recurrence of such incident going forward. And I would like to know the extent of this expense that is currently captured in Q3 numbers. And also going forward, what will be the timing or the scope of that expense? Min Jang: [Interpreted] Thank you for that question. As I've mentioned before, we have put in place a measure and a compensation plan to compensate for any harm that has been inflicted due to the unauthorized micropayment incident as well as the data breach issue. Now -- and also on November 5, we had made the announcement that we will be replacing the used SIM cards of all of the KT customers. And if and when we go through this investigation process by the government as well as the police, if additional harm is identified, then the -- eventually, the final amount of the compensation will be determined. Now in terms of the timing as well as the size of this expense, we cannot make a perfect prediction based on where we are today. However, we believe that in terms of the used SIM chip replacement, the relevant costs will be recognized under Q4 figures. There is also free data that we are planning to provide and KRW 150,000 discount on the handset tariff as well as certain other expenses. Now these expenses, when they are actually incurred, that would be the timing upon which it will be booked in our financials. Now we've also already made an announcement to the market that for the coming 5 years, that we have put in place an information security-related investment in the amount that exceeds KRW 1 trillion. We've actually communicated that plant was into the market. And looking back at our track record, we've been investing about KRW 120 billion to KRW 130 billion on a per annum basis for this security purposes. So we believe that this KRW 1 trillion, which we'll be investing in the upcoming 5 years, is not going to be overly burdensome for the company. Next question, please. Operator: [Interpreted] The following question will be presented by Eun Jung Shin from DB Securities. Eun Shin: [Interpreted] I just have one question. Your CEO appointment process has just begun. Can you just walk us through the process under which your new CEO will be appointed? And when there is a new CEO that comes into office, will there be any changes to the current value of program that the company has? Min Jang: [Interpreted] Thank you for that question. Let me walk you through our CEO appointment process. We've actually officially kick started the discussion process on appointment of the new CEO as of the November 4. And under the BoD rules, there is going to be a director candidate recommendation committee that's going to be comprised of all of our independent directors, who are 8 of them in total, and they will go through the relevant processes. So first off, we begin with the candidacy pool of the CEO, who's going to be recommended by a third party and outside entity. And also, we will go through an open call process as well and also receive recommendation from the current shareholders as well as include a candidate from the -- internally from inside the company. So the Director of Candidates Recommendation Committee will then go through the screening and vetting process based upon the documentation, and we'll also engage in interviews. And by the end of the year, the committee is going to select one CEO candidate to be tabled at the BoD. So this one candidate that is recommended by the recommendation committee is going to be tabled at the BoD, BOD making the final confirmation on that candidate, and this candidate will go through the General Meeting of Shareholders deliberation process in 2026 to be finally appointed as the CEO of the company. Lastly, your question on the consistency of the sustainability of the current value up plan that's in place. Now the company went through the BoD resolution last November and had made appropriate market disclosure. And we also went through the disclosure on the implementation progress in May as well. And so I do not think that there is a correlation between the CEO change and the changes to the value up plan. Basically, because of a new CEO, there is not -- the value up plan itself is going to be made invalid for instance, because the BoD understands the direction for the company that is deflated in the value up plan and actually, the value up plan is a commitment and promise that we make to the market. And therefore, I believe the action plans that are included in the plan itself is going to be sustained. Operator: [Interpreted] There are no questions in the queue right now. Jaegil Choi: [Interpreted] With no questions in the queue. We would now like to close the Q&A session. Thank you, everyone, for your interest and for your questions. And once again, thank you very much for joining us despite your very busy schedules. This ends KT's third quarter 2025 earnings call. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Alarm.com Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matthew Zartman. Please go ahead. Matthew Zartman: Thank you, operator. Good afternoon, everyone, and welcome to Alarm.com's Third Quarter 2025 Earnings Conference Call. This call is being recorded. Joining us today are Steve Trundle, our CEO; Kevin Bradley, our CFO; and Dan Kerzner, President of our Platforms business. During today's call, we will be making forward-looking statements, which are predictions, projections, estimates, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. We refer you to the risk factors discussed in our quarterly report on Form 10-Q and our Form 8-K, which will be filed shortly with the SEC, along with the associated press release. The call is subject to these risk factors, and we encourage you to review them. Alarm.com assumes no obligation to update forward-looking statements or other information, which speak as of their respective dates. In addition, several non-GAAP financial measures will be discussed on the call. A reconciliation of GAAP to non-GAAP measures can be found in today's press release on our Investor Relations website. I'll now turn the call over to Steve Trundle. Steve? Stephen Trundle: Thank you, Matt. Good afternoon, and welcome to everyone. We are pleased to report financial results for the third quarter that were above our expectations. SaaS and license revenue in the third quarter grew to $175.4 million and adjusted EBITDA was $59.2 million. We saw better-than-expected performance across the business during the quarter, with particular strength in our energy business. Following my remarks, Dan Kerzner, who is the President of our Platforms business, will walk through several new product releases and how we're increasingly applying AI to our platform and business. And then Kevin Bradley, our CFO, will review our financial results, guidance, and provide our early initial look at next year. I'll begin with our annual Partner Summit, which we held here in Washington, D.C., in early October. We hosted about 200 key service provider partners from around the globe. Our team presented newly released and upcoming products while simultaneously taking the pulse on what our partners are seeing in the markets they serve. In my conversations, partners expressed nice enthusiasm for our overall road map and particularly for our new residential and commercial video products, including our upcoming battery cameras. Our remote video monitoring capability delivered through our subsidiary, CHeKT, also drew strong partner interest. CHeKT connects central station workflows with AI-driven video analytics to enable central station operators to cost effectively monitor live video feeds, deter crime before it occurs, and seamlessly initiate an emergency response when the situation calls for escalation. I also spoke to a few of our end customers who have large commercial installations. It was good to hear that they are pleased with the direction of our product and the enhancements we have been making to our multisite access control video and intrusion software solutions. We continue to hear from our partners that our unified commercial solutions are winning in the market due to the ease of managing these complex systems through a single integrated interface. Over the last year, we've seen a healthy uptick in commercial video account creation and our commercial access control subscriber base increased approximately 30%. Our growth initiatives, commercial, international and EnergyHub, collectively continued to drive SaaS revenue growth in the 20% to 25% year-over-year range and accounted for 30% of total SaaS revenue this quarter. I want to highlight EnergyHub's progress with its platform strategy, which is enabling higher-value services for its utility clients and reinforcing its competitive advantage and leading market share in the North American residential market. As a reminder, EnergyHub's software platform helps utilities match electricity demand and supply in real time. It does this by orchestrating distributed energy resources such as smart thermostats, residential batteries, and EVs to provide load flexibility. Demand for EnergyHub is driven by the long-term grid challenges faced by utilities. These include increasing load from electrification of transportation and the growing footprint of data centers, along with growing variability in generation as the grid decarbonizes. EnergyHub's load flexibility solutions are faster and more cost-effective to deploy than building new infrastructure. The EnergyHub team is focused on platform expansion to support more classes and manufacturers of edge devices. Last month, EnergyHub announced an expanded partnership with Tesla. Owners of Tesla's Wall Connector EV chargers can enroll their product in EnergyHub programs directly in the Tesla App. A large U.S. utility is already using the integration to accelerate EV program enrollments, and it's being introduced to many of the more than 30 EV-managed charging programs that EnergyHub supports in North America. The goal of EnergyHub's ecosystem expansion is to drive platform adoption by providing a single orchestration layer across device classes. EnergyHub also provides AI-driven dynamic load shaping capabilities that increase flexibility and address a broader range of grid management use cases. In summary, I'm pleased with our third quarter results and the continued growth we see across the business. Alarm.com has developed strong, durable positions, addressing diverse and dynamic opportunities in residential and commercial security and residential energy management. Our IoT-based software solutions are transforming those markets, and we are well positioned to drive further growth over time. I want to thank our service provider partners and our team for their hard work and our investors for their continued trust in our business. I'll now turn things over to Dan Kerzner. Dan? Daniel Kerzner: Thanks, Steve. I'm pleased to join our call this quarter and speak with our investors and analysts. For context, the Platforms business that I lead includes product development for our core residential and commercial platforms, shared services for our growth ventures, and sales and marketing for North America, our largest market. Our team drives profitable growth through innovation, delivering new capabilities that expand our addressable market and strengthen the competitive position of our service providers. I'll begin with an update on several products we released recently and share some examples of how our AI is already intersecting with current elements of our service provider and subscriber offerings and platforms. Video remains a strategic growth driver across our residential, commercial, and international markets. It's central to our platform strategy because each new video capability extends system utility, both directly and by thoughtfully integrating video with other aspects of the offering. This approach increases SaaS adoption and customer engagement and retention. To share a sense of the scale, the platform uploads roughly 1 million hours of video per day. This quarter, we introduced a variety of important updates to the lineup. We added to our outdoor video camera lineup with the new 730 spotlight camera. It delivers high-quality video at night through an integrated spotlight and a 4-megapixel sensor. It also includes built-in 2-way audio, so central station operators can communicate directly through the camera and Bluetooth enrollment that simplifies installation. The 730 also supports our intelligent video-based proactive deterrence capabilities. This includes AI Deterrence, an upgraded video solution that identifies individuals and delivers AI-generated verbal warnings dynamically adapted to a person's clothing, behavior, and location. The voice is designed to emulate a security professional and uses our service provider's brand name to add authenticity and authority. We recently enhanced this feature with a broader library of human-like dynamically generated voices and built-in randomization that automatically varies tone, phrasing, and delivery to create more unpredictable and thus convincing deterrence messages. Capabilities like AI Deterrence and remote video monitoring reflect our strategy to deploy software that evolves video cameras from passive sensors into active, responsive devices that drive higher recurring revenue and subscriber lifetime value. As we continue to embed AI within the core platform, we can derive more insights from the IoT devices in a property and cost effectively deliver unique value to consumers and businesses. Turning to our commercial solutions. We continue to expand the reach and flexibility of our video platform. Commercial properties often have diverse surveillance requirements, which are met by a wide variety of camera form factors. By extending our software to operate with select third-party cameras, we've made it easier for service providers to bring Alarm.com's video capabilities into these environments without developing proprietary hardware. This approach broadens our market coverage and enables more efficient targeted R&D investment and opens additional SaaS opportunities with existing commercial accounts. Since launching this capability, we've seen strong engagement. Accounts that leverage our third-party camera support connect roughly twice as many cameras to our video software as accounts without it, revenue streams we may not have otherwise captured. We recently expanded support to include panoramic, multisensor, and pan tilt zoom cameras, form factors widely used in airports, parking facilities, and industrial sites. We also enable 2-way audio and advanced analytics for our leading camera manufacturer partners. These integrations enable us to attach our premium remote video monitoring service to a broad range of widely deployed cameras. Another focus for our teams is partner enablement. Our service provider relationships are a cornerstone of both our durable market position and our growth strategy. We offer enterprise-grade tools that enable our partners to operate their businesses through our platform, from field installation to ongoing support and management of very large fleets of connected devices. Last year, we launched an initial version of our generative AI chatbot in our technician app to help field teams quickly troubleshoot installation issues. We recently released an upgraded version that can handle more complex questions and multistep workflows. In the 4 months following the upgrade, the average number of inquiries handled by our chatbot increased by 2.5x, while customer satisfaction ratings rose more than 70% over the same period. Our goal is to provide service providers with streamlined, multichannel access to world-class support. With more technicians using our AI-augmented support offerings, our teams can prioritize more complex challenges and first-time installations. Over time, this facilitates faster adoption of new features and enables our partners to expand their use of our commercial, residential, and video services. Overall, I'm pleased with the progress our R&D team made this quarter and throughout the year. These product introductions demonstrate how our platform strategy scales innovation efficiently across markets while creating tangible growth opportunities for our partners. With that, I'll hand things over to Kevin to review our financials. Kevin? Kevin Bradley: Thank you, Dan. I'll begin by reviewing our third quarter financial results, then provide updated guidance for Q4 and full year 2025, and lastly, provide our initial thoughts on 2026. I'm pleased to report another quarter of financial results that exceeded our expectations and consensus estimates. Our performance reflects continued broad-based contributions across the diverse components of the business. SaaS and license revenue grew 10.1% year-over-year to $175.4 million, exceeding the midpoint of our guide of $171.5 million. As Steve noted, our growth initiatives, which consist of our commercial, EnergyHub, and international efforts, continue to deliver SaaS revenue growth of roughly 20% to 25% year-over-year and represented 30% of total SaaS revenue in the quarter. EnergyHub delivered a particularly strong quarter, with the team both executing on new program launches and driving solid same-store growth. Total revenue grew 6.6% year-over-year to $256.4 million during the quarter, and gross profit increased 8.4% to $168.8 million. Despite some anticipated and temporary headwinds to hardware gross margins, total gross margins increased 100 basis points year-over-year due to the improving quality of SaaS in both the Alarm.com and Other segments, as well as a higher weighting towards SaaS overall. Hardware gross margins were impacted as we began selling through certain inventory carrying reciprocal tariff costs towards the latter part of the quarter. We expect this to continue into Q4 before returning to a more normal margin range in January 2026 when we modify our tariff pass-through fees to incorporate the higher reciprocal tariff rates. We also chose to selectively use faster and more expensive shipping methods to support the recent launch of 2 of our new video cameras, the V516 and the V730 that Dan discussed. This also contributed to some hardware gross margin compression. But as I noted a moment ago, even with these temporary headwinds, our total gross margin rates were up 100 basis points year-over-year. During the third quarter, total operating expenses, including depreciation and amortization, were $131.8 million. Excluding depreciation and amortization as well as stock-based compensation and other items we adjust from G&A for non-GAAP purposes, total operating expenses were $113.1 million, a 7% increase year-over-year. R&D expense in the quarter, inclusive of stock-based compensation, was $66.6 million, up 7.1% year-over-year. GAAP net income during the third quarter was $35.3 million, or $0.65 per diluted share. Non-GAAP adjusted net income grew 20.6% year-over-year to $42.4 million, and non-GAAP EPS increased by 22.6% year-over-year to $0.76 per diluted share. Effective August 15, 2025, the settlement method for our convertible notes that mature in January 2026 became locked into the [indiscernible] in cash. And as such, we began removing the 3.4 million of dilutive shares midway through the third quarter. Adjusted EBITDA grew 18.4% year-over-year to $59.2 million. Our adjusted EBITDA performance includes a $3.6 million benefit derived from a mark-to-market gain on a security in our treasury portfolio. Substantially all of our treasury is held in money market funds, but our policy allows for a small percentage to be held in other marketable securities. We produced $65.9 million of free cash flow and ended the quarter with $1.1 billion in cash. Our efficient go-to-market model and growing base of durable recurring revenue continues to generate strong cash flow and reinforce a healthy balance sheet. I want to remind investors of the cash flow tailwind that should emerge based on the federal tax bill signed into law in July 2025, which included a provision that allows companies to transition back to immediately and fully deducting all domestic R&D expenses incurred during the year for tax purposes. We continue to estimate that this change eliminates what would have been a little under $200 million in total cash tax payments over the next 5 years under prior law. I'll turn now to our financial outlook. For the fourth quarter of 2025, we expect SaaS and license revenue of between $176 million and $176.2 million. As a reminder, EnergyHub's revenue recurs annually and is slightly seasonally weighted toward the second half of the year. The fourth quarter is typically its largest revenue quarter in absolute dollars, but also tends to grow at a slower rate than other quarters on a year-over-year basis. Additionally, EnergyHub's strong Q3 performance included some contributions that pulled forward from Q4. Collectively, these factors create a modest seasonal headwind to consolidated SaaS growth. For full year 2025, we are raising our SaaS and license revenue outlook to between $685.2 million and $685.4 million, an increase from prior guidance of $4.1 million at the midpoint. We now expect total revenue slightly above $1 billion, including $315 million to $316 million of hardware and other revenue. We are also raising our non-GAAP adjusted EBITDA outlook to $199 million, up from the midpoint of $195.8 million in prior guidance. This implies roughly 100 basis points of margin expansion compared to 2024. We are projecting non-GAAP adjusted net income of $140.5 million, or $2.53 per diluted share. This is up from prior guidance of $136 million to $136.5 million, or $2.40 per diluted share. EPS is based on 58.9 million weighted average diluted shares outstanding for the year. Q4's diluted shares will be around 56.7 million as we operate through a full quarter without the 3.4 million dilutive shares associated with the convertible notes due January 2026. We currently project our non-GAAP tax rate for 2025 to remain at 21% under current tax rules. We expect full year 2025 stock-based compensation expense of around $35 million. Before turning to our preliminary view of 2026, I want to comment on our annual planning process, which is well underway. We continue to believe that our strong returns on invested capital and the positions we've established across multiple markets support organic reinvestment as the primary component of our capital allocation framework. As we go through our planning process each year, we begin with an analysis of all our existing initiatives to determine which ones best support ongoing investments in growth. We also identify initiatives that we have been working on for some time, but where progress has not developed as we had expected. That process forms a framework for reallocation within the portfolio. This year, much like last year, we are seeing that many of the higher growth areas of the business can self-fund a bit more than they did just a few years ago. As we rotated out of a few initiatives and assess productivity, we found ourselves in a position to let go of some existing jobs during October, which is always a difficult but sometimes necessary decision. While we are still focused on closing out 2025, we currently project a preliminary early look estimate of SaaS and license revenue of between $722 million and $724 million in 2026. Total revenue can range between $1.037 billion and $1.044 billion. We currently project our non-GAAP adjusted EBITDA for 2026 to be in the range of $210 million to $212 million. We will be working to firm up our estimates and we'll provide our formal annual guidance for 2026 when we report our fourth quarter 2025 financial results early next year. As our early look estimates suggest, we are complementing organic reinvestment with some margin expansion. We have a midterm target to exit 2027 with adjusted EBITDA margins in the 21% range, assuming historically typical hardware margins of 22% to 24% and a similar mix of hardware revenue and SaaS revenue that we have today. Our plans beyond this will depend upon the growth profiles and prospects of the various initiatives that we are engaged in at that time. In the meantime, meaningful operating cash flows continue to contribute to our strong cash position, affording us additional flexibility across our broader capital allocation framework. In closing, we're pleased with the broad-based momentum in the business that we've seen throughout the year. We believe that we're well positioned to deliver continued revenue growth and profitability while investing to expand our long-term opportunities. With that, operator, please open the call for Q&A. Operator: [Operator Instructions] Our first question comes from Adam Tindle with Raymond James. Adam Tindle: Kevin, I just wanted to start on the early framework for 2026. If I was just doing the math here quickly, correctly, it implies that the SaaS revenue growth is about 6%. And I was going back through my notes, and I think that's about where you initially thought 2025 might be, and we're now pushing maybe closer to 9% as we look to close out the year. So I guess the question would be, as you formulated the initial SaaS guidance in particular, what are maybe some of the similarities and differences in moving parts in 2026 versus 2025? And what could be some potential upside drivers? Kevin Bradley: Adam, thanks for the question. As you noted, when we first looked at 2025, we were first looking about 6.1%, so very similar to what we're first looking 2026 right now. And our updated guide for 2025 is about 8.5%, 8.6%, so about 250 basis points higher. Throughout the course of this year, we've had the growth initiatives contributing a little bit under 30% of SaaS revenue and growing 20%, 25%. I think as we look forward to 2026, the expectation would be roughly similar in terms of growth rate profile, meaning we think it will maintain 20% to 25% growth. So that will be consistent. When we started 2025, we noted a 200 basis point headwind on the residential side. That has not really come to fruition this year as a combination of a little bit better account creation than we had anticipated at the beginning of the year, as well as a very little bit of currency tailwind, which probably added about 20 basis points of growth this year. So as we look forward, we're basically pushing right some of that growth rate headwind that we had signaled at the beginning of this year on the core residential business to next year. And then we're basically assuming no additional currency headwinds. Adam Tindle: Just a follow-up for Steve, if I could. I'm noticing obviously very strong profitability here. And if I'm looking at the implied EBITDA margin for this year, it's looking like it's going to be pushing towards 20%. And the initial guidance for next year suggests another 20%, maybe even a little bit greater with some upside throughout the year. So very healthy profitability levels. I guess the question, Steve, would be your thoughts on the balance of growth and profitability going forward, understand you've managed that well in the past, but you're now reaching new levels of scale, $1 billion business at this point. So those incremental points in EBITDA are very high dollars. So just wonder if you could maybe just opine a little bit on how you're thinking about the balance of growth and profitability. Stephen Trundle: Thanks, Adam. Yes, I'd say we're still primarily focused on where we can find growth and what type of investment we need to get that growth. So we're still pretty excited about the growth initiatives. Kevin mentioned, we always have a few other skunk works projects that we hope may come to fruition over the coming years. I'd say that's where we start is like let's look at where can we get growth in the, say, 5-to 10-year period. That said, we've been improving the efficiency of the company. We're going to continue to do that. Kevin just telegraphed an exit rate anyway for 2027. That suggests we're going to continue to move the adjusted EBITDA margins up some in the business. But we're getting to a place that I think is a bit more healthy and a nice place where we're generating strong cash flows, refilling the bucket [indiscernible] initiatives and still able to sustain some growth. Operator: Our next question comes from Samad Samana with Jefferies. William Fitzsimmons: This is actually Billy Fitzsimmons on for Samad. I want to double-click on the EnergyHub business. There's obviously a ton going on in the utility market right now. Data center demand is driving record levels of investments and consumers are also contending with higher bills, in many cases, as a result. And so maybe against this backdrop, can you just walk me through how maybe your conversations have progressed with key customers over the course of the year? Curious if you have any anecdotes on specific customer conversations. And then can we just double-click on the commentary around how there was maybe a slight pull forward in that business from 4Q into 3Q? Stephen Trundle: Billy, I'll start with the higher-level question about the market and then Kevin may have a comment on the pull forward. Yes, the macro trends there are advantageous to us at the moment. As you noted, the data center explosion, the electrification of transportation, all of these things are driving demand for electricity. And it just so happens that what we do in the form of a virtual power plant is one of the least, probably the least, expensive way to add capacity and also something that's actionable and can contribute almost immediately. So the macro framework is great for that business. And as a result, our key customers, I think, are moving much faster and getting more serious about the contribution that VPP can make to their capacity challenge. So we're seeing less piloting trials, test-and-see type of approaches, and much more folks moving towards this type of solution as a committed part of their capacity is what we're seeing in the market. And I'd say -- in terms of the pull forward, Kevin, do you have any comments on that? Kevin Bradley: Billy, so I would characterize it as being in the hundreds of thousands of dollars, not millions of dollars. But one of the longest running programs at EnergyHub is a market-based program that's run out of Texas. And historically, what happens there is we're performing against that program throughout the year, predominantly in the summer. And then that has settled up in Q4 and the revenue associated with it is booked in Q4. And that's one of the reasons that EnergyHub has always been somewhat seasonally weighted in terms of revenue towards Q4. Some of that settlement happened to occur in Q3 this year, and the rest will occur in Q4. So there's just a little bit of pull forward there. Operator: Our next question comes from Stephen Sheldon with William Blair. Matthew Filek: You have Matt Filek on for Stephen Sheldon. On EnergyHub, can you help give us a sense on the current growth rate and how you're thinking about the durability of that growth over the next, call it, 2 to 3 years, especially in light of the strong demand you're seeing and some of the secular themes you're benefiting from? Stephen Trundle: Just starting with the growth rate. So we don't break out each growth initiative, but we commented the growth rate for our growth initiatives is in the 20% to 25% range overall. EnergyHub is probably the most meaningful contributor to that growth initiative -- growth rate, meaning you can probably guess that they're a tad above that. And then the second part of the question, I guess, was the macro environment, what's driving it, Matt? Matthew Filek: Well, really more so, how durable do you think that growth is in light of the secular themes you're benefiting from? Stephen Trundle: Yes. At the moment, we believe that growth is quite durable. There are a lot of different things going on. First, at the moment, we have about 45 million installed connected thermostats in the U.S. The penetration in terms of participation of those stats in a VPP program with us is around 3% to 5%. So we've got a lot of headroom in terms of adding more consumers onto the platform in our core thermostat-driven business. At the same time, we're out there building a business around EVs and building a business around batteries. We've had a couple of announcements recently on both of those fronts. So you've got another vector of growth there. Batteries, in particular, are very interesting for us to work with, because they're even more -- we're even more able to control utilization of stored kilowatt-hours there than we are with the thermostat where it may impact actually someone's temperature in their home. So we're seeing growth there. And then, of course, we have -- the next thing we can do is sign up additional utilities. We're probably 30% share of the largest 150 utilities in North America at the moment, meaning those that are out there with over 100,000 meters. So we've got share opportunity as well. And then because we're the largest in this space, we are the preferred partner for anyone that makes a device. If someone wants to be contributing power to the grid, and they want to participate in the economics associated with that, EnergyHub is the place to go. So I feel like the growth -- putting all that together, the growth story there is durable and compelling, and we feel good about it going into certainly next year and '27. Matthew Filek: Sounds like there's plenty of runway there. Maybe shifting gears to the core residential business. I was wondering if you could maybe talk about how much of a focus subscription pricing increases have been there, and how much of a focus do you expect pricing increases maybe to be over the near term. Stephen Trundle: Yes. I'd say in the history of the company, we've driven growth without much pricing. That changed a couple of years ago. We began to incorporate pricing into the growth picture. That was driven by the hard reality of a core inflation rate that had moved up dramatically. We've continued that practice, and we'll have to continue it. So pricing is part of it, and we're routinely surveying what inflation rates are and moving on price in that ballpark range typically. Operator: [Operator Instructions] Our next question comes from Ella Smith with J.P. Morgan. Eleanor Smith: So I'm curious, SaaS continues to grow as a percentage of your overall revenue. To what extent do you expect this positive mix dynamic to support your gross profit margins over a multiyear period? Stephen Trundle: Ella, at the moment, SaaS has been increasingly becoming a bigger chunk of the mix. And that, of course, contributes to gross margin expansion on a percentage basis. Looking into next year, I think we expect that trend to probably continue somewhat. That said, we have a number of things that we're excited about that are coming to market either right now or into next year. Dan spoke at length about some of the new form factors and new capabilities on our video product line. If we're successful in promoting that line and driving demand, obviously, we'll see higher hardware revenues as a result of that, and that mix could shift a little bit. But I don't think you're going to see it shift dramatically from where it is today. I'd say the trend line or where we are today is roughly where we'll be. You might see things move 100 or 200 basis points in terms of mix in the next 12 months or so. Eleanor Smith: And for a quick follow-up, how would you characterize your current M&A strategy? And do you expect to be acquisitive in 2026? Stephen Trundle: I would characterize our current strategy as active but deliberate. We are constantly assessing opportunities, different size classifications, and we're well positioned going into 2026. So I would imagine you'll see a pace in '26 that's not dissimilar from what you've seen in the last couple of years. And we can't guarantee that -- we're always opportunistic, and we're not in a race to go do acquisitions. But when we see the right fit, that means great management team, that means synergistic with our channel, synergistic with our technology, and honestly, synergistic at some level with our P&L. When we see those things come together, then we do strike. So I would expect that you'll continue to see some activity next year. Operator: [Operator Instructions] Our next question comes from Saket Kalia with Barclays. Alyssa Lee: You've got Alyssa Lee on for Saket Kalia. I think you touched on commercial and EnergyHub a little bit out of your growth initiatives. But how are you thinking about the international opportunity into next year? How is EBS progressing? And how do you see that into next year? Stephen Trundle: Alyssa, so international continues to be one of the 3 legs of the stool in terms of growth initiatives. I would say of the 3 we've talked about, commercial, EnergyHub, and international, international is probably a bit more of the laggard of those 3. We're not making quite as much progress there as I would like to see. So we're continuing to work to build that out. On the positive, you roll the clock back 24 months and international was 4% of revenue. I think when we put the Q out, you'll see it be 6% of revenue at the moment. So we are growing international, and we've got a nice strong foundation there to continue to build off. And I guess the optimist in me says we have a lot of room to drive a little more growth and some acceleration on the international piece, so that it contributes a bit more to that overall range that we articulated, which is 20% to 25% on the growth initiatives. Alyssa Lee: And maybe as a follow-up, how did renewal rates and gross adds shape up this quarter? And how did macro backdrop influence those? Stephen Trundle: Yes. So the renewal rate came in right where it was last quarter. They both rounded down to about 94%. They were, I'd say, 10, 20 basis points above that, but rounded to 94%. So that was substantially similar. Gross adds were exactly where we expected them to be. They were neither higher nor lower. I think we attribute most of that to the fact that from a housing market perspective, things basically stayed where they were in Q2. There was incrementally some excitement about potentially a lower rate environment that we thought might unblock that a little bit, but then I think found, based on commentary from builders in the last couple of weeks, that fears about the job market have basically all but offset that. And here we are in about the same place sequentially. Operator: Our next question comes from Jack Vander Aarde with Maxim Group. Jack Vander Aarde: I joined a little bit late, so I'll try not to be too redundant. Two questions. Growth businesses continue to ramp well. I caught some of the Q&A on EnergyHub and the focus on utility power grids, batteries, EVs. Maybe just outside of that, can you tie that into just your perspective on the autonomous robotics and delivery and drones? How does this fit into your EnergyHub and just your overall vision? Or does it -- I know you have patents on some stuff, and you guys are a patent machine over there, too. So just would love to get your thoughts, maybe taking the ball a step further of the autonomous delivery. Stephen Trundle: Jack, yes, wide-ranging question there. So let's start with the relationship to EnergyHub. The devices that -- these autonomous devices that we expect to see around the home, all actually act as little mini -- can be mini batteries on the grid. So I would expect much as we attempt to connect to everything today, anything where there's a store of power, as these devices become more real, those batteries become attractive to us. And certainly, their charging cycles are things we can manage. You don't want to be charging -- if you're in a market where there are peak rates, you don't want to be charging your army of robots during the hour when you'll be paying peak rate. You want to charge them at some other point in time. So I think that's all good. Whether there will be that much capacity there in these type of batteries or not, I don't think we fully know yet. It depends on the capability of these autonomous devices. And then the next piece is really are these vehicles for security video cameras, and we continue to believe that they are. We currently go to market with an autonomous drone unit for high-security outdoor applications and are seeing that product deployed in places like shipyards or big-tech parking lots, any place where you have a wide amount of acreage to cover and you have a need for high security and it's not unreasonable to ask a guard to very, very quickly monitor a large property. So we're seeing uptake there. It's a relatively small part of our business still, but it's a place where we continue to have some energy. And then we're watching for the right partnering opportunities and/or right organic opportunities to build out more in that category. I wouldn't say it's as important to us at the moment as some of the things we're doing with AI and core video, but it's something that we continue to watch. Jack Vander Aarde: I appreciate all the color there. I know it was a wide question, but that was a great answer. One more for me. Outside of the M&A, I heard a question on that earlier. I know that's part of the general strategy. But just maybe looking at the balance sheet and the cash that you guys do have, it's very noticeable, obviously. Any other uses for that cash? Another hot topic area is clearly to get around is the digital asset space, treasuries, just integration with blockchain. Is any of this on your guys' radar? Or how do you just view the space in general? Stephen Trundle: Well, I may toss some of this one to Kevin. But in terms of the balance sheet, balance sheet is, yes, big, as you note right now. We're closing out one of the convertibles in January, but we've got pretty strong cash flow production. So we expect to have a nice amount of capacity on the balance sheet for all of next year. In terms of deployment, certainly, it's primarily about corp dev and having dry powder there. Do we consider other types of assets? We give them some consideration. At the moment, though, we're pretty focused on deploying capital in a way that helps us, for the most part, grow our core business. So we're not looking to deviate too much from that strategy. Anything else, Kevin, do you want to add or... Kevin Bradley: Yes, sure. Our primary motive, I think, with the balance sheet is for it to be a source of resilience and flexibility for the reasons that Steve mentioned. So the primary reason to have that there is to be able to be opportunistic in the corp dev space. You obviously see us do a little bit of buyback activity as well. It's useful in that domain. We were more active than we had been in several quarters during Q3 as we saw the opportunity to buy at 7.5%-plus cash flow yield on it. Those are the 2 things really that we focus on right now in terms of use of the balance sheet, less so crypto or other assets like that. Operator: [Operator Instructions] I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Welcome, ladies and gentlemen, to the Third Quarter 2025 Earnings Conference Call of Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Senior, Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir. Gary Gillheeney: Thank you, operator, and welcome, everyone, to Organogenesis Holdings Third Quarter 2025 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our third quarter revenue results and provide an update on key operating and strategic developments in recent months. Dave will then provide you with an in-depth review of our third quarter financial results, our balance sheet and financial condition at quarter end, as well as our financial guidance for 2025, which we updated in our press release this afternoon. Then we'll open up the call for questions. Let me begin with a review of our revenue results for Q3. We delivered sales results, which exceeded the high end of our guidance range outlined in our second quarter call, driven primarily by better-than-expected growth in sales of our Advanced Wound Care products, which increased 31% year-over-year. Sales of our Surgical & Sports Medicine products also performed well, increasing 25% year-over-year in the third quarter. The record revenue performance we delivered in the third quarter reflects our team's strong execution and commitment to our strategy to build upon our deep customer relationships and promoting access to existing and recently launched products despite continued aggressive pricing strategies from our competitors. On October 31, CMS announced the final Medicare physician fee schedule for the calendar year 2026. As mentioned in our last quarter's earnings call, this is a watershed moment for the industry and the most impactful development in more than a decade. And we congratulate CMS on taking this significant step in payment reform and are pleased CMS finalized skin substitute classifications based on FDA regulatory status and a per square centimeter payment methodology in both the physician office and hospital outpatient settings. We are pleased that CMS has recognized the clinical differentiation of PMA products and has taken steps toward higher payment and expanded access for PMA products. We remain committed to working with CMS and other stakeholders to further expand access to these life-saving technologies as well as incentivize investment and innovation in the space and achieve long-term market stability. We believe this new policy will address abuse under the current system and the resulting rapid escalation in Medicare spending while ensuring a much-needed consistent payment approach across sites of care. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market for 2026 and beyond, and we'll continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectation. Before turning the call over to David, I wanted to provide some updates on key clinical and regulatory developments in recent months. Beginning with an update on our ReNu program. On September 25, we announced that the second Phase III trial of ReNu did not achieve statistical significance for its primary endpoint despite demonstrating a numerical improvement in baseline pain reduction that exceeded the results of the first Phase III trial. Baseline pain reduction at 6 months for ReNu was negative 6.9 for the second Phase III study compared to negative 6.0 in the first Phase III study. Additionally, ReNu results from the second Phase III study continue to demonstrate a favorable safety profile. Given the first Phase III trial achieved statistically significant reduction in pain compared to saline and the second Phase III trial demonstrated a numerical improvement in baseline pain reduction that exceeded the results of the first Phase III trial. We believe these combined results support the potential approval of ReNu for pain symptoms associated with knee osteoarthritis included in those patients classified as the most severe. ReNu has been studied in 3 large RCTs of more than 1,300 patients combined. Organogenesis believes the totality of this data is compelling evidence for the FDA to review in a biologic license application. Additionally, FDA granted ReNu Regenerative Medicine Advanced Therapy, or RMAT designation based on ReNu demonstrating the potential to treat an unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We have a meeting scheduled for December 12 with the FDA to discuss our submission, including using the combined efficacy analysis from both Phase III studies to support a BLA approval. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. While we did not meet the November 1 submission deadline for new data for LCD coverage consideration in 2026 for PuraPly AM, for DFU and Affinity or VLU, these studies and analyses continue, and we intend to submit for coverage once they're published. We remain confident in our strong competitive position in the skin substitute market heading into next year. We have substantial advantages, including strong brand equity, deep customer relationships and importantly, 3 highly innovative, highly efficacious commercialized products on the covered list if the LCDs take effect as scheduled on January 1, 2026, specifically our Apligraf product for DFU and VLU and our Affinity and NuShield products for DFU. We have strongly advocated for CMS to implement an integrated coverage and payment policy for the skin substitute market. We believe they have taken the right steps to address rapidly escalating Medicare costs while ensuring patient access to the most appropriate clinically effective technologies. We believe these changes present an enormous opportunity for Organogenesis to serve more patients and importantly, will be positive for the long-term health of the wound care market. Beyond 2026, we expect to advance our competitive position as we leverage our development engine fueling new innovation, capacity to launch and reintroduce products, including our Dermagraft product, which is already covered for DFU and VLU under the LCDs. Strategic investments in expanding the body of clinical evidence supporting our technologies and a transformational opportunity with ReNu. With that, I'd like to turn the call over to Dave. David Francisco: Thanks, Gary. I'll begin with a review of our third quarter financial results. And unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the third quarter was $150.5 million, up 31% year-over-year and up 49% sequentially. As Gary mentioned, these results came in above the high end of our expectations we provided on our Q2 call, which called for total revenue in the range of $130 million to $145 million. Our Advanced Wound Care net product revenue for the third quarter was $141.5 million, up 31%. As Gary mentioned, the commercial team executed well in the period, building upon the momentum that we experienced towards the end of Q2 that we discussed on our last earnings call. Net product revenue from Surgical & Sports Medicine products for the third quarter was $9 million, up 25%, primarily due to an increase across the PuraPly family of products. Our total revenue results for the third quarter included $0.4 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to no impact in the prior year period, and we continue to expect grant income to be immaterial in 2025. Gross profit for the third quarter was $114.2 million or 76% of net product revenue, compared to 77% last year. The change in gross profit was due primarily to a shift in product mix. Operating expenses for the third quarter were $130.1 million compared to $108.9 million last year, an increase of $21.2 million or 19%. Excluding cost of goods sold of $36.3 million for the third quarter and $26.8 million last year, our non-GAAP operating expenses for the third quarter were $93.9 million compared to $82.1 million last year, an increase of $11.7 million or 14%. The year-over-year change in operating expenses, excluding cost of goods sold, was driven by a $7.9 million or 11% increase in SG&A expenses, a $2.9 million or 28% increase in research and development expenses and a $0.9 million write-down of certain nonrecurring expenses. Operating income for the third quarter was $20.7 million compared to an operating income of $6.2 million last year, an increase of $14.5 million. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating income was $23 million compared to $7.1 million income last year. GAAP net income for the third quarter was $21.6 million compared to a net income of $12.3 million last year, an increase of $9.2 million. Net income to common for the third quarter was $14.5 million compared to a net income of $12.3 million last year. As a reminder, net income to common includes the impacts of the cumulative dividend, the noncash accretion to redemption value on our convertible preferred stock and undistributed earnings allocated to participating redeemable convertible preferred stock. Adjusted EBITDA for the third quarter was $30.1 million compared to adjusted EBITDA of $13.4 million last year. Now turning to the balance sheet. As of September 30, 2025, the company had $64.4 million in cash, cash equivalents and restricted cash with no outstanding debt obligations, compared to $136.2 million in cash, cash equivalents and restricted cash with no outstanding debt obligations as of December 31, 2024. On October 31, 2025, we amended our credit agreement to better align with the underlying fundamentals of our business. The amended credit agreement now provides access to up to $75 million of future borrowings. We believe we are well capitalized with our cash on hand and other components of working capital as of September 30, 2025, and available under our revolving credit facility and net cash flows from product sales. Now turning to a review of our 2025 revenue guidance, which we updated in this afternoon's press release. For the 12 months ended December 31, 2025, the company now expects net revenue of between $500 million and $525 million, representing a year-over-year increase in the range of 4% to 9%. The 2025 net revenue guidance range now assumes net revenue from Advanced Wound Care products of between $470 million and $490 million, representing a year-over-year increase in the range of 4% to 8%. Net revenue from Surgical & Sports Medicine products between $30 million and $35 million, representing a year-over-year increase in the range of 6% to 23%. With respect to our profitability and EBITDA guidance, the company now expects GAAP net income in the range of $8.6 million to net income of $25.4 million compared to a range of a net loss of $6.4 million to net income of $16.4 million previously. EBITDA in the range of $19.1 million to $41.9 million compared to $6.2 million to $37 million previously. Non-GAAP adjusted net income in the range of $21.5 million to $38.4 million compared to $5.5 million to $28.3 million previously, and adjusted EBITDA in the range of $45.5 million to $68.3 million compared to $31.1 million to $61.9 million previously. In addition to our formal financial guidance for 2025, we are providing some considerations for our modeling purposes. Our profitability guidance for 2025 now assumes gross margins in the range of approximately 74% to 76%. GAAP operating expenses, excluding cost of goods sold, up 1% to 2% year-over-year. and excluding noncash intangible amortization of approximately $3.4 million, the nonrecurring FDA payment related to our renewed BLA filing of $4.6 million and the $9.8 million write-down of assets and restructuring activities in the first 9 months of 2025, our total non-GAAP operating expenses will increase in the range of 3% to 5% year-over-year. With that, I'll turn the call over to the operator to open up the call for your questions. Operator: [Operator Instructions] We will take our first question from Ross Osborn from Cantor Fitzgerald. Ross Osborn: Congrats on the strong quarter. So starting off, I would be curious to hear how your conversations are going with the clinical community in terms of when you're expecting physician behavior to change following the PFS. Is that December this year, earlier? Any thoughts there? Gary Gillheeney: Yes. So this is Gary, Ross. We're starting to see some of that behavior change now. where clinicians are moving to products that are on the approved LCD list. We're seeing some contracts starting to get processed to get those products on and apparently get the other products off. So we're starting to see some of the administrative behavior starting now. I'm not -- I don't think we've seen any sales behavior at this point in time, but we're certainly seeing the pieces being put in place where there'll be a change in utilization going forward based on the physician fee schedule. Ross Osborn: Okay. Got it. And then looking to next year, what can you do from a company standpoint to help generate awareness regarding your products as incremental volume opens up as many players that were selling higher ASP products won't be able to operate in the market. Gary Gillheeney: Well, fortunately, we have strong brand equity for our products, and we focus on the clinical efficacy of what our portfolio contains. We will continue to message that. I think that plays extremely well in today's -- or into next year's world. We think with wiser as well, getting products that are appropriate for use and will get reimbursed. I think -- will carry a lot of weight. The clinical evidence of those products will support utilizing those products and will carry a lot of weight. And those are the messages that we'll continue to beat and to make sure the market is aware of what we have, the clinical evidence, the likelihood of reimbursement as a result of being on the LCD and being appropriate with appropriate data, if challenged. Operator: [Operator Instructions] Our next question comes from the line of Ryan Zimmerman from BTIG. Iseult McMahon: This is Izzy, on for Ryan. So I wanted to start or continue, I guess, on the physician fee schedule for 2026. I was curious how you think the new rates might impact margins as we start to think about our models for next year? David Francisco: Yes, sure. So I mean, obviously, it's a little bit early to be talking about 2026, but we'll maybe connect on a couple of things around the revenue profile and the margin one as well. Again, we're not providing financial guidance today, but I'm glad you asked the question because I think there are several key changes in the marketplace for 2026 that I think people should be cognizant of. First off, with the LCD going into place, there's over -- well over 200 products that will no longer be covered for DFUs and VLUs under that LCD that's scheduled right now to go and be enacted on 1/1/26. As Gary mentioned in his prepared remarks, we have 3 commercialized products that are covered by the LCD with an additional one in Dermagraft coming back online in the back half of 2027. And those products are NuShield, which is a dehydrated amnion that's covered for DFUs, Affinity, which is a living amnion, which is covered for DFUs and then our Apligraf product, which is a bioengineered cellular product -- and it's the only PMA-approved product for both DFUs and VLUs. So we're excited about having those on the covered list. In addition to that, the financial incentives will be dramatically reduced in the marketplace, leveling the playing field, which is what we've been advocating for, for quite some time. And overall, as Gary mentioned, too, we have the brand equity, efficacy and service, which puts us in a very nice position, which is the attributes that we'll be competing against in 2026 once the field is leveled, as I mentioned. And then, of course, we've got a broad portfolio across many different FDA classifications that are addressing multiple indications. And then the last piece I'd say is that the commercial team has done a nice job of pivoting in a dynamic market environment. And I think that's indicated over the last couple of years and certainly in this last quarter. So all those things coming together, I think there's obviously no implication to the surgical business next year. So that's one element that you should think about. And I think the other components around wound care would be is that our dominant position in the hospital outpatient setting can drive incremental growth given that the reimbursement there has been unbundled. In addition to that, I think, obviously, there's been several new entrants into the market over the last couple of years, and we expect that share that's been lost over the last couple of years to be regained. And so we expect to participate in that. The offset to that is, of course, the market has expanded to some extent, and we expect that to contract based on overuse. And then the last piece I'd say is overall on the market standpoint, ASPs across the entire market will decline. So from that perspective, ours will as well, but there's a couple of other components there. Obviously, with Apligraf on the market and again, the only PMA-approved product for both DFUs and VLUs, very, very strong product, particularly in HOPD, will now be reimbursed at a much higher rate than it has been in years past. So from our perspective, we see a lot of growth drivers next year, and we also see improvements in margin and cash flow as well. Iseult McMahon: That's very helpful. And to your point about ASPs coming down, I was curious if you were surprised at all by the final rate ending up in that $127 range? Or is that kind of where you were expecting? Gary Gillheeney: Yes. We -- I think we were public and thought that it was going to come out, finalized at the rate that it was proposed in the proposed rule. We didn't think that at this point in time, CMS was going to change that rate, though they have indicated that they recognize PMAs, have a clinical differentiation and resource costs associated with them in value and expect that, that reimbursement will be higher over time than the 510(k)s and the 361. So I think over time, we're going to see a change. And I think one of those will be the PMAs will be separated. And perhaps once the market absorbs this change, CMS will take a look and see if that rate of 127 for the 361s and 510(k)s is appropriate or not? Or has it really, in some way, curtailed care in any way, shape or form. But I think they want to see if that's what's going to happen. So that's why we think they left everything at what's 127. Now the proposed rule was 125 -- that's why we felt it would come out at the 125 or something close to it. Iseult McMahon: Got it. That's helpful. And then just shifting focus over to ReNu. I know you're meeting with the FDA in December, but I was curious if the initial approval time lines that you had called out before, I believe it was late 2026 or early 2027 are still on the table given the recent data readout. Gary Gillheeney: Sure. So we still think there is an opportunity to still file and we'll be filing in a modular form in December if we have a successful meeting with the FDA. But I would guide to a 2-month delay is probably safe. It's possible we could stay on our current time line, but 2 months, I think, is reasonable based on where we are today in preparing for that December 12 meeting. Operator: [Operator Instructions] We are currently showing no remaining questions in the queue at this time. That does conclude our conference for today. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Mogo Third Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Craig Armitage. Please go ahead. Craig Armitage: Thank you, and good morning, everyone. Just a few quick notes before we get started. Today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties. These could cause actual results to differ materially from those projected. The company undertakes no obligation to update these statements, except as required by law. Information about the risks and uncertainties are included in Mogo's Q3 filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR+, EDGAR and you can also access via the Mogo Investor Relations website. Lastly, today's session will include several adjusted financial measures or non-IFRS measures. Please consider these as a supplement to and not a substitute for the IFRS measures. You'll see that we've included reconciliations to those in the press release and in the investor deck that accompanies the webcast. One last note, we understand there was some difficulty accessing the webcast on the Mogo IR page today. I believe that has been updated. So just refresh your screen if you're trying to access that and you hear this and certainly, the replay will be available there. With that, I'll turn the call over to Dave Feller. Go ahead, Dave. David Feller: Thanks, Craig, and thanks, everyone, for joining today. Q3 was another quarter of disciplined execution and good performance across all the areas of the business. We continue to strengthen our financial foundation while advancing the most important strategic initiative in our history, the launch of our new intelligent investing platform. Key highlights include on wealth, AUM reached a record $498 million, up 22% year-over-year, and wealth revenue grew 27%. On the payments business, revenue grew 11% year-over-year, driven by continued strength in Europe. And our Bitcoin holdings rose more than 300% quarter-over-quarter. Profitability, adjusted EBITDA was $2 million, 11.6% margin. And on the back of strong platform performance, we raised our 2025 EBITDA guidance. On the balance sheet, total cash investments ended the quarter at $46 million, providing flexibility to fund growth. It was a steady high-quality quarter across the 3 strategic pillars, wealth, payments and Bitcoin, each compounding value and read together. Over the past few years, we've been building both sides of our wealth business, Mogo focused on automated investing in MogoTrade, our self-directed trading platform. Each gave us a valuable insight into how investors behave, how they save, how they trade and how their decision impact long-term outcomes. And those insights made one thing clear, the future wasn't 2 separate experiences, it was one unified platform. And that's what we've built with Intelligent investing, a completely reimagined wealth platform that brings together our managed and self-directed investing under a single brand, a single architecture and a single philosophy. This isn't an update or a redesign. It's a full new build from first principles, a new behavioral operating system for wealth designed to help investors perform better. Two legacy apps, Mogo and MogoTrade will now sunset as we transition fully into intelligent investing. It's a major evolution for our company, one platform, one brand and one mission to build the behavioral and technological infrastructure for disciplined generational wealth. The problem we're solving is structural. Most of the financial system is built around activity because that's what drives revenue for firms. Every trade, every fund switch, every notification is a profit event for the platform, but it usually hurts the investor. After analyzing 3 years of real trading data across our own platforms, we sought firsthand. Most self-directed investors don't lose because of high fees. They lose because of the behavior. Buffett and Munger have warned for years that many modern training apps look more like casinos and investing platforms. And our data confirmed it. The industry's promise of democratizing investing through frictionless access, mission-free trading, hasn't improved outcomes. It has accelerate the problem. And with the rise of sports gambling and now prediction markets appearing alongside stocks, crypto and options trading, those same dopamine-driven mechanics are spreading faster than ever. The lines between investing, trading and betting are blurring and outcomes are getting worse. For Mogo, that's the opportunity. We have both the data and the capability to build the system that corrects this, a platform that rewards discipline, not dopamine. By unifying our managed and self-directed experience into intelligent investing, we are building what we believe will be the next dominant model in wealth: a platform where investors’ success drives business success. Our solution is intelligent investing, a behavioral operating system for wealth. It solves the biggest gap in modern investing. The lack of structure, feedback and discipline that keeps most investors from capturing the full power of compounding. The Investor with the right behavior, steady contributions, patience and conviction follows a calm upward compounding path that leads to generational wealth. Most platforms push the opposite, short-term speculation and reaction that erodes returns. Intelligent investing makes disciplined inevitable by combining automation, behavioral design and market intelligence. The structure alone isn't enough. A key part of our strategy is to make this experience exciting and aspirational, to compete head-to-head with dopamine-fueled casinos. For our product and our brand, we are redefining what excitement investing means. We are making discipline the new adrenaline, patience the new dopamine, and mastery the new status. Our members will be active, but actively learning, developing, and patient, fully engaged, not by speculation but by progress. Because the real thrill is watching discipline compound into wealth. That's what intelligent investing is built to deliver: the system that turns long-term thinking into long-term results. Today, we have members on our platform who are on track to over $50 million and $100 million. That'’s what we mean by generational wealth, what's possible with the right approach. I wanted to walk through a few of the unique behavioral features that differentiate intelligent investing from other platforms. We've made hundreds of improvements across the experience, all designed to help investors perform better. I'll highlight just a few that best capture our behavioral design and discipline that define the platform. Let'’s start with our flagship S&P 500 portfolios. These portfolios serve as a behavioral anchor, combining the proven performance of the S&P 500 with structure, automation, and consistency that drives better behavior. The edge isn't just being in the S&P 500, it is being in a managed disciplined way. When we compare... Gregory Feller: You know what? It sounds like Dave got disconnected. So why don't I continue on? I'm going to turn to Slide 10, which is a discussion on Carta. So Dave was really just giving an update on our new wealth intelligent investing platform and giving you some of the exciting features that are coming up on that. I can tell you, everybody on the team is super excited about what we're seeing there. And I think the phrase that Dave coined of platforms being dopamine-fueled casinos are more real than ever, especially with the rise of prediction markets. So we really think the market is -- this is something that the market needs. Now I just want to turn to Carta, which is our second pillar, payments, Carta Worldwide. Carta continues to be an important strategic component of our platform, business built on long-term contracts, recurring transaction volume and trust relationships with top tier enterprise clients. In Q3, processing volume grew 12% year-over-year on a like-for-like basis at $2.8 billion, reflecting steady international demand and continued growth from our major customers. Today, the platform supports over 7 million end users and processes more than $12 billion in annualized volume, providing card issuing, transaction processing and settlement across multiple networks, including Visa and Mastercard. What differentiates Carta is its API-first architecture built on the Oracle Cloud. Looking ahead, we're exploring the integration of stablecoin payments within Carta's network that includes potential partnerships with leading stablecoin providers aimed at enabling faster, lower-cost, cross-border settlement and programmable payouts. This is about future proofing our infrastructure to support clients who want to move value seamlessly across both fiat and digital rails. And we think Carta is well positioned to become a trusted gateway of stablecoin payments as adoption accelerates. Turning to Bitcoin strategy, which represents the next evolution of our capital allocation, in July, our board approved a strategic initiative authorizing up to $50 million in Bitcoin allocation. During Q3, we increased our Bitcoin holdings by over 300%, from Q2 reaching $4.7 million, funded through excess cash from investment monetizations. Our wealth, payments, and Bitcoin initiatives together position Mogo at the crossroads of 2 very powerful trends: the digitization of value and the modernization of financial infrastructure. We believe this dual compounding focus of operating business and Bitcoin will be a long-term differentiator for Mogo. Now, I’ll turn to our Q3 results. Q3 was another solid quarter of execution across our 3 main growth pillars of wealth, payments, and Bitcoin. Each advanced meaningfully: wealth achieved record assets under management, payments delivered double-digit growth, and Bitcoin treasury strategy accelerated. Our ecosystem continues to scale across both consumer and enterprise channels. Total members in Canada reached 2.3 million, up 6%. Assets under management hit a record $498 million, up 22%. On the B2B side, payments volume grew 12% year-over-year to $2.8 billion on a like-for-like basis. Adjusted total revenue grew 2% year-over-year to $17 million, but the composition of that growth continues to shift towards higher quality recurring streams. Wealth revenue rose 27%, driven by deeper adoption of managed portfolios and a higher AUM. Payments revenue increased 11%, reflecting steady transaction growth and long-term customer retention. These 2 components helped drive overall growth and adjusted subscription services revenue of 7%, underscoring the strength and durability of our mostly recurring revenue-based model. As expected, interest revenue was down 5% in the quarter following the new rate cap implemented at the start of the year. However, interest revenue was up slightly on a sequential basis, demonstrating underlying portfolio growth. Profitability remained central to our execution. In Q3, adjusted EBITDA was $2 million, representing an 11.6% margin, up sequentially from Q2 and roughly flat versus last year. Net cash flow before loan book was lower year-over-year due to timing of working capital items, which were a headwind this quarter versus the same period last year. On a consolidated basis, total cash increased in the quarter by almost $7 million, reflecting the impact of portfolio monetizations. Year-to-date, total EBITDA is $5 million, and total cash flow before investment and loan investments reached $13.6 million, up from $10.4 million for the first 9 months in 2024. Bottom line is, we maintain cost control even as we continue investing in platform monetization and intelligent investing rollout. Our balance sheet remains a clear differentiator for Mogo. We ended the quarter with $46.1 million in total cash and investments, including $18 million in cash and restricted cash, $20.8 million in marketable securities, and $7.1 million in private investments. Book value stood at approximately $77.5 million, or CAD 3.24 per share, providing a strong capital foundation to execute our Bitcoin allocation strategy while maintaining liquidity and flexibility. We continue to optimize our capital structure with a focus on return on invested capital and balance sheet optionality. Turning to our outlook, we reaffirmed our 2025 revenue guidance and are raising our adjusted EBITDA outlook from $5 million to $6 million to $6 million to $7 million for the full year. This improvement reflects the operating leverage in our model and continued execution across both wealth and payment pillars. As we move into Q4 and 2026, our priorities remain clear: grow our recurring revenue base, maintain profitability discipline and allocate capital with a long-term mindset anchored to Bitcoin and hard asset value creation. Mogo is entering 2026 with a focused strategy, a stronger balance sheet and a platform designed for intelligent sustainable growth. With that, we will open it up to questions. Craig Armitage: Dave, do you want to go back -- it's Craig here. Do you want to go back and do Slides 8 and 9 that... David Feller: Sure. Sorry about that. Apologies. Yes, I got cut off there. So I wanted to walk through just a few of the unique features in our new intelligent investing. One of them is our new performance dashboard, which we see as a professional grade view for active investors. Every member will now be able to see how they're performing against the S&P 500. So they always know how they stack up to a buy-and-hold strategy. Also breaks down what's driving the results. Winners and losers by count and weight portfolio turnover, volatility and drawdown and shows how their performance ranks also versus other members. It also introduces a new behavioral score that connects processed outcomes, tracking things like consistency in the buy-gate process and patience in holding positions. This level of transparency is something that most platforms would never offer because it reduces training activity. But for us, it's a strategic advantage. It encourages patience, selectivity and long-term focus, the traits that drive performance and retention. It's what professionals track and now every investor can see it. Next up, we have what we call the buy-gate investment memo, a professional-grade system for making better, more informed decisions. Before every purchase, members go through a structured process, the same checklist that best investors use for allocating capital: management assessment, moat and competitive advantage, investment thesis and key drivers, kill criteria, and bias check. Once complete, the platform creates an investment memo, a living record of their reasoning that can be revisited and refined over time. Even speculative buys are part of this framework, but now they’'re tracked and analyzed separately so investors can see what’'s working and what isn't. This is a system for turning decisions into data, bringing the same rigor and feedback loops used by professionals to every investor. And these are just a few of the hundred improvements we’'ve made across the platform, each designed to make discipline inevitable and performance sustainable. We will begin the rollout of intelligent investing later this month and continue into Q1. We couldn't be more excited for our members and our new platform, and I personally am excited and proud of the great work the team has done, as they truly believe we've built a truly differentiated platform and one that really aligns with our view that the future of investing won't be won by those that deliver and drive the most activity, but ultimately, the platforms that actually deliver the best outcomes. So back to -- we'll go down to the -- back to the Q&A, Craig? Operator: [Operator Instructions] Your first question comes from the line of Scott Buck from H.C. Wainwright. Scott Buck: I guess, first, I wonder if you could kind of walk us through how you see the balance between growth and margins as you work from kind of where you are today at 18 or so percent to that Rule of 40. Gregory Feller: So yes, Scott, it's Greg. I think the -- our overall philosophy right now is to stay EBITDA positive, while looking to drive overall top line growth, right, I think -- and so as we roll out intelligent investing later this quarter and going into Q1, I think we are going to be in a position to have to make some more investments for that rollout. But obviously, the philosophy there is that we expect offsetting growth on any impact on EBITDA margin. But we think that's the right bias for it to drive accelerating growth, again, keeping that overall Rule of 40 framework where our goal there is to see that Rule of 40 number overall increase, again, Rule of 40 being revenue growth and adjusted EBITDA margin. Scott Buck: Great. That's helpful, Greg. And then on the rollout of intelligent investing, could you provide a little bit around the logistics of how you'll be rolling it out? And then you mentioned some likely increased spend. I assume that comes through the marketing line, but any additional color there would be helpful as well. David Feller: Sure. It's Dave. So we're starting first with rolling out our managed solution. So again, we're moving from essentially 2 platforms. We had Mogo, which was our managed solution, and we had MogoTrade, which is our self-directed. Both of those, obviously, are still the current platforms that our users, members are on. So phase one is going to be actually rolling out the managed first. So Mogo users and everybody with a managed account will essentially transition into this new app. So they'll literally go from one day updating from the old app to the new app, which is the new intelligent investing, starting with the managed, roll that out across our member base, and then introduce and roll out the new self-directed. Everybody with an existing Mogo account will essentially log in to their existing account, but it will obviously all be on the new platform, new interface, etc. And the same thing on the self-directed. Everybody on the self-directed platform will log in, and their account and everything will be on this new platform. And now it will be unified into one app so we expect that this process will start this month, and it will continue into Q1. Assuming everything is going well and we are -- —obviously, there is always feedback and adjustments, and that process will continue. But we would hope by Q1, at some point in Q1, we are beginning to start progressing on the marketing front and really starting to try to get back to accelerated growth there. Scott Buck: Great. David. That's helpful. And I want to ask about the -- how the lending business kind of fits in with the core wealth and payments at this point? Are you sourcing customers for wealth through lending? Or what -- I guess I'm trying to understand what the strategic fit is? David Feller: Greg, do you want to talk about that or I can talk a little bit about that. Gregory Feller: Yes, go ahead. David Feller: I mean, I'll start and Greg can add. I mean, ultimately, I think what you're seeing with a lot of these platforms, right? You take a look at Robinhood, Wealthsimple, et cetera. Everybody usually starts with a product and then continues to evolve and start adding others, right? Wealthsimple initially launched a robo-adviser, then they got into self-directed investing. Now they're doing credit cards. Everybody eventually is getting into lending as well. So in the long run, you see lending as obviously, as I think, a key part of a lot of these platforms. And our big advantage is that we've been in the lending business from the beginning. So obviously, a lot of experience and a lot of data on the unsecured part. Some of those -- there's no question that a lot of those members, I mean, ultimately, every single individual needs to get invested, right? So we -- our goal with on the lending side is to help people go from being in debt and actually getting on a path to saving and investing, especially those that are boring typically in kind of the subprime rate. But yes, I think long-term lending, I expect, is going to be a key component of all of these platforms. And -- but for now, for us, obviously, our main focus in terms of growth drivers of the business is going to continue to be really on the payments and on the Wealth side, right? But Greg, I don't know if you want to add little more color in there. Gregory Feller: Yes. I would just say that our goal for lending, look, lending we've been doing for 20 years, it's been a stable cash flow generator for us. It's been one that as I've always said, because it's not our core growth focus, we can turn those dials up and down depending on our general view and outlook on the overall environment. So our book has stayed relatively stable for a few years. So we really haven't been meaningfully growing our book. Our goal is that lending is -- right now, lending is a drag on overall revenue growth because of the rate cap impact in '25. Our goal is that revenue is not a drag on revenue growth as we moved into 2026. But that, by far, the primary driver of top line growth is coming from wealth and payments. So that's sort of how we look at it. So by definition, lending, we believe, will become a smaller and smaller percent of our overall business. But continue to be a contributor of cash flow to the overall business as well. And as Dave said, strategically, there probably isn't a fintech platform out there because if -- that doesn't have it because it really at the end of the day, as you broaden out and offer more and more services and you look at what Robinhood is doing, they effectively want to become your primary bank, right, and offer all of your financial products and you cannot do that if you don't actually do lending. So lending is a strategic asset for sure in the space. What I would argue the hardest one to get into because it actually requires years and years of data and experience to be able to do that profitably. And I would say Mogo has one of the strongest databases in the sub-private space in Canada having been doing this for 20 years. Scott Buck: Great. That's fair. And I appreciate the added color there. One last one. Just curious if you guys have an update on where you stand on the regulatory process in terms of being able to offer crypto trading with the new wealth platform that's rolling out? Gregory Feller: Yes. So we are progressing on the whole crypto path and including partnership discussions because basically everybody that really expands into this area builds partnerships because there's a pretty broad ecosystem there. So I would say, stay tuned as we go into 2026 for announcements around progress around bringing crypto into our platform. Operator: [Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to Dave Feller for closing comments. Sir, please go ahead. David Feller: Thank you. Thanks again for joining us on our Q3 call. We look forward to giving you an update in the next -- in Q1 on full year results. Thanks again. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Good morning, and welcome to Ares Commercial Real Estate Corporation's Third Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded on Friday, November 7, 2025. I will now turn the call over to Mr. John Stilmar, Partner of Public Markets Investor Relations. John Stilmar: Thank you, and good morning, everybody. We appreciate you for joining us on today's conference call. In addition to our press release and the 10-Q that we filed with the SEC, we've posted an earnings presentation under the Investor Resources section of our website at www.arescre.com. Before we begin, I want to remind everyone that comments made during the course of this conference call and webcast as well as the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipate, believe, expect, intend, will, should, may and similar such expressions. These forward-looking statements are based on management's current expectations of market conditions and management's judgment. These statements are not guarantees of future performance, conditions or results and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors, including those listed in its SEC filings. Ares Commercial Real Estate assumes no obligation to update any such forward-looking statements. During this conference call, we'll refer to certain non-GAAP financial measures. We use these as measures of operating performance, and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like titled measures used by other companies. Now I'd like to turn the call over to our CEO, Bryan Donohoe. Bryan? Bryan Donohoe: Thanks, John. Good morning, everyone, and thanks for joining us today. I'm here today with Jeff Gonzalez, our Chief Financial Officer; Tae-Sik Yoon, our Chief Operating Officer; as well as other members of the management and Investor Relations teams. In the third quarter, we continued to execute against our strategic objectives of maintaining a strong balance sheet, addressing our risk rated 4 and 5 loans and further reducing our office loans. Our execution against these goals drove increased sequential quarterly earnings, stable CECL reserves and consistent book value per share while reducing our net debt-to-equity ratio as compared to the prior quarter. Supported by the strength of our balance sheet and the progress within our risk rated 4 and 5 loan portfolio, we broadened the company's strategic objectives to include more active capital deployment. We believe the collective execution against these goals will ultimately result in a larger and more diversified loan portfolio and drive long-term earnings growth for our investors. Let me now walk you through the specifics of our progress this quarter and outline the framework for how we expect these initiatives to evolve. Across the Office portfolio, we saw improved leasing and market fundamentals supported by a more positive demand environment. During the third quarter, we reduced the Office portfolio to $495 million, a decrease of 6% quarter-over-quarter and 26% year-over-year. This decrease was driven by both normal course repayments and the strategic restructuring of a risk rated 4 loan collateralized by a well-leased New York City office property. At the end of the third quarter, 5 of our 7 remaining office loans were risk rated 3 or better. Shifting now towards our progress in addressing our risk rated 4 and 5 loans. During the third quarter, we had $28 million loan collateralized by a multifamily property migrate though we expect an expeditious resolution. Discussions are ongoing, but we view the potential loss severity, if any, as low as the occupancy of the property now exceeds 95%. The other movement across our risk rated 4 and 5 loans in the quarter came from the resolution of an $11 million previously risk rated 4, subordinated loan collateralized by an office property in Manhattan. The underlying property has had strong leasing over the past 6 months, achieving over 80% occupancy. With the progress of the property and a strong borrower relationship, we amended the capital structure to combine a $59 million risk rated 3 senior loan and a portion of the $11 million risk rated 4 subordinate loan into a single larger $65 million senior loan secured by the same property. In exchange, we extended the final maturity of the loan by 2 years to provide for further market stabilization. Although the restructuring resulted in a realized loss of $1.6 million, the CECL reserve was reduced by approximately $7 million. Furthermore, following the end of the quarter, we completed a restructuring of an $81 million senior loan collateralized by an office property in Arizona that was lowered to a risk rated 4 during the second quarter. Since then, we've seen positive leasing momentum at the property and continued sponsor support in the form of additional equity capital. In response to these positive developments, in the fourth quarter, we restructured the loan to provide greater flexibility for the sponsor to complete the business plan. When looking at our risk rated 4 and 5 loans in aggregate, 2 loans comprise more than 70% of the outstanding principal balance. The first of these 2 loans is our risk rated 5 Chicago office loan, which has a carrying value of $141 million and remains on nonaccrual. Fundamentals at this property remains sound with occupancy above 90% and a weighted average lease term of more than 8 years. Discussions with the borrower are ongoing and among the options we are exploring with the borrower is a potential sale of the asset. The second of the 2 is a risk rated 4 Brooklyn, New York residential condominium loan with a carrying value of $120 million. During the quarter, construction continued, and we anticipate the formal marketing process for the sale of the underlying condominium units to begin later in the fourth quarter of this year. We're proud of the progress we've made on the risk rated 4 and 5 loans and remain committed to driving continued improvement in the portfolio. Our risk rated 1-3 loans continue to perform well and are primarily collateralized by multifamily, industrial and self storage properties. As we continue to make improvements across the portfolio and collect repayments that further bolster our balance sheet, we are able to accelerate our investment activity into what we see as an accretive market opportunity given the market presence and capabilities of the Ares Real Estate Group. Through continuous investment, Ares now operates one of the largest vertically integrated Real Estate platforms globally, which supports broader sourcing and credit capabilities. The Ares Real Estate Group has grown to over 740 Real Estate professionals. Consistent with the expansion of the Ares Real Estate Group, the Ares Real Estate Debt Strategy has experienced meaningful growth and incremental scale. In the last 12 months, the Real Estate Debt Group has originated more than $6 billion in new loan commitments, a meaningful step function change in terms of scale and capital deployment as compared to 5 or 6 years ago. We believe ACRE is well positioned to capitalize on this expanded scale of the Ares Real Estate Platform. During the third quarter, we closed 5 new loan commitments totaling $93 million across multifamily and self storage properties. Our investing momentum has continued into the fourth quarter, closing over $270 million of loans across 5 new loan commitments collateralized by industrial, multifamily, hotel and self storage properties. One important, but maybe less obvious way ACRE is benefiting from the investment scale of the Ares platform is through the ability to co-invest with other Ares Real Estate funds. Beginning in the third quarter, more than half of ACRE's new commitments were co-investments with other Ares Real Estate vehicles. We believe the ability for ACRE to co-invest results in a more granular and diversified portfolio while also allowing ACRE to transcend its capital base to invest in larger institutional quality Real Estate. An additional benefit from the Ares platform, which underscores the attractiveness of our recent originations, is our ability to obtain accretive financing terms with advance rates between 75% and 80%. Importantly, we believe the types of loans closed in the third and fourth quarter with favorable financing profiles could provide a window into what ACRE's reshaped portfolio and financial profile could look like in the future. As we look ahead, we remain confident in ACRE's long-term earnings potential. We believe the path to achieving earnings growth will ultimately depend on our continued resolutions on our nonaccrual loans, which total approximately $170 million of carrying value, net of applicable CECL reserves as well as reinvesting the proceeds to expand our loan portfolio. Although we expect the current pace of repayments to continue in the near term, we're focused on redeploying the capital from repayments efficiently to minimize the earnings drag. That being said, our goal is to return to portfolio growth in the first half of 2026. Let me now turn the call over to Jeff, who will provide more details on our third quarter results. Jeffrey Gonzales: Thank you, Bryan. For the third quarter of 2025, we reported GAAP net income of approximately $5 million or $0.08 per diluted common share. Our distributable earnings for the third quarter of 2025 was approximately $6 million or $0.10 per diluted common share. This includes the impact of the realized loss of $1.6 million or $0.03 per diluted common share related to the restructuring of the risk rated 4 loan collateralized by an office property. Distributable earnings for the third quarter, excluding this loss, was approximately $7 million or $0.13 per diluted common share. Additionally, during the third quarter, we collected $2 million or $0.03 per diluted common share of cash interest on loans that were on nonaccrual and was accounted for as a reduction in our loan basis. We continue to strengthen our financial flexibility and balance sheet positioning. We lowered our net debt-to-equity ratio, excluding CECL, to 1.1x at the end of the third quarter, a decrease from 1.2x quarter-over-quarter and 1.8x year-over-year. We further reduced our outstanding borrowings to $811 million at the end of the quarter, a decrease of 9% quarter-over-quarter and a decrease of 40% year-over-year. We collected an additional [repayment] during the quarter, bringing the year-to-date total repayments to $498 million, more than double the amount we collected at this time last year. These repayments further bolstered our liquidity position and financial flexibility, allowing us to focus on both of our objectives of accelerating resolutions on risk rated 4 and 5 loans and now accelerating investment activity. We expect current market conditions to result in a continued pace of repayments across our portfolio. Bolstered by the amount of repayments received during the third quarter, we maintained our strong liquidity position. As of September 30, 2025, our available capital was $173 million, including $88 million of cash. Turning to our CECL reserve. The total CECL reserve declined to $117 million as of September 30, 2025, a decrease of approximately $2 million from the CECL reserve as of June 30, 2025. This reduction was primarily due to the restructuring of the risk rated 4 office loan previously mentioned and other loan-specific attributes. The total CECL reserve at the end of the third quarter of $117 million represents approximately 9% of the total outstanding principal balance of our loans held for investment. 95% of our total $117 million CECL reserve or $112 million relates to our risk rated 4 and 5 loans and approximately half of this is attributed to the only risk rated 5 loan in the portfolio. Overall, the $112 million of reserves attributable to our risk rated 4 and 5 loans represents approximately 25% of the outstanding principal balance of those risk rated 4 and 5 loans. Both CECL and our book value remained relatively stable quarter-over-quarter. Our book value is $9.47 per share, which includes the $117 million CECL reserve. Our goal remains to prove out book value over time while advancing our efforts to rebuild earnings and reestablish full dividend coverage. We believe the progress we have achieved thus far is a clear reflection of our commitment, and we remain confident that our continued deliberate action will further crystallize these results. To conclude, the Board declared a regular cash dividend for the fourth quarter of 2025. The fourth quarter dividend will be payable on January 15, 2026, to common stockholders of record as of December 31, 2025. At our current stock price on November 4, 2025, the annualized dividend yield on our third quarter dividend is approximately 14%. With that, I will turn the call back over to Bryan for some closing remarks. Bryan Donohoe: Thank you, Jeff. We believe our financial position and results continue to demonstrate meaningful progress against our goals. The overall portfolio is exhibiting stable to improving underlying fundamentals and the more active Real Estate market is providing a firm backdrop for repayments and transaction activity. We have a strong conviction that the power of the Ares platform and the expanded presence of the overall Ares Real Estate team provides us with the right people, deep capabilities and robust Real Estate footprint to further execute upon our expanded goals. Through consistent execution, we are confident that ACRE is on the right track to drive shareholder value and benefit from the secular growth of the Commercial Real Estate lending opportunity. As always, we appreciate you joining our call today, and we'd be happy to open the line for questions. Operator: [Operator Instructions] We'll take our first question from Steve Delaney with Citizens Capital Markets. Steve Delaney: Congratulations on a very solid quarter. Just a couple of pennies below full dividend coverage. As you explained to us, it’s interesting to look at the mix of your new loans in the third quarter versus what you shared with us about the loans originated post 9/30. So, 5 loans in the third quarter with an average loan size of $19 million, and that strikes me as middle market. And then when we look at the 5 loans in the fourth quarter, the average is $54 million, which looks more like it's beginning to creep into the large loan. Now I know averages can be misleading. But could you just comment on sort of your focus in the market, your niche Ares, your parent Ares can do pretty much anything they want. But for ACRE, for your mortgage REIT, your public mortgage REIT, where is your sweet spot? And sort of what should we expect in terms of average loan sizes? And is it safe to say that do you see yourself as primarily a middle market lender? So just a little bit about that portfolio strategy, if you could. Bryan Donohoe: Yes, Steve, I appreciate the question, and it's a good one. The first thing I'd offer up is that we have a little bit of a denominator issue that we shouldn't read too much into in that the data set we're extrapolating off of remains pretty small at this point. So, it's an absolutely fair question about where we're going to take it. And the first example of that would be in the loans closed in the quarter, that contained a good bit of self storage assets, which by their nature, are going to have smaller tickets associated with them. And the notional balance will, as you say, look more like a middle market lender. We really, really like that asset class. We've created a few different mousetraps with which to participate in it despite the underlying assets remaining at least subjectively from an outsider viewpoint, subscale. So, when we kind of move the playbook forward and think about further repayments and then what does this portfolio theoretically look like going forward. We mentioned the ability to share in larger transactions with the broader Ares Real Estate platform, and we believe that to be an advantage in that we will be able to participate in larger institutional assets while taking a share that while continuing to be selective, will also allow for proper portfolio management or concentration, if you want to look at it from a different way. So when we think about the asset classes in which we've been most active across debt and equity here, our core competencies remain in industrial, we're the third largest owner in the world today, multifamily, where we've got a vertically integrated equity team sourcing and managing those opportunities as well as student housing to some degree and self storage to as much of a degree as we can find. So, we feel in those asset classes, we have more of a right to win given our equity background and orientation. And our view is that that would be a great portfolio to focus on for ACRE and its shareholders as well. Steve Delaney: Those are great defensive property types. And what you're telling us is you might see an occasional office loan, but you're not, you don't see yourself as primarily as an office lender. That's what I'm taking away from your comments. And I think that's a positive characteristic. Just one final thing. This is big picture. We're a couple of years into this for the 20-some commercial mortgage REITs, we're a couple of years into kind of a rougher market. When you look back now, Bryan, at the loans that we're seeing today and the loans that you're booking today, what is the biggest difference you think between these, today's loans and the 2021, '22 vintage, which has broadly performed pretty poorly. I'm just curious if there's 1 or 2 things that you see in today's market that are different. Bryan Donohoe: Well, I think there's certainly supply and demand fundamentals has shifted. I think the office market, which has been more than well publicized broadly and the headwinds there. But those asset classes that are higher in CapEx, right, have struggled more in an inflationary environment. So even when you look at strong performing office assets out there in the world today, generally, you're seeing TI packages that are higher than what would have been underwritten in 2020, '21, '22, right? So that's a pretty interesting shift. I think in terms of the broad-based change in the Real Estate market is we're now investing in an asset class that has reset materially lower in value. So, your attachment point as a lender has come down from a basis perspective while lesser competition is also allowing for lenders to dictate terms, the most significant of which will be the Loan-To-Value attachment point. So, the L in the equation is coming down, but the V has come down as well. Operator: Our next question will come from Jade Rahmani with KBW. Jade Rahmani: It looks like a strong quarter and a big turning point. Just in terms of duration of timeline to work out the remaining risk 4 or 5 loans, noting that you mentioned 2 of those, Chicago and Brooklyn comprised 70%. But over what time period do you expect that to transpire? Bryan Donohoe: Yes. It's a good question, Jade. Obviously, we have insights, but certain things that we can control there. We've got certainly progress toward each that we spoke of in our prepared remarks and market fundamentals around these assets generally either remain strong or trending in the right direction. I think for the last few quarters, we've talked about expediting resolutions where we saw it to be the best net outcome, right? And sometimes given our balance sheet flexibility, putting us in a position to accelerate those resolutions without it being overly punitive to the remaining balance sheet. I think we're constantly balancing the velocity plus the principal resolution of principal recovery in certain cases, and we'll continue to do so. But I think we're sitting in a more transparent seat than we were certainly 2 years ago. And there is no bigger focus for us than resolving these assets. So, we're going to continue to balance the ultimate price resolution with the velocity. Jade Rahmani: Can you comment on what drove the multifamily downgrade? I note that it has a December '25 maturity date. always looking at maturity dates. And I do see that 2 Texas multifamily have near-term maturity dates. One was in October. If you could comment on those. And just generally, multifamily, I know the Ares foothold in that sector, but we have seen pockets of credit issues this quarter in multifamily. So, a comment would be helpful. Bryan Donohoe: Sure, Jade. I think with respect to the downgrade, obviously, you mentioned the upcoming maturity date. This is an asset that has seen, as we mentioned, an uptick in performance. But given that near-term maturity and probably a revenue and expense alignment that I think we're hoping to see continued progress on, but really driven just by that maturity date and working with the sponsor to make sure that we have adequate coverage and can create a flight path, I would say, for the proper resolution of the property in the near term. But clearly, the maturity date was the driver there. What we're seeing in multifamily generally, and then I'll come back to your question on the Texas asset is that demand continues to surprise to the upside in terms of absorption. But that absorption number of, I think it was close to 500,000 units nationally over the last 12 months is about 30% or thereabouts higher, maybe a little bit more than that, higher than a consistent yearly average. So, I think that speaks to the go-forward plan, but you're also seeing relatively stagnant rent growth over the last, call it, 90 to 180 days. So, a little bit of cross current there. But clearly, as a market, you're seeing digestion of a huge amount of supply and certainly differentiation amongst markets and amongst assets within those markets. So, what that leads to, I think, is a pretty positive outlook for the next 3 to 4 years, given the falloff in supply, but business plans that in certain markets are taking longer to materialize. So, the takeaway, what that leads to for us is potentially longer duration of investments, which in certain asset classes might not be reflective of strength. In this case, I think it's reflective of a more positive forward outlook. And bringing it back to your specific question on the Texas asset, that loan was extended for a short period of time for those purposes, to just allow that continued progress. Jade Rahmani: And that would be both of the Texas loans? $23 million? Bryan Donohoe: Yes. I think it's, let me come back to you, Jade, but I think it's going to be a 1-year extension there. But really in the normal course for this one. Operator: At this time, there are no further questions. So, I'd like to turn the call back over to Bryan for any additional or closing remarks. Bryan Donohoe: Appreciate it. I just want to thank everyone for their time and attention today. We appreciate the continued support of Ares Commercial Real Estate, and we all look forward to speaking with you again on our next earnings call. Thanks, everybody. Operator: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available approximately 1 hour after the end of this call through December 7, 2025, to domestic callers by dialing 1 (800) 723-0479 and to international callers by dialing 1 (402) 220-2650. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website. Thank you all, and you may now disconnect.
Operator: Thank you for standing by. My name is Jayle, and I'll be your conference operator today. I'd now like to pass the call off to Robert. Please go ahead. Robert Wright: Good morning, and welcome to the Delek US third quarter earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP, Operations; and Mark Hobbs, EVP, Chief Financial Officer. Today's presentation material can be found on the Investor Relations section of the Delek US website. Slide 2 contains our safe harbor statement regarding forward-looking information. Any forward-looking information shared during today's call will include risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as within our SEC filings. The company assumes no obligation to update any forward-looking information. I will now turn the call over to Avigal for opening remarks. Avigal? Avigal Soreq: Thank you, Robert. Good morning, and thank you for joining us today. In the third quarter, excluding SREs, Delek reported strong adjusted EPS of $1.52 and adjusted EBITDA of approximately $319 million. These results are a reflection of Delek's strong momentum. We had excellent contribution from our enterprise optimization plan with a notable progress from all business units. As a result, we are again increasing our EOP guidance to at least $180 million on an annual run rate basis. During the third quarter, EPA approved several of our pending 2019 to 2024 SRE petition, and we expect to receive proceeds of approximately $400 million for monetization of the granted RINs. We are also encouraged by the guidance EPA has issued about SREs for future RVO. From everything we see today, we continue to expect appropriate action on SREs in the future. Some of the part efforts also continue to progress well. DKL continued to make progress in improving its premier position in the Permian Basin. As a result of the strong progress DKL has made this year, we are increasing DKL's full year EBITDA guidance to between $500 million and $520 million. As I always do, I will now give an update on our key long-term priorities in more detail. First, safe and reliable operations. We had a strong operational quarter in our refining system. SRE had a record throughput quarter, and it's continuing its strong momentum since its turnaround last year. Congratulations across Tyler, El Dorado, and Big Spring also had strong operations. Now I would like to discuss our EOP progress. As a reminder, we started EOP with an aim to improve DK cash flow by $80 million to $120 million on a run rate basis, starting in the second half of 2025. The structural changes we are making in the way we run our company are delivering meaningful results across all business units. In the third quarter, supply and marketing had a strong contribution, driven by structural improvement in our wholesale business. We are very proud of the way the commercial team is looking in the entire wholesale value chain to serve our customers. During the third quarter, we estimate approximately $60 million of EOP contribution to our P&L. Based upon these strong results, we are once again increasing our target of an annual run rate EOP improvement from the midpoint of $150 million to at least $180 million. I'm proud of how EOP has become a cornerstone of Delek continuous improvement culture, and I'm confident EOP will remain a core strength well into Delek future. As I mentioned before, during the third quarter, the EPA cleared the backlog of pending SRE petition from 2019 to 2024. We see this announcement as a critical part of the current administration and EPA energy policy. This SRE announcement have 3 important implications for our business. First, for the grant years of 2023 and 2024, we have followed a proactive strategy to monetize the granted RINs. We expect to receive approximately $400 million in proceeds from this monetization over the next 6 to 9 months. We intend to prudently use this cash flow in line with our consistent capital allocation framework. For years 2019 to 2022, while we appreciate EPA granting our petition, EPA remedy is invalid and encourage the strategy followed by our peers who chose not to comply. We are making efforts to get full value from these grants in line with the intention of the RFS law. I'm confident EPA will continue its methodical approach to SRE grants, furthering energy dominance and supporting high-paying jobs in the heart of rural America. I'm also proud of the progress DKL is making. With commissioning of DKL Libby 2 plant, and the completion of intercompany agreements, we are making great progress in making DK and DKL economically independent. We are working in an industry-leading comprehensive sour gas solution, including gathering, treatment, acid gas injection acid gas injection, and processing along with providing market access for residue gas and NGLs. This capability will provide DKL the ability to fully capitalize on all of its growth opportunity in the Delaware Basin and maintain its best-in-class EBITDA growth and distribution yield. Based on the progress Delek Logistics has made, we are increasing DKL full year 2025 EBITDA guidance to between $500 million and $520 million. This final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $15 million in dividend and bought back approximately $15 million of our shares. Our strong balance sheet, improved reliability, and confidence in EOP has enabled us to continue countercyclical buyback in 2025. I'm proud to say that over the last 12 months, Delek had the highest total return yield, buyback plus dividend among all of its refining peers. We remain committed to a disciplined and balanced approach to capital allocation and look forward to continue rewarding our shareholders. In closing, thank you to our team for their dedication. We are optimistic about finishing 2025 strong, and building on this momentum into the future. Now I will turn the call over to Joseph, who will provide additional color on our operations. Joseph Israel: Thank you, Avigal. Operations reliability in the third quarter was consistent with our guidance with the third consecutive record high throughput set in Krotz Springs. Our refining system continues to implement EOP initiatives at all sites. We have been successful in debottlenecking, improving liquid yield recovery, maximizing production value, and optimizing sulfur and benzene balances. At the same time, the commercial team has reworked contracts and optimized our new logistics to expand market optionality. Starting with Tyler, total throughput in the third quarter was 76,000 barrels per day. Our production margin was $11.32 per barrel and operating expenses were $4.93 per barrel. For the fourth quarter, our estimated total throughput in Tyler is in the 70,000 to 78,000 barrels per day range. In El Dorado, total throughput in the third quarter was approximately 83,000 barrels per day. Our production margin was $7.43 per barrel and operating expenses were $4.50 per barrel. EOP implementation is well reflected in our margin realization as we continue to trend toward our $2 per barrel of incremental capture in our El Dorado system. Our planned throughput for the fourth quarter is in the 67,000 to 75,000 barrels per day range, considering seasonal trends. In Big Spring, total throughput in the third quarter was approximately 70,000 barrels per day. Our production margin was $10.99 per barrel and operating expenses were $7.20 per barrel. In the fourth quarter, the estimated throughput is in the 62,000 to 70,000 barrels per day range. In Krotz Springs, total throughput in the third quarter was approximately 85,000 barrels per day. Our production margin was $9.01 per barrel and operating expenses in the quarter were $5.35 per barrel. Our planned throughput for the fourth quarter is in the 72,000 to 80,000 barrels per day range. Our implied system throughput target for the fourth quarter is in the 271,000 to 303,000 barrels per day range. This late outlook for the fourth quarter is strong as we are pushing our 42% distillate capability system accordingly. Moving on to the commercial front. Excluding SREs, supply and marketing contributed approximately $130 million in the quarter. Of that, approximately $70 million was generated by wholesale marketing. Asphalt contributed a gain of approximately $6 million with the remaining contribution coming from supply. In summary, the third quarter marked another successful execution of our operating plans. The focus on the fundamentals has allowed us to focus on capture improvements through EOP. Mark will now address the financial variance. Mark Hobbs: Thank you, Joseph. Referring to Slide 5, we show the breakout of adjusted EBITDA and adjusted EPS, approximately $319 million and $1.52 per share, respectively, excluding SREs. This breakout removes the impact of historical SREs of $281 million and the impact of 50% RVO exemption recognition for the first 9 months of 2025 of approximately $160 million. Moving to Slide 16. For the third quarter, Delek had net income of $178 million or $2.93 per share. Adjusted net income was $434 million or $7.13 per share, and adjusted EBITDA was approximately $760 million. On Slide 18, the waterfall of adjusted EBITDA from the second quarter of 2025 to the third quarter shows that there were 3 main drivers for the increase in EBITDA. First, a $583 million increase in refining, reflects improved refining margins as well as an increase of $281 million due to our recognition of historical SREs, the $160 million impact of our 50% RVO exemption recognition and improvement in our overall business that continues to be positively impacted by our EOP initiatives. Second, in the Logistics segment, we continue to have another strong quarter, delivering approximately $132 million in adjusted EBITDA, about an $11 million increase over our previous record of quarterly adjusted EBITDA achieved in the second quarter. These improvements were mitigated by slightly higher cost in the Corporate segment of $5.2 million compared to the prior period. Moving to Slide 19 to discuss cash flow. Cash flow provided by operations was $44 million. This includes our net income for the period, adjusted for noncash items and a net outflow related to changes in working capital of $106 million. The working capital movements include the timing impact related to SREs granted in the third quarter as we expect monetization of the grants to occur over the next 6 to 9 months. When adjusting for working capital, cash flow from operations was $150 million. This was an improvement of $202 million when compared to the third quarter of last year. Investing activities of $103 million includes approximately $44 million for growth projects, primarily at DKL. Financing activities of $75 million includes $15 million in share repurchases, approximately $15 million in dividend payments, and approximately $22 million in DKL distribution payments to public unitholders. On Slide 20, we show our actual progress under the 2025 capital program. Third quarter capital expenditures were $91 million. Approximately $50 million of this spend was in the Logistics segment, where we had $44 million in growth capital at DKL, primarily related to our crude and natural gas G&P initiatives. All of the remaining capital spend during the quarter was in the Refining segment, addressing planned sustaining capital initiatives. Our net debt position is broken out between Delek and Delek Logistics on Slide 21. Excluding Delek Logistics, we spent approximately $71 million on cash return to shareholders and capital expenditures in the third quarter, while our Delek stand-alone net debt decreased slightly to $265 million at the end of the quarter. Moving now to Slide 22, where we cover fourth quarter outlook items. In addition to the guidance Joseph provided, for the fourth quarter of 2025, we expect operating expenses to be between $205 million and $220 million. Our guidance for the fourth quarter incorporates increased operating expenses associated with the ramp-up of our new Libby 2 plant at DKL. G&A to be between $52 million and $57 million. D&A is expected to be between $100 million and $110 million. And net interest expense to be between $85 million and $95 million. With that, we will now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Doug Leggate of Wolfe Research. Douglas George Blyth Leggate: Hopefully, I'll make this relatively easy. I've got 2 questions related to the SREs. Obviously, tremendous update from you guys this morning. But my question is on the refining throughput guidance, because you've given an RVO risk number, it looks like, for 2025. But it looks like all 4 of your refineries are basically going to be at or below the SRE threshold. So my question is, if that's the case, why should we not risk the RVO at 100%, in other words, you get 100% of the number? And then I guess, how should we think about that going forward? That's my first question. My second question is really more -- is kind of hypothetical, I guess, because we've got a Trump EPA currently. So presumably, because you've gained the SREs under the Trump administration, the minimum we should probably assume is you get the Trump EPA duration, which I guess is 4 years. My question is, what is your view on whether the rulemaking, the legal case and so on could transcend administrations? In other words, this becomes a perpetual SRE exemption for Delek. Avigal Soreq: Doug, thank you for the great question. And I will start, with your permission, obviously, with giving a bit overview on SRE and looking that on the big picture, and then Mohit will finish the technical part of the question, if you're okay with it. So listen, we said it very clear on our financials that we have $200 million impact on Q3 earnings, right? And we also -- I said on my prepared remarks that we have $400 million of cash coming at us in the next 6 to 9 months. And I want to make another point very, very clear, right? We're going to use this cash prudently with -- in line with our overall capital allocation guidance we gave many times. So we are not going to deviate from that. So I wanted to take a moment or 2 to talk about the 2019 and 2022 RINs. While we really appreciate EPA clearing the backlog, obviously, EPA remedy is invalid. We all understand it, right? It's very clear. But we believe that the relief and eligibility are not discretionary items. That's a very, very 2 words that I just -- very important 2 words I just said. And we are committed and confident to give to our shareholders and company full value of those pending petition from 2019 to 2022, both the court and the law are behind us, and we're going to follow through and make it happen. We have seen the precedence in the past around that, and we are confident we'll get it as well. Our throughput is completely normal with regular seasonal, so we can check that box. And I will let Mohit finish. Mohit Bhardwaj: Yes. Thanks, Doug. Thanks for the question. As far as the 50% piece is concerned for 2025, that is not our expectation. Our expectation is 100% of our refining capacity qualifies for SREs, and we expect to get 100% of SREs for 2025 as we go forward. If you look at your other question about sustainability of these SREs beyond the current administration, we believe we are a country of law where the law is followed, and the law is clearly on our side. The courts, their decision is on our side, and we are very optimistic that this will transcend beyond the current administration. Operator: Your next question comes from the line of Manav Gupta of UBS. Manav Gupta: Congrats on a great quarter, guys. I just have a quick clarification question. The $688.6 million reported in total adjusted refining margin for the quarter, does it include the SRE benefits? Or does that exclude it? And similar -- and on similar line, the Slide 17, the margins that you have reported gross margin, it doesn't look like they have any SRE benefits. But could you clarify because some of your peers are reporting these gross margins with the benefits included. So if you could clarify on those things. Avigal Soreq: Yes, it's easy, $688 million includes and the margin that we reported do not include. So it's very, very easy to answer. I don't know, Mohit or Mark, if you have anything to add. Mohit Bhardwaj: Yes. Manav, I'll just make one more point. So the reported gross margins for the refineries actually also have the RVO obligation in it. So the RVO obligation that we have flows through our gross margin. So they are post that obligation. That's what we are reporting. Manav Gupta: And one quick question more. I understand it's more on the midstream side. But look, Permian Sour Gas opportunity just continues to expand. You guys were there before many others. Help us understand what it means for, obviously, your midstream business, and then obviously, how DK benefits just because DKL benefits from this growing Permian Sour Gas opportunity? Avigal Soreq: Yes. Manav, thank you for the great question. And the sour gas opportunity in the Delaware Basin is something that we are all very excited of. We see that opportunity. We were ahead of the curve with the 3B -- 3Bear acquisition, and also ahead of the curve with the [ 2 Water ] acquisition. You see they multiple today, nothing that you can buy those assets today. [ Reuven ], here next to me, is going to give more extended discussion about the sour gas. That's a very big deal for us, and we were on the right timing with the right permits, and we are very happy about that. Unknown Executive: Thank you, Avigal. The construction and the start-up of Libby 2 has been above our expectation, on time, on budget. Originally, and based on producers' forecast when we started Libby 2, we anticipated to fill the plant with sweet gas, but the landscape has changed and producer needs solution and rapid solution for sour gas. As a result, we accelerated our sour programs to provide solution in a more rapid time line. We have very, very high confidence in not only filling up Libby 2 with sour gas, but because of the full sweet, sour gas, crude and water solution that we provide, we will need to expand processing capacity earlier than our previous expectation around sour. Operator: Your next question comes from the line of Vikram Bagri of Citi. Vikram Bagri: I wanted to ask about SRE cash. When does it hit the balance sheet? I was wondering if you've done the RIN sales with deferred delivery already or you're going to sell RINs in open market and liquidity will be there? Avigal Soreq: Yes. So Vikram, thank you for joining us today. We'll stick to the answer we gave in the prepared remarks that we expect to see the cash in the 6 to 9 months, and we leave the technical of trading outside of this call. And we are very happy about the improving of the position and very optimistic about SRE in general, and we'll leave it to that. Vikram Bagri: And as a follow-up, you've raised the guidance. It has been raised multiple times, the EOP cash savings guidance. Can you talk about what the drivers of the most recent increase were? What initiatives you've taken? If there has been any change in underlying assumptions that drove the increase or you've seen opportunities and where those opportunities are? Avigal Soreq: Yes. Thank you for asking that question. That's really something I'm very proud and love to talk about. I have a lot of energy around the topic. Listen, first of all, EOP, it's not a project, it's a lifestyle. And it's a lifestyle across the organization. And we see how well it runs across our company and how confident we are with that, right? It's not just cost, it's cost and margin. We've seen a very nice improvement in margin this quarter. And we have 73 initiatives we are running on a weekly and a daily basis to make that happen. It's very clear in our earnings, very clear in our EBITDA, very clear in our cash flow. So all of that has cleared very, very well for us. A majority of those projects are in margin, but they are not related for the most part for market conditions. So that's another point of strength in our program. As you said correctly, this is the fourth time we are increasing the guidance. We started from a midpoint of $100 million, and now we are saying over $180 million, and that's going very well for us. So more to come. I do want to make another important comment. We started Q4 very well, and we see more upside on that going into this quarter. Operator: Your next question comes from the line of Alexa Petrick of Goldman Sachs. Alexa Petrick: We wanted to ask, it looks like the wholesale side was particularly strong this quarter. I think you mentioned some structural improvements, and we know it's also been part of the EOP initiative. So can you unpack that a little, talk about some of the progress there? Avigal Soreq: Yes, absolutely. The bottom line is that's a bigger portion of the EOP progress we are doing. And I will let Mohit, that was very close to that, answer the rest of it. Mohit Bhardwaj: Yes. I think wholesale is a great enterprise optimization plan story, and we have been improving the business in 3 phases. The first phase started by with our refining operations, and we started producing a lot of different kinds of products that we can sell in the market. We improved our logistics to get access to different kinds of markets, and that has helped our Wholesale business over the last 12 months or so. In the second phase, we started renegotiating our contracts. So these contracts have been renegotiated, and they are getting us the full value that our products deserve, based upon the markets that we serve. And the last phase, the Phase 3 in which we are, hopefully, it's not the last phase, but it's the Phase 3 in which we are. We are exiting some of the markets which are not as profitable for us, and we are entering new markets which are more profitable for us. And a combination of this strength is shown in our numbers. And as Avigal mentioned, that this strength has continued in the fourth quarter, and we expect to keep delivering these results on a go-forward basis. Alexa Petrick: And just a follow-up, recognize we're still early into 4Q, but we're seeing cracks hold in pretty well. Anything we should keep in mind quarter-over-quarter on captures? Or what are you seeing through your refiners? Avigal Soreq: Yes, absolutely. So we are focusing on what we can control and what we can control is EOP. And as I said earlier a few minutes ago, Q4 on an EOP basis started very well for us, and we are very optimistic about how Q4 is shaping out. Mohit, why don't you finish? Mohit Bhardwaj: Yes. And Alexa, Joseph mentioned in his prepared remarks as well that distillate is a big piece of what we produce. We have a very high distillate yield. Distillate cracks are showing strength. So we are very optimistic about how the fourth quarter is panning out. Operator: Your next question comes from the line of Paul Cheng of Scotiabank. Paul Cheng: The third quarter, I mean, wholesale at $70 million and the supply at, say, $50 million to $60 million. Can you help us to understand that how much is related to your EOP and how much is being given to you from the market? In other words, that what is, say, core repeatable within that -- those 2 numbers? That's the first question. Avigal Soreq: Okay. So I think we have a slide on that in our deck that emphasize, if memory serves me right, around $40 million or so for market condition and the rest you can allocate to EOP. And as I said earlier, Paul, and you probably heard it loud and clear that Q4 looks very good from EOP standpoint. And the $60 million of EOP is something that we are very proud of. Paul Cheng: So Avigal, so let me make sure I understand. So out of that $120 million that on the supply and the wholesale, $40 million is from the EOP -- $40 million is from the EOP, and then, say, $80 million is from the market? Mohit Bhardwaj: Yes. So Paul, you got those numbers wrong. Let me just try to clarify it for you very quickly. The $40 million is the market impact. And as I said in the last -- answer to the last question, wholesale is the one which is driving it. We are seeing a lot of structural strength in the business. We have seen this trend continue in the fourth quarter. And we have clearly highlighted what the market impact was. There's obviously seasonality in it, because second quarter and third quarter are stronger than the fourth quarter and first quarter, but we've seen the fourth quarter strength continued from the third quarter this year. And as far as the specific division is concerned, I can take that offline with you post the call. Paul Cheng: And just curious that with the SRE, is that going to impact in your how you run El Dorado and Krotz Springs? I suppose that you want -- you probably want to keep your crude throughput for those 2 facilities to be below 75, even when the margin is very high. Is that how you're going to run it or that you're going to look at them somewhat differently? Because if the margin is really good, it may be better off for you not to get the SRE and still get a better margin. So I want to understand that how is the decision-making tree is going to look like? Mohit Bhardwaj: Yes, Paul, thanks for that question. I'll try to answer this question as well. So we've seen -- you've seen our history. We have stayed in full compliance with the law, and we intend to stay in full compliance with the 2025 RINs obligation, RVO obligations as well. As far as the throughputs are concerned, our throughput guidance is very clear, and it is based upon the usual fourth quarter seasonality that we experience. Operator: And your last question comes from the line of Jason Gabelman of TD Cowen. Jason Gabelman: I just wanted to go back to the supply and trading results, because, I guess, it's still kind of not completely clear how much is structural in nature. And historically, you've talked about some of the wholesale and supply strength related to Group 3 pricing over the Gulf Coast. So how much of the 3Q result and going forward is sensitive to that spread versus other improvements that you've made? Mohit Bhardwaj: Jason, thanks for the question. So as I've mentioned in the previous answer, our whole idea of enterprise optimization plan is to reduce our dependence upon things like that, the one that you just described, like dependence -- excessive dependence upon Group 3 market or any specific market. Once you reduce that dependence, these changes become extremely structural, and that is what we are seeing. So the $70 million that you saw, obviously, it has helped from the seasonal benefit as far as wholesale is concerned. But as far as structural part is concerned, we are very, very confident, and that's why we are seeing the strength continue in the fourth quarter. And as far as if you have more questions in terms of divisions, and how much is flowing through the numbers, I can take that with you offline as well. Jason Gabelman: And sorry, I may have missed this earlier, because I didn't completely hear the question. But in terms of the monetization of that $400 million, can you talk about kind of upside and downside risks to hitting that $400 million number? Avigal Soreq: No. I think $400 million is a good number to model, and we'll leave it to that. Obviously, we're going to keep, as I said in my prepared remarks, we're going to keep the capital allocation policy we have, a very strict dividend throughout the cycle, balanced approach to dividend -- to buyback and balance sheet. And I think the market knows by now that we had a very, very good quarter, a very, very good year in terms of return to investors. We are very proud of being the first one among all of our peers, and we are very committed to keep rewarding our shareholders. Operator: That concludes our Q&A session. I will now turn the conference back over to Avigal for closing remarks. Avigal Soreq: Thank you. I want to thank my colleagues around the table for a great quarter. I want to thank our Board of Directors of trusting on us. I want to thank our investors in this call of keeping up with the story, and enjoy the fruits of it. And I want to mainly thank our entire employees that make this company as good as it is. We'll talk again in the next quarter. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to the Nektar Therapeutics Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Vivian Wu from Nektar Investor Relations to kick things off. Please go ahead. Vivian Wu: Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. Today, you will hear from Howard Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; and Sandra Gardiner, our Chief Financial Officer. Dr. Mary Tagliaferri, our Chief Medical Officer, will also be available during the question-and-answer session. On today's call, we expect to make forward-looking statements regarding the business, including statements regarding the therapeutic potential of and future development plans for rezpegaldesleukin, the timing and plans for future clinical data presentations and other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to uncertainties and risks that are difficult to predict and many of which are outside of our control. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in our latest Form 10-Q available at sec.gov. We undertake no obligation to update any of these forward-looking statements, whether as a result of new information, future developments or otherwise. A webcast of this call will be available on the IR page of Nektar's website at nektar.com. With that said, I would like to hand the call over to our President and CEO, Howard Robin. Howard? Howard W. Robin: Thank you, Vivian, and good afternoon, everyone. Before I start with remarks for the quarter, I'd like to take a minute to welcome Dr. Mary Tagliaferri back to the company, who has recently rejoined us as Chief Medical Officer after a need to step away for personal reasons earlier this year. Mary was instrumental in the design and execution of our successful Phase II program in atopic dermatitis, and we are so fortunate that she has now rejoined us as we prepare for the initiation of the Phase III program next year. I'd also like to thank Brian Kotzin for his help serving as the Interim CMO during the period. Brian has worked with us for nearly 10 years, and we are grateful that he will continue to serve as a medical consultant. This quarter and year-to-date, we've remained laser-focused on pursuing regulatory T cell science across our pipeline and preparing to advance our lead program, rezpegaldesleukin, also known as REZPEG, into Phase III development. Our pipeline programs are focused on stimulating Tregs in different ways to restore the proper balance between T effector cells and T regulatory cells and achieve homeostasis in the immune system. The data in atopic dermatitis reported in June and presented at EADV 2025 for REZPEG represented a powerful translation of the scientific discoveries that led to an understanding of the importance of Tregs into the first demonstration of their clear clinical efficacy in autoimmune disease. The Nobel Prize in Physiology or Medicine was recently awarded for these discoveries that established FOXP3-positive Tregs as key enforcers of immune tolerance. We're very humbled that the Nobel Committee included the publication of the Phase Ib data for REZPEG in atopic dermatitis and psoriasis as support in the background documents for this award. The recognition of REZPEG was truly an honor and speaks to the journey that our Nektar scientists and clinicians have traveled over the years to turn important scientific discoveries into real potential medicines for patients. Our approach with REZPEG and stimulation of Tregs is highly differentiated in the field. We believe this is why we've been able to uniquely generate meaningful and robust clinical data that clearly support continued development of this novel modality. REZPEG was designed to closely mimic the way Tregs in our own immune system work to resolve inflammation. Its construct gets closest to emulating natural human biology, achieving this through IL-2 agonism with native sequence IL-2 receptor interactions and a validated chemistry approach, PEGylation that has led to over 2 dozen approved biologics. At the 2025 EADV Congress in September, we presented compelling results from the 16-week induction period of the 400-patient RESOLVE-AD study of REZPEG in moderate to severe atopic dermatitis. These data showcased the clinical differentiation that could be achieved with this novel MOA, and JZ will touch on this later in the call. And this weekend, at the 2025 American College of Allergy, Asthma and Immunology Annual Scientific Meeting, we will present data from a preplanned analysis of atopic dermatitis patients from the RESOLVE-AD study who also had a history of asthma. These data provide further basis for differentiation of REZPEG. Recently approved and in development IL-13 selective pathway blockers and OX40 pathway blockers have shown limited potential to help the asthma symptoms in patients with both atopic dermatitis and asthma, which is a comorbidity in 25% of all atopic dermatitis patients. And so we're very excited about these new data. In Q1, we will present 52-week maintenance and escape arm data from the RESOLVE-AD study in atopic dermatitis. The maintenance arm data, in particular, will be an important look at continued treatment with REZPEG in patients who have established an EASI-50 response at the end of 16 weeks of induction treatment. There remains a need for novel mechanisms beyond those available currently in the treatment landscape for atopic dermatitis patients. In the U.S., there are over 15 million people with moderate to severe atopic dermatitis and fewer than 10% are receiving biologic treatments for this chronic skin disorder with many patients not responding well to the existing agents. We believe that this market will grow with the adoption of novel mechanisms as was seen with the induction of new mechanisms in the evolution of the psoriasis market. We expect to hold an end of Phase II meeting with the FDA before the end of this year to review our Phase III plans for REZPEG in moderate to severe atopic dermatitis. Importantly, in December, we plan to present the top line results from the Phase IIb RESOLVE-AA study in patients with alopecia areata. This study enrolled approximately 90 patients with severe to very severe alopecia areata with strong Phase II results in the dermatological setting of atopic dermatitis, we're optimistic about the second dermatological setting for REZPEG. Nearly 7 million people in the U.S. have or will develop alopecia areata and over 1 million of these patients have severe to very severe disease according to the 2023 population-based cohort study. Patients with severe to very severe alopecia have limited treatment options. The only FDA-approved systemic treatments for alopecia areata are JAK inhibitors, which carry multiple well-known black box warnings and are associated with high relapse rates upon discontinuation. In a 2024 survey of 131 U.S.-based board-certified dermatologists, a majority of physicians said they were uncomfortable prescribing a JAK inhibitor and more than half of these physicians reported they would try alternative therapies prior to prescribing a JAK inhibitor. With this backdrop, REZPEG could be introduced as the first biologic in the setting of alopecia areata, representing an additional $1 billion market opportunity. And so we look forward to these upcoming results from the 36-week treatment period of the RESOLVE-AA study expected in December of this year. In immunology, our partner, TrialNet, recently initiated the Phase II study of REZPEG in type 1 diabetes. This study, which is funded and sponsored by TrialNet, will evaluate REZPEG in new onset Stage III type 1 diabetes patients. JZ will update you on our other programs as well as our lead pipeline antibody, a TNFR2 agonist that has a unique tissue-specific Treg and Breg stimulator profile. Because of its monomeric activity, we're now building a bispecific program based upon this mechanism, which combines it with validated antibody targets in immunology. Our goal is to advance one of these antibody programs into the clinic next year. And with that, I'd like to turn the call over to JZ to review more details on REZPEG's ongoing Phase IIb studies and our early pipeline programs. JZ? Jonathan Zalevsky: Thanks, Howard, and thank you, everyone, on the call for joining us today. To begin, I'll remind you that earlier this year, the RESOLVE-AD Phase IIb results demonstrated the promise of Nektar's novel approach to the IL-2 pathway. The global study randomized 393 patients with moderate to severe atopic dermatitis to receive subcutaneous treatment with 3 doses of REZPEG, a high dose of 24 microgram per kilogram every 2 weeks, a middle dose of 18 microgram per kilogram every 2 weeks and a low dose of 24 microgram per kilogram every 4 weeks or placebo every 2 weeks for an induction period of 16 weeks. Following week 16, REZPEG-treated patients who achieved EASI reductions of 50% or greater were rerandomized to continue at the same dose level on a Q4-week or Q12-week regimen for an additional 36-week maintenance period. In our June data disclosure, we reported that the study achieved statistical significance on the primary endpoint at week 16 for a mean percent change in EASI score from baseline for all REZPEG arms versus placebo. And the study achieved statistical significance for key secondary endpoints at week 16 of disease reduction, including EASI-75, EASI-90, Itch NRS, the vIGA-AD and BSA. Additionally, we have yet to see a plateau in the efficacy response in the REZPEG treatment arms. This study is currently ongoing with 2 additional upcoming data readouts that Howard mentioned. The first will be the 36-week maintenance study results, which compare treatment with REZPEG at either 1 month or 3-month dosing intervals out to a full year, which would be the intended maintenance-based dosing regimens following the 16-week induction period. And the second readout will be the 1-year off-treatment data expected in the beginning of 2027, which will measure the potential remittive effect of REZPEG in atopic dermatitis. In the meantime, we continue to add to the compelling data set from the RESOLVE-AD study, including the data we shared from the escape arm of the trial at this year's EADV Congress. As a reminder, the study design allows for patients who originally received placebo in the 16-week induction period and achieved less than EASI-50 at week 16 to enter into an open-label treatment escape arm to receive the high-dose REZPEG regimen for a treatment period of up to 36 weeks. The data presented at EADV demonstrated a deepening of responses in these patients with continuous treatment with REZPEG and support a 24-week induction period for our Phase III program. As Howard stated earlier, we are presenting additional data in patients with asthma from RESOLVE-AD in a late-breaking oral presentation at the ACAAI meeting being held in Orlando, Florida this weekend. In addition to the asthma data that I'll discuss in a moment, that presentation will also give an update on the placebo crossover data, where now all but one patient have crossed 24 weeks of treatment with 24 microgram per kilogram REZPEG Q2 weeks. We will also cover additional endpoints such as EASI-90 and itch NRS. In addition, the presentation will show a forest plot demonstrating the consistency of REZPEG efficacy across multiple subgroups. This important finding prepares us for Phase III. Given that 1 in 4 patients with atopic dermatitis also have asthma, we designed the study in advance to evaluate its effect on symptoms of asthma using the validated 5-point asthma control questionnaire, also known as the ACQ-5. And these data include a prespecified exploratory endpoint for the subset of patients in RESOLVE-AD that also had asthma, including those with moderate and uncontrolled asthma at baseline. The ability to improve comorbid conditions is a substantial factor in clinical treatment decisions for atopic dermatitis and could expand the potential market opportunity for REZPEG in this setting. We know that beyond Dupixent, neither tralokinumab nor lebrikizumab has been able to show an improvement in asthma symptoms in patients with atopic dermatitis. And this extends to the OX40 programs in late-stage development as well. And now turning to alopecia areata. We are on track and look forward to reporting data from the Phase IIb study in December of this year. A positive outcome here would reinforce the potential of REZPEG to provide a completely new treatment paradigm for patients with chronic dermatological diseases. The RESOLVE-AA trial was initiated in March 2024. A total of 94 patients with severe to very severe alopecia areata who have not received a JAK inhibitor or other biologic were randomized to 2 different dose regimens of REZPEG, 24 microgram per kilogram every 2 weeks and 18 microgram per kilogram every 2 weeks or placebo. Patients were recruited across approximately 30 sites globally with 2/3 of patients enrolled in Europe and the rest from North America. As a reminder, patient eligibility for this study was determined using the SALT score, both screening and randomization. Patients who experienced an unstable course of alopecia areata over the last 6 months per investigator assessment were excluded from the study and patients with diffuse alopecia and other forms of alopecia were also excluded. The primary efficacy endpoint of this study will evaluate mean percent change in the severity of alopecia tool or SALT score at the end of the 36-week induction period. Secondary endpoints include proportion of patients achieving SALT 20, which is an absolute SALT score of less than or equal to 20, mean percent improvement in SALT score at other assessed time points and proportion of participants with greater than or equal to 50% reduction in SALT score at week 36 and other assessed time points. Importantly, SALT 20, the responder analysis is also the established regulatory endpoint for Phase III trials. As Howard mentioned, the only available systemic therapies that are FDA approved for the treatment of alopecia areata are JAK inhibitors, which contain a number of black box warnings and many patients experience hair loss after treatment cessation. With the limited treatment options available in alopecia areata, we believe there's opportunity for a novel mechanism like REZPEG, especially when the therapeutic is shown to be safe and well tolerated. When comparing the outcomes from RESOLVE-AA to the approved JAKs, we see low-dose Olumiant as the appropriate benchmark. In its 2 Phase III trials, the approved 2 mg dose of Olumiant showed that 15% to 16% of patients achieved SALT 20 on a placebo-adjusted basis at week 36, and the mean improvement in SALT scores from baseline was 24% to 26% on a placebo-adjusted basis. Note that the placebo response rate in these trials is relatively low at 3% to 5% for the SALT 20 endpoint and 4% to 9% on the mean reduction endpoint. Because of our differentiated mechanism of action compared to the JAK inhibitors and our safety profile, we see a very clear market opportunity for REZPEG in alopecia areata if REZPEG achieves these benchmarks. We look forward to sharing the top line data from the 36-week treatment period of the RESOLVE-AA study in December and defining the potential for REZPEG in this new indication. Similar to atopic dermatitis, with positive results from Phase IIb, we would move very quickly into Phase III preparations, taking advantage of our Fast Track designation in the alopecia areata indication. A quick few words on type 1 diabetes, another autoimmune disease where REZPEG has great potential as a T regulatory mechanism. We believe REZPEG can potentially slow the progressive loss of insulin-producing beta cells, which are the target of the patient's overactive immune cells in this disease. As Howard mentioned, TrialNet has initiated and is funding an investigator-sponsored Phase II clinical trial evaluating REZPEG in 66 patients with new onset type 1 diabetes. Lastly, on our pipeline progression, NKTR-0165, our TNFR2 agonist remains on track. This molecule has very high specificity for signaling through TNFR2 on Tregs to enhance and optimize their ability to regulate the immune system. NKTR-0165 has also shown that a strong signal can be generated through a single-arm monovalent antibody, making it a perfect candidate for inclusion in bispecific and trispecific constructs. Our goal is to advance one of these antibody programs into the clinic next year. We look forward to sharing more on these sophisticated antibody engineering programs in future earnings calls. And I'll now turn it over to Sandy for the financials. Sandy? Sandra Gardiner: Thank you, JZ, and good afternoon, everyone. On today's call, I'll briefly review our quarterly financials and share updates to our financial guidance for 2025. We ended the third quarter of 2025 with $270.2 million in cash and investments and with no debt on our balance sheet. As discussed in our Q2 earnings call, this end of third quarter cash balance includes the completion of the secondary public offering in July with net proceeds of approximately $107 million. It also includes additional net proceeds of $34.3 million we raised in September from our existing ATM facility. We now expect to end the year with approximately $240 million in cash and investments, up from our prior guidance of $100 million to $185 million. This increased year-end guidance also includes $38.3 million of net proceeds from additional sales of our ATM facility in October. Based upon our higher year-end cash balance, we are extending our cash runway guidance into the second quarter of 2027. Now turning to the income statement. Our noncash royalty revenue was $11.5 million for the third quarter of 2025. We still expect our noncash royalty revenue to total approximately $40 million for the full year. Our R&D expense was $27.3 million for the third quarter of 2025, and we still anticipate full year R&D expense to range between $125 million and $130 million, including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. Our G&A expense was $16.1 million for the third quarter. We still expect G&A for the full year of 2025 to be between $70 million and $75 million including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. Noncash interest expense for the third quarter was $6 million, and we still expect noncash interest expense for the full year to total approximately $20 million. Our noncash loss from equity method investment was $0.5 million in the third quarter of 2025, and we still expect noncash loss of approximately $10 million for the full year 2025. As an equity investor in Gannet BioChem, we have no commitment to contribute cash to Gannet. Our net loss for the third quarter was $35.5 million or $1.87 basic and diluted net loss per share. And as I stated earlier, we now expect to end the year with approximately $240 million in cash and investments with our cash runway extending into the second quarter of 2027. Finally, as we head into our December data reporting, we intend to enter into a quiet period for the month of December until we report the top line results for the REZPEG alopecia study. And with that, we'll now open the call for questions. Operator? Operator: [Operator Instructions] Our first question will come from Yasmeen Rahimi from Piper Sandler. Unknown Analyst: Congrats on a great quarter. This is [ Dominic ] on for Yasmeen Rahimi. We just had a quick question on the upcoming ACAAI data that will be presented. Could you help us understand what you hope to report presentation in patients with AD and asthma? And then moving forward, how would you expect this data to, I guess, impact development in asthma? Howard W. Robin: Well, let me -- I'll have JZ answer that, but I would tell you that at this point, we're not pursuing an asthma indication. I think -- however, I think it's important to recognize the -- that in atopic dermatitis, the fact that we have an important drug that potentially solves that comorbidity issue is very exciting. And as I said earlier, 25% of the patients who have atopic dermatitis also have asthma as a comorbidity. So it's -- I think it's a very important component of differentiating REZPEG, although we don't have a plan to run an asthma study. JZ, would you like to help with the rest of the question? Jonathan Zalevsky: Sure. Yes. Thanks for the question, Dominic. So at the ACAAI presentation, we are presenting the results of a preplanned exploratory analysis that was included in the study. There's a validated questionnaire instrument that it's like a patient-reported outcome around -- it's ACQ-5, which stands for the asthma control questionnaire. And with that, you can assess the comorbidity symptoms of asthma in patients that have both atopic dermatitis as well as asthma. And that allows you to look at the total sort of improvement in the ACQ-5 scores over time. But it also lets you isolate on patients that have more severe, for example, uncontrolled asthma at baseline, and that's a subset of people that have higher scores on ACQ-5 at baseline. For us, this is really interesting because like we discussed, roughly 25% of patients have that, so roughly 100 people in our study also had asthma in addition to atopic dermatitis. And this allows us to assess the effect of REZPEG on asthma control and even potentially the improvement of those asthma symptoms in patients that also had atopic dermatitis. So one of the things that's so important about that is that when you are faced with treatment decisions as a physician. And you know you have patients with atopy and atopy constantly includes other organs. That's why such a high proportion of atopic dermatitis patients also have asthma. That starts to influence some of the treatment decisions. Right now, Dupi is really the drug that's gone to for people with comorbidity as Dupi has demonstrated activity in both asthma and atopic dermatitis and in patients that express both symptoms as well as each indication separately. And that's really likely with the IL-4 component of its mechanism. But the other agents in the class approved, atopic dermatitis don't have nearly the level of effect that Dupi does. So this is a differentiating element of the Treg mechanism of REZPEG, and we do think differentiates REZPEG further from the other molecules in the class. And the other molecules in development as well as the approved agents like as IL-13 selective antagonist and the OX40 classes as well. And we think it's something that is potential to really further build upon with REZPEG and something that we'll be exploring and thinking a lot about in the future, both in the setting of the comorbidity and as Howard said, even beyond. Operator: Our next question will come from Julian Harrison from BTIG. Julian Harrison: Congrats on all the recent progress. It looks like you've had a few months now to socialize with the medical community, the initial RESOLVE-AD results and REZPEG's potential here. I'm wondering if you have a good sense now for the level of interest for a therapy that potentially has a truly remittive effect. To what extent do you think that could emerge as a differentiator for REZPEG in atopic derm? And then switching to alopecia areata. JZ, I heard your comments around the Olumiant low-dose magnitude of efficacy potentially setting the bar. Do you see maybe an opportunity for use if efficacy is even lower than that, just given how presumably safe REZPEG is potentially free of box warnings compared to JAK inhibitors? Howard W. Robin: Julian, I'll take the first part of the question. Look, clearly, this mechanism, Treg mechanism has received a lot of attention, especially in the Novo Prize in physiology or medicine. And I think given this very strong data we have in atopic dermatitis and the cross -- the rescue data or the escape arm data, I should say, where patients who failed to see any response on placebo did exceptionally well when they were crossed over to drug. I think that's incredibly compelling data and we're very proud of that. The combination of that data with what we now see in the comorbidity of asthma, I think, sets apart REZPEG from a number of different drugs in treating atopic dermatitis. So yes, to answer your question more directly, there's a lot of interest in it. There's a lot of inbound interest in it, and I think it's going to have very good prospects. I'll let JZ handle the rest of the question. Jonathan Zalevsky: Yes. Thanks, Howard, and Julian. And so I mean, in the context of the benchmarks, I think what's really important is that REZPEG has the potential to be a truly differentiated mechanism in alopecia areata by numerous factors. And one of those is especially given its safety profile. Right now, there are no approved biologics in the alopecia areata space. And there's really been no therapy that's demonstrated like a sustained treatment effect. And what I mean by that is like even the short-term interruption in a JAK course can cause hair thinning. It's really quick to wear off. And so you have the ability to address so many features that both affect the disease and then the convenience factor for the patient and substantially the comfort level for the physician in a drug that doesn't have a black box warning, which is one of the issues and limitations of the JAK inhibitors. There's no question that those are great drugs for reducing inflammation and reducing inflammation quickly. They're just very difficult drugs to take for a long period of time, and these are chronic conditions. So it's really the challenge with the drug like that. But with REZPEG, you can turn the whole problem on its side. And we have done a lot of the market research we've tested the profile and the profile of low-dose Olumiant, we find is very competitive given all of the other elements, features of the mechanism of action and the differentiated safety profile. And we know that there's space there, to your point, Julian. So -- but we're using that as a reasonable kind of proxy benchmark for now. It is an approved drug and an approved dose, but there is some space around that, to your point. Operator: Our next question will come from Jay Olson from [ OpCo ] Cheng Li: This is [ Cheng ] on the line for Jay. Congrats on the progress. Maybe speaking to the AA, I'm just wondering how fast you can maybe start the Phase III program? And are you planning to move the program by yourself or in a partnership if the December data is positive? And separately, I'm also wondering, in the Phase IIb AD study, are there any patients have alopecia areata comorbidities? And if so, any color you can share on those patients? Howard W. Robin: Well, I think I got -- I think the first part of your question, I didn't hear it all clearly. But I think the first part of your question -- I'll let JZ take the second part. The first part was when do we think we could start a study in alopecia areata. I think depending on the data that we received in December, we certainly would look forward to starting it next year. I think it's important because as we talked about, the only current therapy is a JAK inhibitor, and they come with lots of concerns and warnings. And as I did describe that at a physician surveys that we've conducted, physicians are somewhat reluctant to use a JAK inhibitor to treat alopecia areata given the safety concerns. So I think if we have a new modality to treat such a very serious disease and a condition that causes extreme depression in people, I think it could be very, very important. And consequently, we do plan to start that study next year. I'll let JZ comment on the rest. Jonathan Zalevsky: Yes. Thanks, [ Cheng ]. So we did look at multiple comorbidities in the atopic dermatitis Phase IIb study. Asthma was by far the largest patient population, as I mentioned, roughly 100 people had both atopic dermatitis and asthma in that study, and they'll be presented at ACAAI this weekend. In terms of alopecia, we also looked at vitiligo, for example, very, very few people. So really not a large enough patient population to isolate out as a subgroup, like a handful of few people in alopecia that had both of the diseases. Obviously, our Phase IIb results in alopecia, which read out next month, I mean, that is by far a more definitive data set, right? Much, much larger sample size, obviously, a patient population enrolled with that as their primary disease. And then, of course, we'll be looking at the treatment effect in that patient population reported next month. Operator: Our next question comes from Cha Cha Yang from Jefferies. Cha Cha Yang: This is Cha Cha on for Roger Song. I was wondering in addition to low-dose Olumiant, are there any therapeutics that are in development, biologics for alopecia that you think would be an appropriate benchmark? And then my second question is, are there any IL-2 specific studies that you think could provide read-through to REZPEG in alopecia? Howard W. Robin: JZ, do you want to cover that? Jonathan Zalevsky: Sure. So yes, there are a couple of biologics in development for alopecia. And we discussed them like an IL-7 receptor and other kinds of agents. So I think that those -- there are some earlier data sets. Our goal is we were doing a much, much larger study than those earlier programs. As we described, 94 people were enrolled and randomized in the Phase IIb alopecia study that we're doing. We also have multiple doses. So a much larger study that gives a chance to really assess the treatment effect, which I think is going to be more informative than a lot of the single arm or much, much smaller studies that have been done to date. But it's certainly an area that people are exploring. Tregs remain a very important mechanism that is invoked from all a lot of translational studies in patients with alopecia areata. We know that there are low levels and deficiencies in Treg function. We also know Tregs are necessary for hair growth and for hair moving through the hair growth cycle. And the actual antigen phase that actually is associated with the elongation of the hair once it attaches down at the root actually requires Treg signaling to the stem cell compartment. So we know that those are multiple key mechanisms. And those are one of the big reasons why we're so excited in conducting the study that we'll be reading out the top line data for next month. And then in terms of IL-2 specific studies, there have only been a few studies that have been published with IL-2. One was a case study and one was a small randomized study. The main situation is low-dose IL-2 is really not a good proxy for REZPEG. With REZPEG, we do such a higher amount of Tregs, much, much higher than low-dose IL-2 can ever achieve, a much greater duration of Treg elevation from a given dose and the ability to treat for a very long time. As you know, we've now treated patients for over a year. For example, for a 52-week period in the Phase IIb study in atopic dermatitis. So it's definitely a surrogate in the sense of a Treg elevating agent, but really REZPEG substantially exceeds anything that low-dose IL-2 has been able to present across multiple indications. Operator: Our next question will come from Mayank Mamtani from B. Riley Securities. Mayank Mamtani: Congrats on a productive quarter. On the alopecia top line data analysis, would you have any off-treatment responder rate you plan to report on given some patients may have been past that 36-week treatment period? And if you could remind us if there's an escape arm option here for the placebo non-responders to cross over. Obviously, wonder from your AtD experience, the peak efficacy from the EADV data, you didn't get until 24, 48 -- 44 weeks even. So I just wonder what's your plan to assess if efficacy increases beyond that 36-week period, what's the kind of plan there? And then I have a quick follow-up. Jonathan Zalevsky: Sure. Yes. So firstly, in the kind of information that we would present in December, we'll be presenting data from the 36-week induction period in the study. The primary endpoint is the mean percent reduction in SALT score from baseline. And then the key secondary endpoints that are really, really meaningful is the proportion of people that achieved the SALT 20 and also SALT 10. SALT 20 is the registrational endpoint in the U.S. and SALT 10 in Europe. And then I mentioned earlier in the presentation, also the additional secondary endpoints, some of the time-dependent endpoints and some of the proportional increases in the kind of hair regrowth, right, as metrics. And then the other thing that kind of round out the baseline demographics, the safety profile, all the other things. But importantly, Mayank, right, the study is still going to be ongoing. So as you know, the way we designed the study is people that reached week 36 that are experiencing benefits such as hair regrowth, for example, but that have not yet reached a SALT 20 metric, they have the opportunity to take an additional 16 weeks of treatment to 52 weeks for a full year. So there's a proportion of people that will be ongoing. And also the study design has a 24-week off-drug observation period. So whenever a patient completes treatment, whether that's at 9 months or 12 months, there is then followed for that additional 24-week period of time. And that's really designed to assess that if you grew hair, can you keep hair, right, which is a significant differentiating element from a JAK mechanism of action where the hair loss is really, really rapid when the drug dosing is stopped. So because the study is still ongoing, I mean, we can't say yet the totality. But definitely, the 36-week endpoint, which is the primary analysis with the entire population crossing the 36-week is going to be the main subject of that top line presentation. Mayank Mamtani: Escape arm, is there an escape arm here? Jonathan Zalevsky: No, there's no escape arm in the study. Mayank Mamtani: Okay. And on the auto-injector development, how far along are you? And is that going to be at the start of your Phase III study? And is that kind of part of the protocol as you get into the end of Phase II discussion? Jonathan Zalevsky: Sure. Yes. So the auto-injector development is ongoing. And our goal and plan is to have the auto-injector available at the time of launch of REZPEG. The Phase III studies will be conducted in the same way the Phase II studies were where the drug would be used in a vial. And for us, it's -- we maintain that really for speed because this allows us to start the Phase III studies as quickly as possible relative to when we presented the top line data in June of this year. And then in terms of your other question, just contextually at an end of Phase II meeting, you really discuss everything in the plan to your BLA. So that includes not just the Phase III clinical development program, the registrational and pivotal studies, it also includes the CMC. So yes, we have presented our plans for the final presentation of the product, the auto-injector and then all the work that we do during the Phase III studies into the BLA to have that available for launch. Operator: Our next question will come from Arthur He from H.C. Wainwright. Yu He: Sorry, I apologize if the question has been asked before. So given the readout coming readout for the alopecia, JZ, maybe could you tell us a little bit more like what the potential REZPEG can offer compared to the JAK inhibitor here for the alopecia patient? Jonathan Zalevsky: Yes, it's a great question. I mean I think that one of the situations with the JAK inhibitors, and we touched a little bit on this earlier, is that they definitely are effective at reducing inflammation. Like if you have common gamma chain uses in multiple cytokines, use any either homo or heterodimers of JAKs. And it's an important part of the signaling cascade in response to multiple cytokines, and they're well known as effective ways of lowering inflammation quite quickly. But the challenge with using a JAK inhibitor in any indication where it's approved is that long-term use carries with it some disadvantages, right? So the drugs have black box warnings. They have other significant limitations. They require monitoring. There's just a number of things that make them a little bit more delicate to use. And in the dermatological setting, some of those things are a little bit undesirable. So one of the things that REZPEG can offer is if the efficacy profile, as we discussed, reaches a benchmark such as a low-dose JAK in, say, the Olumiant setting, it already brings with it a completely different risk profile, right? It would not have a black box warning, it would have a completely different and much, much better safety profile and really has a safety profile that's much more aligned with being a very long-term chronic use drug. Also, the potential of being the first biologic in this space gives us a real tremendous advantage because that starts to really open access because we've learned from multiple studies that physicians are they're not so necessarily excited to try JAKs as a first option for patients with the disease. So having another alternative that's available could take a significant -- an opportunity advantage. And then the last one is really comes down to that potential of maintenance. So JAK inhibitors really lose their effect very quickly. And it can be very psychologically difficult for patients because if you spend weeks and months regrowing hair that you didn't have in a really long time and then any need to interrupt the JAK, whether it's a safety signal or other reason or liver enzyme elevation or something, then that can lead to loss of all the hair that you've grown, which can further drive the depression cycle. That's a component of this disease. With REZPEG, there's the potential of maintaining the hair that was grown, having interruptions in drug dosing not be a problem. And that would be completely transformational. So these are all things that we think contribute to a very substantial opportunity for REZPEG and alopecia areata. Yu He: So another question is given that you've passed in the data there, how should we think about the primary endpoint for the approval there in the future? Do you think the SALT 20 is still could do the job? Or we probably should look to the SALT 10 or even SALT 0 there for the future drug for the alopecia there? Jonathan Zalevsky: Yes. Well, I mean, the health authority set the registrational endpoints, right? And so right now, those are defined, right, as SALT 20 in the U.S. and SALT 10 in Europe. But obviously, every study measures multiple secondaries, right, including eyelash, including SALT 0 and so on. So I think that we leave that in the hands of the regulators. In terms of UPA's efficacy, I mean, it's -- I think everywhere that there are multiple JAK inhibitors approved, UPA or RINVOQ seems to always win, right? It just consistently produces the greatest amount of efficacy compared when it goes head-to-head against other agents. And I think we've seen that in multiple indications, Arthur, right, not just in dose 1. It does carry with it a little bit more of a safety profile, which is the [ take ] related, right? It's more on target and more on-target tox in addition to other things. But I do think as compared to the other JAK inhibitors, that UPA is going to be very important, probably take a significant position against the other JAK inhibitors. But we don't really see that as impacting the biologics, right? Again, there are numerous indications where biologics and small molecules, JAKs and non-JAKs coexist. Atopic dermatitis is a great example. In psoriasis, you have TYK2 mechanism coexisting and others. And there's really a large enough patient share and the need for multiple mechanisms that always makes plenty of room for multiple mechanisms in this indication. Operator: And we do have time for one last question. And our last question will come from Andy Hsieh from William Blair. Tsan-Yu Hsieh: Mary, it's great to have you back. So we have 2 questions. So for the RESOLVE-AD study, I believe you spent a lot of time and resources to ensure that the placebo rate is low. So have you gotten a chance to review that initiative so that you can be best positioned for the positive Phase III outcome? And then the second question, maybe for Howard, what's your current manufacturing footprint? I figured given the intense interest in REZPEG, it would be really nice if you can secure one of those national priority vouchers. Howard W. Robin: I'll take the second part first, and Mary can continue. Look, we are looking at a number of different options there. We sold our PEGylation manufacturing facility to Gannet BioChem, but we have a priority position there, and we certainly have a guaranteed source of those raw materials. And we have a number of different contract manufacturing companies, very well-known companies that we work with. So I'm not concerned about at this point, the ability to manufacture -- successfully manufacture REZPEG, and we are looking at the vouchers, et cetera. I will let Mary talk to you about the other part of your question. Mary Tagliaferri: Thanks, Howard. And really great to hear your voice, too, Andy, and I'm really happy to be back. I mean, as you said, the data from RESOLVE-AD are very exciting. And I've also had the opportunity to speak to multiple dermatologists since I've been back, who are also very excited about the totality of the data, the speed of onset and the excellent safety profile. So it's very exciting to move this forward. And certainly, in our Phase III program, we have every plan to implement the exact same procedures that we did to minimize the placebo effect. And some of those are, of course, ensuring that we have board-certified dermatologists participating in our clinical trials. We also make sure that the eligibility criteria is met both in the screening and right before patients are randomized. And so we took multiple actions. Also in our Phase IIb, we had a quite large size of our placebo group, and we will, of course, have the same when we proceed forward in a larger Phase III study. So we were very pleased that we were able to implement multiple different procedures and activities in order to ensure our placebo effect was very low, and we believe we will continue to be very successful in our Phase III as well. So we look forward to moving forward. We've been doing a lot of planning. We're going to have our end of Phase II meeting with the FDA by the end of this year, and so we'll have a clear path forward to a BLA. Operator: And this does conclude our question-and-answer session for today's conference. I'd like to turn the call back over to Howard Robin for any closing remarks. Howard W. Robin: Well, thank you, Crystal, and thank you, everyone, for joining us today, and we greatly appreciate your continued support. And I want to thank all of the patients and their caregivers that have trusted and continue to trust Nektar to treat their disease. None of this research would be possible without them. And I also want to thank our employees for their dedication and extremely hard work, and we look forward to delivering data from our REZPEG program data in alopecia areata in December and additional results from the program in atopic dermatitis in the first quarter of next year. So please stay tuned. Thanks for joining us. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Operator: Thank you for standing by, and welcome to EverCommerce's Third Quarter 2025 Earnings Call. My name is Jonathan, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 6, 2025. And now I'd like to turn the conference over to Brad Korch, Senior Vice President and Head of Investor Relations at EverCommerce. Please go ahead, sir. Bradley Korch: Good afternoon, and thank you for joining. Today's call will be led by Eric Remer, EverCommerce's Chairman and Chief Executive Officer; Josh McCarter, EverPro's Chief Executive Officer; and Ryan Siurek, EverCommerce's Chief Financial Officer. Joining them for the Q&A portion of the call are EverCommerce's President, Matt Feierstein; and EverHealth's Chief Executive Officer, Evan Berlin. This call is being webcast with a slide presentation that reviews the key financial and operating results for the 3 months ended September 30, 2025. For a link to the live or replay webcast, please visit the Investor Relations section of the EverCommerce website, www.evercommerce.com. The slide presentation and earnings release are also directly available on the site. Please turn to Page 2 of our earnings call presentation while I review our safe harbor statement. Statements made on this call and contained in the earnings materials available on our website that are not historical in nature may constitute forward-looking statements. Such statements are based on the current expectations and beliefs of management. Actual results may differ materially from these forward-looking statements due to risks and uncertainties that are described in more detail in our filings with the SEC. We undertake no obligation to publicly update or revise these forward-looking statements, except as required by law. We will also refer to certain non-GAAP financial measures in our comments today. A reconciliation of non-GAAP to GAAP historical measures is provided in both our earnings press release and our earnings call presentation. As a quick reminder, following our announcement in March that we are seeking strategic alternatives for the Marketing Technology solutions, we had classified Marketing Technology as discontinued operations. Last week, we announced the sale of this business to Ignite Visibility. Our commentary today will center on the continuing operations of our business focused on our EverHealth, EverPro and EverWell verticals. All financial and operating metric results are presented relating to continuing operations only unless otherwise specified. I will now turn it over to our CEO, Eric Remer. Please continue. Eric Remer: Thank you, Brad. On today's call, I will highlight both third quarter results and our recent acquisition of an AI Agentic platform that we believe will accelerate our AI development before turning the call over to Ryan to discuss our financial performance in more detail. During the third quarter, EverCommerce generated revenue of $147.5 million within the previously provided guidance range. This represents a 5.3% year-over-year growth, both on a reported and pro forma basis as we fully lap the sale of the fitness solutions and the acquisition of ZyraTalk had an immaterial impact on the quarter. Adjusted EBITDA of $46.5 million beat the top of our guidance range, representing a margin of 31.5%. Adjusted EBITDA margin expanded 140 basis points year-over-year. Payments revenue grew 6% year-over-year as we continue to invest in product and go-to-market motions to grow our total payments volume. The most exciting development in the quarter was the strategic acquisition of ZyraTalk, a best-in-class AI Agentic platform company, highly focused on the field service management industry, which will serve as the center of our AI acceleration efforts. Finally, on October 31, we closed the sale of our marketing technology solutions to Ignite Visibility. As we continue to execute EverCommerce's transformation optimization program, we believe narrowing our focus to provide best-in-class AI-powered vertical software is the most effective path to maximize long-term growth, margin accretion and ultimately, shareholder value. The completion of this transaction allows us to focus our energy and resources on our core SaaS and payments business. EverCommerce provides SaaS solutions for the service SMB economy. We offer tremendous value to our customers by providing system of actions necessary to run their business with tailored unique workflows. We provide end-to-end solutions to more than 725,000 customers across our 3 major verticals, EverPro for home field services, EverHealth for physician practices and EverWell for wellness service providers, with the 2 former verticals representing approximately 95% of consolidated revenue. Our large base of customers represents an immense embedded opportunity to provide value-added features and services like payments and customer rebates for our purchasing programs. On a pro forma basis for the last 12 months, we generated $585.1 million of revenue, representing a 7.6% year-over-year growth. We also generated 31% of adjusted EBITDA margin on an LTM basis. Finally, our annualized total payments volume, or TPV, expanded to approximately $13 billion. As I've highlighted in the past, accelerating payments adoption and utilization continues to be one of our highest priorities. In 2025, we have continued to make specific investments in our product capabilities and go-to-market motions to prioritize payments enablement, activation and utilization. Our results for the third quarter show continued progress against this goal with strong growth in both payment enablement and utilization. At the end of the third quarter, 276,000 customers were enabled for more than one solution, reflecting a 33% year-over-year growth. At the end of the third quarter, approximately 116,000 customers were actively utilizing more than one solution, reflecting a 32% year-over-year growth. Enabling customers to more than one solution is a first step in the funnel that leads to increased revenue, retention and ultimately profitability to these customers. We continue to focus the majority of our efforts on the front book attach or the enablement of payments at the point of initial SaaS sale, but we also focus on our back book cross-sell motions. We are expanding our customer success capabilities to boost activation, retention and wallet share, and we've streamlined and improved our onboarding workflows. In the third quarter, our front book attach rates in our 2 flagship system of actions within EverPro and EverHealth verticals were both greater than 60%, which represents significant year-over-year improvements. Looking back over the trailing 12 months, our annualized net revenue retention, or NRR, was 97%. Customers that purchase and utilize more than one solution are naturally some of our most profitable and stickiest customers with an NRR of greater than 100%. Year-over-year, our payments revenue grew 6% and accounted for approximately 21% of overall revenue. As a reminder, we report our payments revenue on a net basis, and therefore, it incrementally contributes approximately 95% gross margin. As such, payments revenue growth is meaningful contributor to our overall adjusted EBITDA margin expansion. As I mentioned in my introductory comments, third quarter estimated annualized total payments volume, or TPV, was approximately $13 billion, representing nearly 5.2% year-over-year growth. Within this, we continue to see higher TPV growth in our Top solutions, offset by lower growth in legacy payment products and third-party partners. This can be a positive mix shift over time as our top solution often have higher take rates. In mid-September, we announced the acquisition of ZyraTalk, an AI-powered customer engagement solution that combines virtual assistant capabilities with an Agentic automation platform. The acquisition helps to establish EverCommerce's position as an AI-driven innovator, beginning with intended near-term application in our home and field service vertical, EverPro. We plan to extend into broader opportunities across the company. I will now turn the call over to Josh McCarter, CEO of EverPro, to discuss ZyraTalk in more detail. Josh? Josh McCarter: Thanks, Eric. ZyraTalk transforms how businesses operate by replacing outdated processes with intelligent end-to-end AI workflows. The platform is an AI-powered customer engagement solution that combines virtual assistant capabilities with Agentic automation, primarily serving the home services industry and capabilities for serving our other verticals. Its AI receptionist ensures that no call, lead or customer interaction is ever missed, while the Agentic AI capabilities integrate deeply with FSM platforms to automate the core of daily operations. To date, the platform has processed over 2 million chats and 2 million minutes of voice interactions through its integrations with major FSMs. The fully autonomous AI agents and a lightweight Agentic FSM system are designed for seamless integration across EverPro's platforms. The acquisition brings AI at scale to EverCommerce with many in-production features that are both being sold to third-party customers today and being fast tracked for multiple EverPro native integrations over the coming months. Some of the key features available today are the AI Receptionist, AI Scheduler and AI Dispatch. The AI receptionist answers inbound inquiries instantly, books jobs, answers questions and routes calls 24/7, just like a front desk that never goes offline. AI Scheduler allows customers to book, reschedule or cancel appointments any time by phone or online. The AI Dispatcher automatically assigns the right technician to the right job based on skill, location and availability, keeping field teams efficient without human oversight. These and the additional features shown on the slide automate the full workflow from first contact to final payment, improving response time, reducing labor and helping to drive revenue. Beyond this foundation, we are working to add more features and offerings to support our customers, beginning in our home and field services solutions. In addition to the full integration into many EverPro systems of action, we are actively developing new Agentic capabilities that should roll out over the next 12 months. These include an AI project manager that keeps every job on track from first call to final review, updating customers and tech automatically. We're working on an AI training and QA agent that listens to calls and gives real-time coaching to technicians like a built-in quality manager. We plan to utilize the underpinnings of our Service Nation platform to deliver an AI business coach. And of course, we are planning to use the Agentic capabilities to better onboard customers to our payments and rebates platforms. Together, these upgrades significantly improve the customer experience by bringing AI capabilities with full end-to-end automation, boosting efficiency and revenue without adding headcount. Eric Remer: Thanks, Josh. ZyraTalk is a strategic AI investment that will help drive our long-term growth while delivering greater value to our customers. The acquisition brings us a production-ready AI platform, a highly skilled technical team and a proven technology that's purpose-built for the service-based industries. Our customers, by definition, are subscale operators, plumbers with a truck or three, small physician practices and solo salon operators. To them, AI is a force multiplier, harnessing the power of AI provides them a 24-hour receptionist, a billing department and the not-so-distant future, a personal coach. We plan to leverage the AI and the capabilities acquired to increase the value proposition across all aspects of our solution set. Now I'll pass it over to Ryan, who will review our financial results in more detail as well as provide fourth quarter and updated full year 2025 guidance. Ryan Siurek: Thanks, Eric. Total reported revenue in the third quarter was $147.5 million, up 5.3% from the prior year period. Subscription and transaction revenue, our primary recurring revenue base was $142.2 million. For Q3 2025, year-over-year pro forma subscription and transaction revenue growth was 4.4%. Within subscription and transaction revenue, our core SaaS revenue grew over 8% in the quarter, partially offset by macro and tariff-related impacts in our more usage-based revenue streams such as rebates, which is our share of rebates through group purchasing programs within EverPro. Adjusted gross profit in the quarter was $114 million, representing an adjusted gross profit margin of 77.3% versus 78.1% in Q3 2024. Third quarter adjusted EBITDA was $46.5 million, which is a 10.3% growth year-over-year. Adjusted EBITDA margins of 31.5% compares to 30.1% in Q3 2024, representing margin expansion of 140 basis points. On a year-over-year basis, margins improved due to continued cost optimization initiatives, mix shift to higher-margin products and overall scale economies. Now turning to adjusted operating expenses, which are reconciled in the appendix to this presentation. Overall adjusted operating expenses improved as a percentage of revenue, both for the quarter from 48.1% to 45.8% on a year-over-year basis and on an LTM basis from 48.6% to 46.7%. While the timing of investments and expenses was a factor, the long-term trend of continued operating expense moderation is deliberate and attributable to both growth of the business and specific actions taken as part of our transformation and optimization programs. We maintain our focus on improvement in customer satisfaction and acquisition while also remaining highly focused on cost discipline and functional support areas. Next, I'll turn to some key liquidity measures, which include cash flow from continuing and discontinued operations. We continue to generate significant free cash flow as we invest to grow our business. Cash flow from operations for the quarter was $32.5 million, improving from the $27.5 million generated in Q3 2024. Leveraged free cash flow was $23.3 million in the quarter and for the trailing 12-month period, we generated more than $111 million in levered free cash flow. Adjusted unlevered free cash flow was $32.3 million in the quarter and $140.6 million for the last 12 months. As we continue to invest to accelerate growth, a portion of this investment is in our solutions. This is evident in our free cash flow metrics, which are largely flat year-over-year despite product investments, which increased our capitalized product development expenses. We ended the quarter with $107 million in cash and cash equivalents and $155 million of undrawn capacity on our revolver, which will step down to $125 million in July 2026. Cash declined on a sequential quarterly basis, primarily as a result of our strategic acquisition of ZyraTalk during the quarter. As of September 30, we had $528 million of debt outstanding. Our total net leverage as calculated for our credit facility was approximately 2.1x and continues to demonstrate our deleveraging with strong operational performance and free cash generation. We have $425 million of notional swaps at a weighted average rate of 3.91% that effectively hedge the floating rate component of our interest cost through October 2027. In the third quarter, we repurchased approximately 2.6 million shares for $29.1 million at an average price of $11.10 per share. Based on the shares repurchased through September 30, 2025, we have approximately $22.3 million remaining in our total repurchase authorization. In addition, our Board recently authorized an increase in our share repurchase program to $300 million, an increase of $50 million through the end of 2026. I would now like to finish by discussing our outlook for the fourth quarter and the full year of 2025. As a reminder, our guidance for revenue and adjusted EBITDA for 2025 is based on our continued operations, which excludes Marketing Technology Solutions. Our guidance also includes ZyraTalk, but the expected contribution in the fourth quarter is immaterial. For the fourth quarter of 2025, we expect total revenue of $148 million to $152 million and adjusted EBITDA of $39.5 million to $41.5 million. For the full year 2025, we are narrowing both our revenue and adjusted EBITDA guidance ranges with an increase to the top end of the adjusted EBITDA range. We expect total revenue of $584 million to $592 million and adjusted EBITDA of $174.5 million to $179.5 million. Operator, we are now ready to take the first question. Operator: And our first question comes from the line of Bhavin Shah from Deutsche Bank. Bhavin Shah: Eric, maybe just to start off with you. I just want to dig into the ZyraTalk acquisition, which kind of seems compelling to us. Can you just maybe talk a little bit more about the business model? Is it subscription consumption-based? And over time, what percentage of your customer base do you think this will be suitable for as you think about the key solutions that you might attach to? Eric Remer: I appreciate the question. At a high level, we're not kind of breaking out the basis of kind of subscription versus integrated to the rest of the system at this point. As we look at the actual acquisition, there's really 2 main things that we're really excited about. Number one, this particular product has been built fully -- like fully focused on the home service sector. So all of the data, all the minutes, all the calling that they have done over the last really 3 to 4 years has been fully focused basically to our customer base. So it's a turnkey product that will allow to integrate almost real time, and we'll talk about the integration in a second. Secondly, a lot of the development that they have done within the ecosystem for the Agentic AI within their core product is going to be utilized across our core system. So as we see the kind of the future of how those products come together, I think you'll start seeing in late '26 and '27, how that kind of integrates together versus a breakout of ZyraTalk's revenue separately. Want to add to that, Ryan? Ryan Siurek: I think with everything that Eric said, we plan to fully integrate. There is a book of business that comes with ZyraTalk. That wasn't our primary thesis though for the acquisition. The primary thesis was the integration that Eric just described in terms of the capabilities that it's going to bring to the SMB space, particularly in the home and field services. But I would say that over time, we plan to expand to the other verticals that we have as well. And you should expect to see this kind of as bolt-ons or upsell, cross-sell motions as we continue to build out that strategy. Bhavin Shah: Got it. That's helpful there. Ryan, just kind of a follow-up for you. Just can you just maybe elaborate what played out with the rebate program? Can you just, I guess, think about the overall size of that program and kind of what's factored into guidance from that program as you think about 4Q? Ryan Siurek: Yes. I would say that, that was probably the one space that we had any particular headwinds in the business in Q3. The core SaaS business, as we described, is very resilient and strong, particularly in the SMB market. Rebates as a percentage of our overall revenue base is quite small, actually. But from the quarter-over-quarter perspective, there was about $1.6 million of softness. And the rebates are really just group purchasing programs that we have as part of our Service Nation program overall. It's a good business for us, but it does actually have a little more susceptibility to the macroeconomic factors and tariffs in particular, were probably one of the areas where we saw some impact. If you saw the HVAC manufacturers that released earnings earlier, there was a number of citings with regard to kind of softness in that space, not only for Q3, but some projection into Q4 with expected recovery in 2026. That is kind of where we saw some of the softness in that space as well. But overall, I would say that -- and it's not a significant impact to the business. We did factor that into our overall guidance and don't expect a significant continuation. Operator: And our next question comes from the line of Kirk Materne from Evercore ISI. Unknown Analyst: This is Bill on for Kirk. I was wondering if maybe you could walk us through, I guess, some of the changes to the guidance for the remainder of the fiscal year and kind of any trends you're seeing in the macro environment that have caused you to change your guidance? Ryan Siurek: I just gave certain information on that, Kurt. Thanks for the question. I'm trying to make sure I understood and heard your question. From a guidance perspective, no macroeconomic impacts other than one we described on the group purchasing programs, which really is a small portion of our overall revenue base. From an SMB perspective, overall, we're continuing to see strength in the marketplace and our core SaaS continues to have strong growth opportunities. We've seen 8% growth really from a core SaaS perspective. And then I would say that we continue to have really strong efforts in the transformation optimization side of what we're doing, which is why we felt very comfortable to increase our adjusted EBITDA guidance for the full year. But we did tighten the range both on revenue and on adjusted EBITDA and taking into account some of those macroeconomic impacts that we talked about earlier. Operator: And our next question comes from the line of Matt Hedberg from RBC. Matthew Hedberg: Eric, I wanted to go back to the ZyraTalk acquisition. I just -- maybe it wasn't clear to me, but how is the pricing for that today? And do you see it evolving once it's fully integrated to the platform? Eric Remer: Yes. So just on a core basis, the product that they're in market with today sells both on a subscription and usage basis. So subscription by utilizing the product and usage every time, every minute that it's been utilized on an AI Receptionist. The reason the larger answer was really focused on that was a part of the thesis, but really kind of a smaller part of the overall thesis for the acquisition. So as Ryan talked about, that we definitely brought over customer base and a book of business. And the real focus of us is the customer base that is utilizing that product today is actually just making our systems smarter and smarter. So as we integrate ZyraTalk into the core EverCommerce solutions, which we've already done, and Josh can talk about that in a second, our ability to integrate that, the assist to start off and the other Agentic pieces of that software is going to make all of our software specifically the FSM area, just more effective on an ongoing basis. So do you want to add to that, Josh? Josh McCarter: Yes. I think from a pricing standpoint, we definitely view this as a SaaS model. So for the AI receptionist, we'll be selling that as a SaaS model. And then as Eric mentioned, we will be integrating various AI agents throughout our FSM systems, and that will just be reflected over time as increases in SaaS pricing. Matthew Hedberg: Got it. Okay. That's helpful. And maybe just even just like more philosophically speaking, one of the questions about software has been -- what is the future of seat-based models in the future? And I'm just sort of curious, you've got a blend today, and obviously, payments is a big part of that non-seat-based model. But do you see the future of EverCommerce pricing changing to look even more like consumption or usage and pivoting away from seats? Or do you always expect to have some sort of a blend there? Ryan Siurek: I think we would -- I mean we're going to continue with the existing pricing mechanisms that we have. We'll continue to evaluate the market space in general. I think our space from an SMB perspective is quite unique. If we see the opportunity to do more in the variable type pricing as we think about the 2026 budget and beyond, we will definitely consider that. But it's not a strategic shift or focus from a change perspective in terms of how we run and operate our business. Operator: [Operator Instructions] Our next question comes from the line of Alex Sklar from Raymond James. Jessica Wang: This is Jessica on for Alex. Just got one. So on your spending optimization efforts, how have things been progressing there? Margins continue to track nicely in the right direction. But on the reduction of third-party costs you've called out in the past, how much more leverage do you see over the medium term? Ryan Siurek: Yes. We continue to find good success in our transformation optimization program. I would say that we've been able to reduce operating costs pretty substantially, over $10 million in 2025. We continue to have a really solid tracking mechanism against those efforts. I think you're going to see us to continue the transformation optimization program that we have in place is not a one and done. It is something that we are kind of continuing to embed in the operating model that we have overall. We're at over 30% adjusted EBITDA margins at this point in time. That's grown since the days of our IPO in the low 20% adjusted EBITDA margin, so over 1,000%. And we continue to see opportunity for us to expand on the overall margin expansion through the programs that we have, both for transformation and for optimization. The management teams are stood up at this point in time, both for EverPro and EverHealth. And we feel like that is putting us in a solid position to continue to exit 2025 and grow in '26, but not just from a revenue perspective, and we'll continue to look for margin expansion as we move into the future. I would say that the only thing that I would moderate on that is that as we continue to look at investment opportunities, we'll continue to focus to make sure that the products that we're offering to our customers have the right features and functionality. So we're going to continue to grow and invest in those. And you can see that from a cash flow perspective in terms of the investment that we've made in capitalized software year-over-year. I think we invested on an LTM basis about $25 million compared to about $18 million in the prior year, which just continues to demonstrate our continued focus on developing products for our customers. Operator: And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Remer, CEO, for any further remarks. Eric Remer: Thanks. Well, thank you again for joining the call today. We have incredible momentum in our core SaaS and payment solutions, combined with meaningful margin expansion as we continue to optimize our cost base. On top of this, there is tremendous excitement surrounding our AI road map that we believe will differentiate our solutions in the marketplace. I'd like to thank our investors for their continued support and all of our EverCommerce employees for their hard work. Operator, this concludes our call. Operator: Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the AdvanSix 3Q '25 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead. Adam Kressel: Thank you, Rocco. Good morning, and welcome to AdvanSix's Third Quarter 2025 Earnings Conference Call. With me here today are President and CEO, Erin Kane; and Interim CFO, Chris Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and the actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K, as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the third quarter of 2025, and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane. Erin Kane: Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, AdvanSix continued to navigate challenging industry dynamics in the third quarter with a focus on optimizing operational and commercial performance. Our team executed with agility and discipline as we seasonally entered a new fertilizer year in plant nutrients, with a strong fall fill program amid higher raw material input costs, while continuing to realize the ongoing benefits from our sustained growth program. Given the protracted downturn in nylon solutions and demand softness in chemical intermediates, we're making the strategic choice to moderate production rates to manage inventory levels, with a keen focus on free cash flow. Utilization across our integrated value chain was down roughly 4 percentage points sequentially from the second quarter to the third. Operationally, we experienced a site-wide electrical outage at our Chesterfield nylon plant in mid-September. While there was minimal impact to 3Q results, we did have an isolated fire upon restart that impacted polymerization line of the plant and was fully contained. There were no injuries or environmental impacts, and the majority of our plant operations continue as normal. So while we were already tactically opting to reduce production levels, this incident is expected to impact 4Q EBITDA by $7 million to $9 million, primarily related to the negative impact of unabsorbed fixed costs. On a positive note, our fourth quarter planned plant turnaround centered around our sulfuric acid and OEM plant at Hopewell, was completed successfully at the low end of our target range. While our domestic nylon solution margins over benzene once again expanded year-over-year, we are seemingly operating in a lower-for-longer macro environment. In times of uncertainty, we're focused on delivering on controllable levers. This includes continued optimization of production output and sales volume mix while driving productivity to support through-cycle profitability. Taking a disciplined approach to cash management is critical, reflected in our prioritization of base capital investment and anticipated tailwinds in 2026, from 45Q carbon tax or tax credits and recent tax legislation. 2025 CapEx is now expected to be $120 million to $125 million, reflecting $30 million full year cash conservation through refined risk-based prioritization and execution. Our select and targeted investments for growth are continuing to progress. The sustained growth program, which unlocks 200,000 tons of granular ammonium sulfate has been favorably tracking roughly 15% below its capital budget, with the final 2 projects remaining to be completed over the next year. In addition, our planned investment to upgrade our enterprise resource planning system went live in the third quarter, which will help streamline key processes across the organization while enhancing management tools and data analytics. Finally, we added 2 new members to our Board of Directors this past quarter, Dana O'Brien and Daryl Roberts. Their deep industry and professional backgrounds and proven expertise in global manufacturing will be invaluable to our Board's role in ensuring strong corporate governance practices and supporting advancement of our strategic growth priorities. With that, I'll turn it over to Chris, to discuss the financials. Christopher Gramm: Thanks, Erin. I'm now on Slide 4, to discuss our results for the quarter. Sales of $374 million in the quarter decreased approximately 6% versus the prior year. Sales volume was approximately half of that change, driven primarily by softer demand in both chemical intermediates and nylon end markets. Raw material pass-through pricing was down 5% following a cost decrease in benzene, which is a major input to cumene, our largest raw material and key feedstock to our products. Market-based pricing was favorable by approximately 2%, driven by continued strength in plant nutrients, reflecting favorable North American ammonium sulfate supply and demand conditions. Adjusted EBITDA was $25 million, down $28 million from last year, while adjusted EBITDA margin was 6.6%. The decline in earnings versus last year was primarily driven by a reduction in acetone price raw spreads as we anticipated, the impact of lower nylon and chemical intermediates sales and production volume and higher utility costs as a result of increasing natural gas prices. On a sequential basis compared to the second quarter, we saw a nearly $20 million earnings decline due to typical ammonium sulfate seasonality with the start of the new fertilizer year. In addition, our results reflect the impact of moderated production rates amid softer demand for nylon solutions and chemical intermediates. Now let's turn to Slide 5. Erin Kane: Here, we are illustrating our quarterly sales contributions by product line, as well as price and volume breakdown, both year-over-year and sequentially. We believe this double-click into the underlying dynamics of our financials provides insight into our commercial sales and performance. Plant Nutrients continues to positively stand out. While we navigated typical seasonal pricing considerations, our continued strong performance in Q3, including the higher year-over-year pricing of our fall fill program and favorable sales mix supported by our sustained growth program are further proof points to the resiliency of sulfur nutrition demand. Broader nylon markets continue to face pressure here in the U.S. and abroad. However, our domestic market-based pricing across nylon solutions is holding steady, while raw materials pass-through pricing saw declines on lower benzene input prices. And lastly, acetone pricing has moderated as expected from the multiyear highs witnessed in 2024. Let's turn to Slide 6. Our end market exposure remains a strategic advantage. It provides a source of diversification, which helps insulate the company from significant variability in any one industry, as demonstrated by our results in various environments. We've highlighted our exposure in descending water, with agriculture and fertilizer at the top. This is an area that continues to grow. We estimate sulfur nutrition demand growing 3% to 4% per year on average, and where we are leveraging our expertise as leaders in the space. There continues to be robust acceptance of the sulfur value proposition amid underlying increases in global nitrogen pricing, primarily driven by supply side impacts. Given current corn futures, this is a positive reinforcement that the value chain believes in software to improve economics for the same acreage. We believe stock-to-use ratios globally continue to support fertilizer demand over the long term. Moving to Building and Construction. Dynamics here remain largely unchanged. Across this end application, we have direct and indirect exposure across nylon and intermediates through flooring, oriented strand board, and paints and coatings to name just a few. Our view is latent demand will build and begin to recover through 2026, assuming moderating interest rates going forward. Plastics does remain challenged, reflecting broader macro softness. We had previously communicated that the auto sector was a watch out, including impacts of tariffs uncertainty and trade policy. We've continued to see a drawdown in auto inventories, as well as weakness across consumer durables and other industrial applications. Solvents likewise have been mixed. We've seen moderated growth into construction, pharmaceutical and electronics industries. In the semiconductor space, our Nadone sales demand was down year-over-year in the third quarter, but is anticipated to improve sequentially into 4Q and 2026. Lastly, we continue to monitor and track trends in food packaging, where beef is the largest category. Nylon 6 is preferred here due to its excellent barrier properties and its puncture resistance. Our inflationary pressure and tariffs are impacting demand in this space, notwithstanding the relative resilience we are seeing in packaging. Let's move to Slide 7. Christopher Gramm: Cash flow generation remains a critical focus area for us. We believe it's important to view our business performance on a trailing 12-month basis given the linearity considerations, primarily driven by the timing of the fertilizer season. Trailing 12-month free cash flow through Q3 2025, is approximately breakeven, and we continue to target positive free cash flow for the full year of 2025. There are a number of levers that we're focused on to bolster sustained and improved cash flow generation moving forward, including working capital initiatives, risk-based prioritization of capital investments, cost productivity, and tax optimization. Our balance sheet is positioned to provide optionality and the ability to weather the challenging macro environment. We expect strong free cash flow in the fourth quarter supported by working capital tailwinds, including the ammonium sulfate pre-buy cash advances. As Erin mentioned earlier, we're able to capture a roughly $30 million reduction to our full year 2025, capital plan. We expect CapEx for 2026, to be in the range of $125 million to $135 million. We're also actively managing our cash tax rate, which we anticipate being below 10% over the next few years, supported by the continued progress on the 45Q carbon capture tax credits and 100% bonus depreciation. Now let's turn to Slide 8, to wrap up before moving to Q&A. Erin Kane: Our strategic initiatives, unique combination of assets and business model are core to our durable competitive advantage and long-term positioning. Our global low-cost position in vertically integrated caprolactam production serves us well. In addition, ammonia and sulfuric acid platform integration, coupled with a leading granular crystallization technology position underpins our sustained ammonium sulfate growth and how we win in plant nutrients. These capabilities, combined with our asset utilization agility and product mix, position us to navigate cycles and capitalize on emerging opportunities. 2025 has been a dynamic year, but we remain well positioned as an American manufacturer of essential chemistries. We have been operating with structural tariffs in place globally across our value chains for quite some time. So we are adept at navigating an environment like this. We are largely insulated from first order impacts of reciprocal tariffs, with nearly 90% of our sales in the U.S. and our key product lines in a net import industry position. Our U.S. footprint has allowed us to optimize our tax position with a meaningful impact on cash flow going forward. Recently, we've seen a number of industry actions with announced European capacity rationalization in phenol and acetone, as well as caprolactam and ammonium sulfate. We believe we're reaching an inflection point in several markets. And as we've discussed today, we're positioning ourselves to win long term. With that, Adam, let's move to Q&A. Adam Kressel: Thanks, Erin. Rocco, can you please open the line for questions? Operator: [Operator Instructions] Our first question today comes from David Silver, Freedom Capital Markets. David Silver: I apologize. I always like to build up the suspense there. And I apologize. Let me just get a tiny bit organized here, sorry. Okay. So I did have a number of questions. I think, first, I was hoping maybe you could provide a little additional color on the chemical intermediates market and pricing environment. were the revenue declines and the margin pressures, was that primarily acetone? Or did the weakness extend to other key products or end markets? So maybe just a little more color on the falloff in Chemical Intermediates results this quarter. Erin Kane: Yes. Certainly. And we recognize that we provided some new formats here today, and we did go ahead and include the specific line of business industry spreads and KPI updates in the appendices for reference. But yes, on the acetone side, as you well know, David, represents roughly 50% of our sales in Chemical Intermediates. And we would characterize Q3 as really more in line with our expectations, right? As we headed into the year, we've been saying that we did expect phenol demand overall to remain subdued, right, that would keep acetone supply and demand balanced, but that we were expecting that we would come off the highs of 2024, and certainly probably moderate back to cycle averages. And that's where we continue to see the market play out. Our portfolio is well balanced between small, medium and large buy that allows us quite a bit of flexibility to go where the value is in the market. And while the moves were significant kind of year-over-year, right, they are sort of moderating as we think about the adjustments to those cycle averages sequentially. But when you look across the rest of the portfolio, as you say, we hear in a number of other end markets, whether it's electronics, paints and coatings, adhesives, you kind of think about ag chemicals, the full space. In general, we would say that there's continued views of softness. I think this is thematic what you're seeing across the entire chemical sector, not necessarily anything unique to us. We did call out the semiconductor space and Nadone demand. We're seeing signs that that's picking back up in Q4, with some sight of improvement into 2026. So I'd like to say that there's some opportunities in different places. We continue to stay focused in the right areas with favorable long-term trends, and that's what we're seeing there on intermediates. Hopefully, that helps. David Silver: Great. I'm sorry, I should have reviewed the appendix page details there. I would like to talk about the ammonium sulfate results this quarter. So the revenue number is quite striking. I believe that's your highest third quarter revenue total ever for that segment. And the summer quarter is typically, I guess, when you try to -- you typically sell a little bit more of the standard product and into international markets. But maybe just looking at the third quarter results, I mean, was there a disproportionate amount of products sold into the U.S. market? Or was there maybe some advanced purchasing? I mean, just maybe just a little more color on the strength in ammonium sulfate. Erin Kane: Yes. So as you point out, right, prior to the SUSTAIN program, that would have been the trend we would have expected sort of Q2 into Q3. For us now, right, the additional granular volume that we are producing is coupled with a good fall pickup, we did have less standard to sell across the board, right? So that mix differential is not as perhaps, I would say, geographical mix consideration is not as great as it used to be. So certainly, 3Q year-over-year granular volume was up 20%, right? And so again, that is really at the heart of the intent behind sustain and obviously, with the year-over-year prices for fill up led to that revenue generation you saw. David Silver: Great. Next question would be probably about raw material cost trends. So you have cited some of the data, again, in the appendix slides. But sulfur, as you noted, continues to track upwards and natural gas has recently kind of shot up a bit maybe on anticipated winter demand here. Should we just assume that you are a spot market purchaser for the fourth quarter? Or would there be the case where maybe you were able to do some hedging, or other prebuying ahead of the quarter? So maybe just a sense of how we should look at the spot market, or the recent changes in some of your raw materials and the flow-through to your fourth quarter results? Christopher Gramm: Yes. That's a great question. I would say, generally, we typically don't execute hedges on a regular basis. Sulfur is probably not as widely traded. And so the hedging process there would command a premium. But I think for natural gas, generally, we've elected to not enter a hedging strategy. What we've seen from gas, obviously, from a year-over-year perspective, the price has gone up from, let's say, an average of $2.30 a Decatherm to $3.40 here this year. So obviously, super sensitive to that, watching for that. Most of these 2 molecules do end up in ammonium sulfate. And while ammonium sulfate is generally based on value pricing, input cost does have a tendency to put pressure on the least marginal producers. So it does have some indirect effect. I would say as well, particularly on the natural gas side with our formula pricing that there is natural gas components there. And so even though we don't, let's say, execute a financial or a synthetic hedge, we do have some coverage in our formula-based pricing in the nylon business as well. So hopefully, that gives you sort of a bit of color there, David, and kind of how we think about and react to some of these changes. David Silver: Great. Maybe another one for Chris, but I was looking or hoping to get a bit of an update on the Section 45Q carbon capture credits that you've applied for, and you may apply for in the future. So maybe just your sense of the timing for capturing, I guess, the first $20 million of credits that you've filed for, I guess, in the first half of the year? And then maybe is there an early read on what you may be filing for next year? Christopher Gramm: Yes. No, that's a great question. Obviously, 45Q is a significant value driver for us. And just as a reminder, we perfected the 2018 claim last year, and 2019 and 2020 this year. Based on those perfected claims, we filed amended returns. Those amended returns, as you can imagine, trigger an audit process that we have to work through. We're confident based on all the upfront work that we've done both with the Department of Energy and with the IRS, that we'll be successful through that audit process. What I would say is due to the government shutdown, I think the timing of when we would expect to receive the credits that we have applied for, looks like that that's going to be shifting to 2026. I would point out that our early comment on positive free cash flow for the 2025 year does take that shift into account. So we still believe we're going to be positive free cash flow in 2025. We do expect a cumulative benefit once again of $100 million and $120 million across the life of the program. Just as an update, we filed the 2021 life cycle assessment, and that needs to be reviewed and approved by the Department of Energy and the IRS. Under normal circumstances, that would take probably 3 to 4 months. So we're hoping that in short order once things sort of get back to a bit normal that it wouldn't be too long until we get approval for that. So we're going to continue to obviously, provide you updates as we move forward and move along, but we continue to push the opportunity there and make progress as well. David Silver: I think this one is also for Chris, but I have seen how your carbon capture credits flow through your income statement. Can you just remind me regarding bonus depreciation? Is that something that will impact your GAAP, or GAAP and non-GAAP results? Or is that something that strictly shows up on your tax filings? Just the impact of bonus depreciation is on how I should think about my estimates for next year. Does that impact them? Or is the impact solely going to be reflected on your tax-based filings? Christopher Gramm: Yes. No, great question. Just as a reminder, the 100% bonus depreciation is really affects our cash tax rate. So if you think about our effective tax rate, it looks at and tries to book the expected, I'll call it, tax consequences of what our U.S. GAAP financial statements are. So I would expect the changes in the One Big Beautiful Bill Act won't have a significant impact on the effective tax rate, but it does have a very significant impact on our cash tax rate. So and to just give you a little color, the biggest benefit on bonus depreciation is on acquired and placed in service assets after January 19 of this year. So the dollar benefit of projects that qualify for both of those is $2 million for the calendar year '25. As we move forward to 2026, the benefit is going to grow as more of the projects qualify for those criteria. And we expect that number to be sort of mid- and the high single digits from a cash tax basis. And we would expect '27 to be even larger than that. So hopefully, that gives you a sense there of how it will get expressed in sort of the order of magnitude as we move forward. David Silver: I did get my CPA, but it was a long time ago. And thank you for walking me through that lapsed CPA. I know I admit it. All right. Yes. So this one has to do with Slide 7, and in particular, the next to the last bullet point where you talk about inventory management, and then you say cost reduction initiatives for 2026. And I think it was touched on briefly in the prepared remarks, but just wondering if you could maybe talk about some of the buckets that go into that category of cost reduction initiatives for 2026? Erin Kane: Sure. I mean, as you would expect, our normal course focus on productivity includes things like optimizing yield, certainly inflationary energy environment, energy utilization programs like this. Here specifically, David, we're programmatically setting up to really address non-manpower fixed costs. You may see this across other companies when they announce these types of programs. We believe that there is a meaningful opportunity for us to, I would say, target that programmatically. And that's what we're really pointing to here. So we would be in a position as we continue to set ourselves up for that. It's likely a 2-year type of a program. But in February, we'd be happy to come back and certainly clarify and quantify what we expect to be our 2026 targets, and sort of what our full run rate opportunity set would be for that program. David Silver: Let me just ask, but am I -- if I'm the only one here, I just have 1 or 2 kind of additional questions. Would that be okay? Or is there some -- if not, I can get back in the queue. Erin Kane: Sure, David. Go ahead. David Silver: Okay. Earlier this quarter, you did put out a press release regarding the, I guess, settlement over the -- your intellectual property for, I guess, EZ-BLOX. And I read the release with interest. I don't have it right in front of me, but I believe it was a settlement that your company considered satisfactory. And I was just wondering if qualitatively you might be able to discuss the nature of the settlement. In other words, are they going to be a new customer for you longer term? Or was there a monetary settlement? Just what was the nature of the settlement in that intellectual property dispute that you considered to your satisfaction? Erin Kane: Yes. And this is, I think, a win for us, obviously, when you spend the time, talent and treasure to put good IP in place, you want to protect it. And so we have been certainly defending that opportunity set for ourselves. And so we certainly were pleased that we were able to agree and sort of resolve the differences of opinion there with the various parties. And yes, with all agreements, there is some monetary settlement. You have an agreement relative to the patent use and upholding licensing from that regard. But I think importantly here, it allows us to set up the right customer and distribution base that is living by the rightful upholding of the IP and allowing us to make sure that sort of importers that are coming from other regions of the world that are violating [ SAIP ] can be held at base. So we do believe that ultimately, this sets us up for increased sales as a result. Operator: And that does conclude our question-and-answer session. I'd like to turn the conference back over to Erin Kane for closing remarks. Erin Kane: Thank you all again for your time and interest this morning. AdvanSix is a resilient company, and we are positioning ourselves to win long term. We're navigating a challenging market environment with discipline and agility while continuing to make risk-adjusted investment decisions to support through-cycle profitability and sustainable performance. We're not just reacting to market conditions. We're shaping our future with a clear focus on value creation. And we're doing it with an integrated business model, durable competitive advantage and a healthy balance sheet. With that, we look forward to speaking with you again next quarter. Stay safe and be well. Operator: Thank you. That does conclude our conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful weekend.
Operator: Greetings, and welcome to the Bridger Aerospace Third Quarter Fiscal 2025 Investor Conference Call. As a reminder, today's call is being recorded. It is now my pleasure to introduce your host, Eric Gerratt, Chief Financial Officer. Thank you. Mr. Gerratt, you may begin. Eric Gerratt: Good afternoon, and thanks for joining us today. Joining me on the call this afternoon is Chief Executive Officer, Sam Davis. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements are based on various assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to, those discussed in the company's filings with the U.S. Securities and Exchange Commission, including expectations regarding financial results for 2025. Management cannot control or predict many factors that impact future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of today. We anticipate that subsequent events and developments will cause our assessments to change. However, we undertake no obligation to revise or update any forward-looking statements or make any other forward-looking statements. Throughout this afternoon's earnings release and call today, we refer to the non-GAAP financial measure adjusted EBITDA. The definition, calculation and a reconciliation to the financial statements of adjusted EBITDA can be found in Exhibit A of our earnings release, which is available on our website. We believe adjusted EBITDA is useful in evaluating our reported results as a supplement to and not a substitute for reported results under GAAP. With that, I'd like to turn the call over to Sam. Sam Davis: Thank you, Eric. This year has been an incredibly strong year for Bridger, both operationally and financially. Operationally, we saw record task orders that ran through October. Utilization measured in days on contract is up almost 10% year-over-year across the fleet. Our multi-mission aircraft have almost doubled their flight hours year-over-year and were extended beyond their guaranteed 150 days a piece to greater than 220 days a piece. Bridger Super Scoopers continue to gain recognition for their effectiveness as the ideal initial attack asset, and the Forest Service has been proactive in prepositioning our assets. Our scoopers have seen nearly a 9% increase in average flight hours year-to-date. The benefits of a proactive response to wildfire this year are clearly visible. Through October 10, according to the National Interagency Fire Center, or NIFC, wildfires have been above average in count with over 54,000 incidents this year up to date -- year-to-date, up 50% over last year and 15% above the 10-year average. Yet despite the increased number of fires, the NIFC reported only 4.7 million acres burned, which is down 40% over last year and down 29% from the 10-year average. This year's tremendous operational performance has lent itself to an incredible financial year as well. The more effective and tactical adoption of our assets has contributed to us surpassing our annual revenue guidance in the first 9 months of the year. Additionally, we remain on track to meet the high end of our adjusted EBITDA guidance. Bridger's 2025 financial performance saw the impact of our focus on developing long-term contracts with both the Forest Service and individual states. This concentration has led to another record-breaking quarter and another record-breaking year in spite of a statistically below average fire year. These third quarter results are a validation of the impact that these efforts are having on our business model. We see this as a strong indicator that as a nation, our assets are becoming increasingly important tools in the toolbox. And as a company, we are building resiliency in our revenue. As the threat of wildfire grows, Bridger remains ready to respond and focused on our mission to protect lives, property, critical infrastructure and the environment. These strong operational and financial results and our expectations for a second record year made it possible for us to complete a balance sheet transformation last week. We completed a $49 million sale leaseback of our campus facilities in Belgrade, Montana and entered into a new $331 million expanded debt facility with increased capacity for growth. Most importantly, we now have the financial flexibility to acquire the aircraft needed to support contract expansion opportunities and to serve all of our customers, whether federal, state, local or defense to further drive EBITDA growth and long-term shareholder value. Bridger's commitment to financial health and resilience is positioning us to better serve and protect this country. Let me now provide a quick update on FMS and Ignis. FMS contributed $2.4 million in revenue during the third quarter. In addition to partnering on the internal aircraft modifications to solidify our competitive edge, we continue to see a number of contracting opportunities, primarily with the DoD in active bids that Bridger and FMS are uniquely positioned to respond to. In addition to awarded work with our partner, Positive Aviation for the FF72 aircraft certification program, recent wins include a small award with the U.S. Air Force. While revenue in FMS business has seen delays due to federal budgeting uncertainties for the short term, we remain optimistic and FMS remains well positioned for a wide range of defense as well as commercial work. We're in the middle of repurposing our business development team to target this work. Much of the opportunities are fairly small and strategic with the potential to scale into larger volume of nonfire, nonseasonal complementary work to the services we already provide. We hope to add more year-round revenue growth to the business later this year and in 2026. A brief update on Ignis Technologies. Since launching its mobile platform to support firefighters in the field over a year ago, pilot programs utilizing the platform with counties, crews and incident management teams continue. We are now linking Bridger's real-time sensor imagery with the Ignis app, creating a seamless data flow from air to ground. During the third quarter, we live streamed video of the Dragon Bravo Fire in Arizona from our PC-12 to the Secretary of the Interiors office. This capability is unlocking new levels of situational awareness, supporting multi-mission aviation contracts and enhancing both operational effectiveness and safety. With the continued success of our sensor-enhanced aircraft in the field, the need for interactive live data streaming is stronger than ever, and we intend for this to be a critical part of our sensor-enhanced aviation contracts next year. Turning to the Spanish Scoopers, which are owned under a partnership agreement with MAB Funding LLC. The aircraft's return to service work by our Spanish subsidiary, Albacete Aero continues to progress. Having received the certificate of airworthiness, the first 2 aircraft have been flying this summer on contract with the government of Portugal. This has been supported by a lease arrangement between MAB as the owner and Avinci as the operator. With our recent financing completed, which provides funds for the aircraft acquisition, we now have the opportunity to potentially bring these 2 scoopers onto our balance sheet in the near future. The third and fourth scoopers continue to undergo the final stages of their respective return to service work and are scheduled to be ready in early 2026, at which time we will enter into discussions with MAB to potentially acquire these aircraft as well. Before I turn the call over to Eric, I want to reiterate the opportunity for Bridger given the recent federal initiatives to restructure our national Wildland firefighting system, which we view as the market shift for the entire industry. The establishment of the Wildland Fire Service Plan and passage of the Fire Ready Nation Act are focused on improving wildfire response and driving future growth. This comes on the heels of the executive order early in the year that called for the establishment of a national Wildland firefighting task force. We have already noticed faster response times, standards of cover and a more comprehensive mix of aviation assets being demanded. With Bridger's significant air attack fleet, including modern fire imaging and surveillance aircraft and the world's largest private super scooper fleet, we believe we are uniquely positioned as the nation refocuses efforts on preparedness and aggressive wildfire suppression to detect, prevent, contain and extinguish wildfires before they become the next catastrophic event. This commitment on top of the 2026 budget for the new U.S. Wildland Fire Service that calls for a threefold increase in funding to $3.7 billion will have a significant positive impact on the entire wildland fire community. We continue to actively look for opportunities with states to provide exclusive use of our firefighting assets, and we remain optimistic that our current budgeting and planning cycles will lead to future opportunities. It has been an incredible 2025 thus far, and I remain grateful I get to lead this exceptional team. Let me now turn it back to Eric, who will talk about our strong financial performance in the quarter. Eric Gerratt: Thank you, Sam. Looking at our results for the third quarter of 2025, revenue increased to a record $67.9 million, up 5% from $64.5 million in the third quarter of 2024. The third quarter of 2025 benefited from continued high levels of activity as multiple scoopers and surveillance aircraft were deployed throughout the quarter. Excluding revenue from the return to service work performed on the 4 Spanish Scoopers as part of our partnership agreement with MAB Funding, LLC, which was $2.1 million in the first quarter of 2025 and $2.1 million in the third quarter of 2024, revenue from ongoing operations, including FMS, grew 5% to approximately $65.7 million compared to $62.4 million in the third quarter of 2024. Cost of revenues was $21.1 million in the third quarter of 2025, and was comprised of flight operations expenses of $12.1 million and maintenance expenses of $9 million. This compares to $23 million in the third quarter of 2024, which included $15.1 million of flight operations expenses and $7.9 million of maintenance expenses. Cost of revenues associated with the return to service work on the Spanish Super Scoopers was consistent for the third quarter of 2025 when compared to the third quarter of 2024. Selling, general and administrative expenses were $7.7 million in the third quarter of 2025 compared to $8.6 million in the third quarter of 2024. The decline reflects lower noncash stock-based compensation expense and a decrease in earn-out consideration, which was partially offset by an increase in the fair value of our warrants. Interest expense for the third quarter was $5.8 million compared to $6 million in the third quarter last year. For the third quarter of 2025, we reported net income of $34.5 million compared to net income of $27.3 million in the third quarter of 2024. Earnings per diluted share was $0.37 for the third quarter this year compared to $0.31 per diluted share in the third quarter last year. Adjusted EBITDA was $49.1 million in the third quarter of 2025 compared to $47 million in the third quarter last year. A reconciliation of adjusted EBITDA to net income is included in Exhibit A of our earnings release distributed earlier today. Now looking at our results for the first 9 months of 2025. Revenue was $114.3 million compared to $83 million in the first 9 months of 2024, a 38% increase. Excluding return to service work, revenue was $101.1 million compared to $78 million in the first 9 months of 2024, up 30%. Cost of revenues was $57 million, which comprised flight operation expenses of $26.2 million and maintenance expenses of $30.8 million. Cost of revenues for the first 9 months of 2024 was $42.1 million and comprised $25.2 million of flight operation expenses and maintenance expenses of $16.8 million. Cost of revenues for the first 9 months of 2025 included an increase of approximately $9.6 million of expenses associated with the return to service work for the Spanish Super Scoopers compared to the first 9 months of 2024. SG&A expenses were $22.8 million compared to $28.2 million in the first 9 months of 2024, with the decrease again driven by lower noncash stock-based compensation expense and a decrease in our earn-out consideration, which was partially offset by an increase in the fair value of our warrants. Interest expense for the first 9 months of 2025 was $17.3 million compared to $17.8 million in the first 9 months of 2024. Bridger also reported other income of $1.8 million in the first 9 months of 2025, which was consistent with the $1.8 million reported in the first 9 months of 2024. Net income was $19.3 million in the first 9 months of 2025 compared to a net loss of $2.7 million in the first 9 months of 2024. Adjusted EBITDA was $54.8 million in the first 9 months this year compared to $40.2 million in the same period last year. Now turning to the balance sheet. We ended Q3 with total cash and cash equivalents of $55.1 million. After the end of the quarter, we completed our previously announced sale-leaseback transaction with SR Aviation Infrastructure for our Bozeman Yellowstone International Airport campus facilities. The sales price was approximately $49 million. In addition, last week, we also executed a new senior secured credit facility for up to $331.5 million. Together, these transactions were used to refinance Bridger's $160 million municipal bond with Gallatin County, consolidate the majority of our existing debt and most importantly, provide significant capacity and financial flexibility through a delayed draw facility designed to fund future fleet expansion to support the organic growth we are pursuing. Turning to our guidance. With the strong fleet utilization year-to-date, including record task orders for our Super Scoopers, we remain on track to end 2025 at the higher end of our guidance range of $42 million to $48 million of adjusted EBITDA. Revenue has already exceeded the top end of our previous guidance range of $105 million to $111 million and is now expected to be between $118 million and $123 million. The company also expects continued improvement in cash provided by operating activities in 2025. Now with that, I'd like to turn the call back to Sam for final comments. Sam Davis: Thank you, Eric. This year-to-date, we have flown in 21 states, provided support for 380 fires and dropped 7.3 million gallons of water. The increased focus on preparedness, early detection and suppression is making a difference from suppression on major fires to prevent the loss of structures to early detection, preventing small lightning strikes from becoming large incidents. Our team continues to execute. As we sit here today, 3 of Bridger scoopers and 4 air attack aircrafts are on standby for late call out, and we stand ready to finish the 2025 season strong and prepared for year-round work during these winter months. Three scoopers have entered winter maintenance to ensure we can provide flexibility within our fleet and be able to respond early in 2026, if necessary, and enable us to more fully utilize the excess capacity of our scoopers. And as Eric stated, with our record 9-month results, we have already exceeded our revenue guidance for the full year and remain confident we will hit the higher end of our annual adjusted EBITDA guidance after assuming the loss typically booked in the fourth quarter. With the monetization of our campus and the new $331 million debt facility, we have consolidated our debt and are now able to reinvest in the business. We have significant capacity and financial flexibility to fund future fleet expansion, drive our organic growth and build on our long-term vision to innovate and deploy the most advanced technology in our industry and deliver on our mission to protect lives, property, critical infrastructure and the environment. And with the support of our federal and government customers, legislation to prioritize early attack and suppression and additional budget dollars appropriated, we're incredibly well positioned to report another year of positive cash flows as we focus on generating solid returns for our stakeholders. I would be remiss to not express my appreciation and celebrate the success of the incredible Bridger team from our senior leadership to our pilots, from mechanics to drivers and all the folks behind the scenes, maximizing our safety and effective operations all around the country. Bridger's mission attracts and retains the best employees in the country, and they're all critical in delivering the results we've had quarter after quarter, and we're ready to answer the call to serve year-round. We're excited for and positioned to make 2026 yet another incredible year. And with that, I'd like to ask the operator to open the call for any questions. Operator: [Operator Instructions] Our first question comes from Austin Moeller with Canaccord. Austin Moeller: Nice quarter. So you have about $14 million free cash flow year-to-date. How much are you tracking towards by end of year? And what do you plan to use the cash for? Sam Davis: Austin, good to hear from you. I will turn that to Eric as CFO, to answer that question. Eric Gerratt: Yes, Austin, I think we'll end the year around that same amount or maybe a little north of that. As you know, fourth quarter, we go into the maintenance cycle. And typically, in the fourth quarter, we don't see as much revenue certainly as we saw in the third quarter or even the second quarter. So I expect it to remain at about that level. And what we'll be doing with that free cash flow is, again, we'll be looking at our fleet expansion opportunities in conjunction with the new credit facility and how best to deploy that capital. Austin Moeller: Okay. And now that the credit facility is in place and the sale leaseback is complete, do you expect the Spanish scoopers to be staying in Europe or coming to the U.S.A.? Sam Davis: That's a great question, Austin. We're exploring all avenues there. I can say that with that now being a reality, and us having those discussions right now to see how quickly we can move on that. We're going to go with kind of the best both strategic and economic benefit for us, and we'll run all those paths. It's hard for me to predict with a crystal ball what that's going to be. But I will say that the beauty of it is they're a very scarce asset and in high demand. So that gives us a lot of optionality to have those aircraft, especially with those two being airworthy and flying a partial season already, Bridger sees a lot of opportunity to put those to work. And we'll know a lot more through the winter months as we nail down the best opportunity. And the beauty of it is we have optionality of where we place them. Operator: [Operator Instructions] At this time, there are no further questions in the queue. I will now be turning the meeting back to Sam Davis. Sam Davis: Thank you. Thanks again for joining our conference call today. We look forward to updating you on our progress when we report our Q4 results in March. We're scheduled to participate in Sidoti's year-end Virtual Investor Conference on December 10 and 11, with our presentation scheduled for 4:00 p.m. Eastern Time on Wednesday, the 10. In addition to the presentation there will be 2 days of virtual one-on-ones. And hopefully, we can have -- connect with some of you then. Additionally, if anyone has any follow-up questions, as always, please feel free to reach out to our Investor Relations, and we can set up some further communication. Thank you, and we can close the call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
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