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Operator: Good morning, ladies and gentlemen, and welcome to the Lifetime Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to introduce our host for today's conference, Jamie Kirchen. Mr. Kirchen, you may go ahead now. Jamie Kirchen: Good morning, and thank you for joining Lifetime Brands Third Quarter 2025 earnings call. With us today from management are Rob Kay, Chief Executive Officer; and Larry Winoker, Chief Financial Officer. Before we begin the call, I'd like to remind you that our remarks this morning may contain forward-looking statements that relate to the future of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in our earnings release and other factors are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future development. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in our earnings release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such release is a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP. With that introduction, I'd like to turn the call over to Rob Kay. Please go ahead, Rob. Robert Kay: Thank you, and good morning. As we discussed last quarter, the second quarter were shaped by a unique set of external pressures, most notably the sudden tariff swings that disrupted shipping patterns across our industry. Coming into the third quarter, we expected a move towards normalization, and that is what we've seen, although in a still choppy environment as tariff rates have continued to fluctuate in both directions. We saw the new 232 tariffs implemented on steel content imported across all geographies. Most recently, there has been announced 10% reduction of tariffs assessed against imports from China. Even before this tariff reduction, Lifetime had seen a more favorable all-in cost basis from China for many of our product categories in the current tariff environment. We anticipate that this will further improve with the latest 10% tariff reduction. The current macroeconomic backdrop and end market environment have created an environment that we expect will persist until greater stability returns to the global trade environment. As has occurred historically, stability at whatever tariff levels has resulted in a return to normalcy with our customer base and in our end markets. We fully expect to see the same trend return. Third quarter saw a decline in shipments across most consumer categories. According to the U.S. Bureau of Labor Statistics, the general merchandise category saw a decline in shipments of approximately 6.1% for the quarter. Lifetime shipments were basically in line with this metric, and we believe compares favorably to many of our peers. We remain confident that our proactive actions and deep expertise in navigating periods of uncertainty will favorably position Lifetime for above-average growth in a return to a normal operating environment. Of note, the overall end market demand continues to evolve, driven partly by the current macro environment. You will increasingly hear about the K-shaped economy where there is a trending diversion of outcomes between different age and demographic groups. We are closely monitoring these trends to optimize our footprint among positive trends in consumer spending. Along these lines, we remain wary of a slightly down trend for this holiday season. However, expect that shipments to 2 of our 3 largest customers will rebound in the fourth quarter due to a shift of orders from the third quarter to the fourth quarter. The near-term volatility created by the current tariff landscape remains challenging, but Lifetime has navigated environments like this before. The steps we took early in the year, including expanding sourcing in Mexico and Southeast Asia, implementing targeted pricing actions and tightening cost controls have all proven effective. Our tariff mitigation strategy is now fully in place and performing as intended. While some manufacturing has shifted back to China due to the current trade realities I just mentioned, the flexibility of our supply chain allows us to pivot quickly as conditions evolve. Importantly, the diverse geographic footprint that we set out to establish for our product country of origin is firmly in place, and we are positioned to adjust our sourcing across regions in response to evolving political and economic conditions. The results for the third quarter reflect disciplined cost management, ongoing progress under Project Concord and continued enhancements in operational efficiency across our platform. Company-wide, we have further streamlined processes, eliminated redundancies and captured tangible savings that are reflected in our results. SG&A expenses in the U.S. are down over 5% year-over-year. On Concord, we're approaching the finish line on the major initiatives we established, and we'll evaluate after year-end whether the progress achieved warrants a next phase of optimization. Operationally, the business is performing well in the areas within our control. In a down market, our International segment again showed progress on top and bottom line, benefiting from our strategic shift towards major retailers in markets like Australia and New Zealand and the European continent. The strength of those relationships, coupled with our globally recognized brand portfolio continues to differentiate Lifetime and further strengthen our competitive position. Specifically, tariffs remain disruptive across all categories with certain segments like dinnerware and the club channel experienced deferred shipments that we expect will move into 2026. However, our multipronged pricing strategy will offset much of the cost impact moving forward as it has been fully implemented for all tariffs announced through the third quarter with the exception of the 232 tariff price increases, which have been passed through to our customer base in this quarter and will be fully implemented before the end of the fourth quarter. These pricing actions are intended to preserve and sustain our gross margin dollar. It's worth noting that some peers are struggling to adapt with slow reaction on pricing actions and a lack of adequate infrastructure to implement a diversified manufacturing strategy as well as the system capabilities to manage the complex and changing customs, cost and pricing environment. Lifetime is benefiting from higher deal flow as we believe that financially pressured competitors are looking for partnership or sale opportunities. That dynamic supports our ongoing M&A strategy where we continue to make progress. Innovation also remains central to our growth strategy. We're continuing to launch new products that align with consumer trends and retailer demand. The Dolly line and the expanded Build-A-Board collection have performed well, reaffirming our ability to identify trends early and bring to market at scale. In hydration, our new glass bottle line under the S'well brand has launched successfully and will be expanded shortly to capture additional market opportunities in the hydration category. From a macro perspective, we continue to believe the consumer will remain cautious through the holiday period. The early indications of seasonal sell-through are encouraging. With an average product price point below $10, Lifetime's portfolio continues to resonate with households seeking quality and value, a key strength in uncertain times. Liquidity remains solid at $51 million and adjusted EBITDA for the trailing 12 months ended September 30 was $47.2 million. This solid financial position allows us to continue investing selectively in areas that will drive long-term profitability and shareholder value. Stepping back, 2025 thus far has been a transitional year, but an important one. The second quarter appears to have represented the trough of tariff-related disruption and the third quarter marks tangible progress towards the beginning of normalization. The actions we've taken under Project Concord, combined with disciplined cost management and proactive sourcing diversification have meaningfully improved the quality of our earnings and the resilience of our business. As I said last quarter, our goal is to control what we can control, and we are doing just that. As the broader market stabilizes, we expect the groundwork we've laid this year to translate into stronger performance, greater efficiency and renewed growth momentum in 2026 and beyond. Particularly, we expect the current headwinds across the consumer products industry to drive further disruption as many undercapitalized participants face increasing challenges meeting the operational and financial demands required to remain competitive in rapidly changing environments. These needs require a tremendous effort in supply chain management, system requirements and balance sheet depth to effectively mitigate the trade war impacts and remain relevant and present to the retail community and consumers. Frankly, many smaller and some of our larger competitors are not adequately addressing these needs and are not providing for a consistent quality supply of products, while adhering to the frequently changing legal requirements created over the past year. Ultimately, those companies will not be able to sustain this current operating modest operandi. This will result in a streamlining of the participants in the consumer products industry and create opportunities for those that have the resources and have managed efficiently and appropriately through this environment. To this end, we are confident that Lifetime is well positioned to thrive as normalization returns to the global and domestic markets for our categories. Thank you. And with that, I'll turn the call over to Larry to review the financials in more detail. Laurence Winoker: Thanks, Rob. As we reported this morning, the net loss for the third quarter of 2025 was $1.2 million or $0.05 per diluted share as compared to net income of $0.3 million or $0.02 per diluted share in the third quarter of 2024. Adjusted net income was $2.5 million for the third quarter of 2025 or $0.11 per share as compared to $4.5 million or $0.21 per diluted share in '24. Income from operations was $6.7 million in the third quarter of '25 as compared to $8.6 million in the 2024 period. Adjusted income from operations for the third quarter of '25 was $11.5 million compared to $13.2 million in the '24 period. Adjusted EBITDA for the trailing 12-month period ended September 30, '25, was $47.2 million. Adjusted net income, adjusted income from operations and adjusted EBITDA are non-GAAP financial measures, which are reconciled to our GAAP financial measures in the earnings release. Following comments are for the third quarter of 2025 and 2024, unless stated otherwise. Consolidated sales declined by 6.5% to $171.9 million. U.S. segment sales decreased by 7.1% to $158.1 million. Sales were favorably impacted by the initiation of our planned increase in selling prices to offset higher tariffs on products sourced from outside the U.S. However, we experienced a decline in unit sales from dampened consumer demand and for some retailers, a shift in the timing of their orders. Within the segment, product line decreases were primarily in tableware, which was most affected by the retail order shifts. International segment sales increased by 1.5% to $13.8 million. And excluding the impact of foreign exchange translation, the decrease was 2.7%, predominantly in Europe, but partially offset by higher sales in the Asia Pacific region. Consolidated gross margin decreased to 35.1% from 36.7%. U.S. segment gross margin decreased to 35.1% from 36.8%. The decrease in the gross margin percentage was primarily due to higher selling prices to offset higher tariffs. As Rob commented, our pricing actions were designed to maintain gross margin dollars, which arithmetically results in a lower gross margin percentage. International gross margin increased to 35.5% from 34.6%, driven by favorable customer and product mix. U.S. segment distribution expenses as a percentage of goods shipped from its warehouses, excluding nonrecurring expenses, was 8.5% versus 10.1%. The decrease was attributable to improved labor management efficiencies resulting in decreased employee expenses, lower depreciation expenses due to a change in asset retirement estimates in the prior year. The decrease was partially offset by higher software expenses for the warehouse management system implemented in September of 2024. International segment distribution expense as a percentage of goods shipped from its warehouses improved to 22.6% from 24.2%. The improvement was due to lower freight out expenses and higher shipment volume resulting in better absorption of fixed expenses. Selling, general and administrative expenses decreased by 8.5% to $35.5 million. In the U.S., the expense decreased by $1.5 million to $28.4 million. And as a percentage of net sales, the expense increased to 18% from 17.6%. The decrease in expense was due to lower employee expenses, including incentive compensation, partially offset by an increase in amortization expense related to a trade name previously considered indefinite-lived. The increase in percentage of net sales was attributable to the impact of fixed costs on lower sales volume. International SG&A expenses decreased by $1.1 million to $3.4 million. As a percentage of net sales, the expense ratio improved to 24.6% from 33.1%. The decrease was due to lower employee expenses and lower selling expenses and the prior year included a regulatory expense. Unallocated corporate expense decreased to $3.7 million from $4.3 million due to lower incentive compensation and legal expenses. Interest expense, excluding mark-to-market adjustment for swaps, decreased by $0.8 million due to lower average outstanding borrowings and lower interest rates on those outstanding borrowings. And the income tax rate for the current period differs from the federal statutory rate of 21%, primarily due to the impact of nondeductible expenses for which no tax benefit is recognized and a partial valuation allowance on U.S. tax asset as a result of the goodwill impairment in the second quarter. In 2024, the rate difference is primarily due to foreign losses for which no tax benefit was recognized. Looking at our balance sheet, it continues to be strong despite the challenges from high tariff rates. Our debt level increased from the second quarter reflects seasonal working capital needs, including an additional [ $13 ] million of inventory costs due to higher tariffs. At quarter end, our liquidity was approximately $51 million, which includes cash plus availability under our credit facility and receivable purchase agreement. And our adjusted EBITDA to net debt ratio as of September 30 was 4.2x. This concludes our prepared comments. Operator, please open the line for questions. Operator: [Operator Instructions] We have the first question from the line of Anthony Lebiedzinski from Sidoti & Company. Anthony Lebiedzinski: So first, is there any way that you guys can quantify what the magnitude of the revenue shift was for a couple of your large customers, Rob, as you called out in your prepared remarks? Robert Kay: Not at this time, Anthony. Anthony Lebiedzinski: Okay. And then thinking about pricing versus unit volumes, I know you did some price increases in the quarter. Can you give us some more information about that? And how should we think about the fourth quarter as it relates to pricing? I don't know if you can answer anything about the unit volumes, but if you could talk about pricing, that would be great. Laurence Winoker: Yes. Well, I'll start off by saying that in our analysis, it appears that our price increase approximately offset the tariff -- additional tariffs, and that was our objective. So that's good as planned. In terms of the impact of these price increases on sales, it's a couple of percentage points. It's still being phased in. It doesn't happen all at once and for all customers. So it will have additional impact in the fourth quarter. Anthony Lebiedzinski: And are you referring to the Section 232 tariffs here for the fourth quarter? Or just wanted -- I know it's still -- it's hard to keep up with all the changing tariff rates. But as far as the Section 232, whether that's already included in your outlook? Robert Kay: Yes, a little of both. I mean by the end of the third quarter, except for the 232 tariffs, everything has been implemented, but it wasn't implemented day 1 in Q3, right? So there's not a full quarter impact. Anthony Lebiedzinski: Okay. Got you. All right. And then can you give us a sense as to what your product sourcing is nowadays, especially as it relates to China? I know you said that some production have shifted back to China, but could you just help us better understand kind of where you are with that at this point? Robert Kay: Anthony, it's fluctuated a lot. So we moved production to India, but when the 50% tariffs put in India, you basically stop getting business with India as it become -- became uneconomical to do so. We finished our build-out substantially of a lot of the Southeast Asian geographies, so we're shipping meaningfully from Cambodia and Malaysia and other geographies. But again, we started in the third quarter experiencing infrastructure problems. So you couldn't take containers out of Vietnam where we had Vietnam and Cambodia shipping through. So again, we shifted that back to China. So we'd have continuity of supply. And in today's environment, as I mentioned, the economics are favorable, all in, including tariffs with China. So while we had targeted, and we could easily move even today, 80% of production out of China, it won't be by year-end because in today's economic environment, that would be -- excuse me, in today's tariff environment, that would be -- harm the economics, right? So we can flex it and a lot of our factories in Southeast Asia are overlap ownership with the factories in China, so we can shift very easily back and forth. Anthony Lebiedzinski: Got you. Okay. And then lastly for me, what types of M&A opportunities are you guys looking at? And what are you seeing in terms of valuation multiples nowadays? Robert Kay: So we are actively engaged. We're seeing a lot in our own space, which would be highly synergistic just from the cost eliminations and some that are more very oriented to our current footprint. In this environment, particularly since the financial buyers are not participating. We're seeing a meaningful reduction in valuation. So it's a combination -- we're seeing good valuations from a combination of: a, generally, the market valuations are down; and b, to looking at opportunities that have meaningful synergies and cost eliminations, which leverages that multiple down further. Anthony Lebiedzinski: All right. Well, that's good to hear and best of luck. Robert Kay: Thanks, Anthony. Operator: This concludes our question-answer session. I would now like to hand the conference over to Rob for closing comments. Robert Kay: Thank you. And as always, thanks, everyone, for listening to our call and your interest in Lifetime Brands, and we look to communicating with people in the near future. And as always, Larry and I remain available for anyone who wants to reach out directly. Thank you, and have a great day. Operator: Thank you. This concludes today's conference. We thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Shawn Amini. Thank you. You may begin. Shawn Amini: Thank you for joining us today for Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. Yesterday afternoon, the company released its financial results and filed its Form 10-Q with the Securities and Exchange Commission, which is available on the Investors section of the company's website at www.texaspacific.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information and reconciliations about these non-GAAP financial measures are contained in our earnings release and SEC filings. Please also note, we may at times refer to our company by its stock ticker, TPL. This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover; TPL's Chief Financial Officer, Chris Steddum; and Executive Vice President of Texas Pacific Water Resources, Robert Crain. Management will make some prepared comments, after which we'll open the call for questions. Now I will turn the call over to Ty. Tyler Glover: Good morning, everyone, and thank you for joining us today. Our third quarter 2025 performance underscores the power of our unique business model and active management and consolidation strategy focused on accretively growing our oil and gas royalties, surface and water assets. This was a record quarter for many of our major revenue and volume performance indicators. Oil and gas royalty production achieved a record of approximately 36,300 barrels of oil equivalent per day representing 9% sequential increase and a 28% increase year-over-year. Record water sales of $45 million represents 74% sequential growth and 23% growth year-over-year. Record produced water royalty revenues of $32 million represents 5% sequential growth and 16% increase year-over-year. In sum, this was the first quarter in TPL's history where we recorded over $200 million of revenue. We accomplished all this despite some of the weakest benchmark oil and gas prices the industry has experienced since the COVID pandemic period. Focusing on our oil and gas royalties. Production volumes continue to benefit from robust activity in our Northern Culberson, Northern Reeves and Central Midland subregions. Production growth has been driven by an increase in net wells turned to sales and longer lateral lengths. Average lateral lengths year-to-date in 2025 are approximately 7% longer than last year and 23% longer compared to laterals spud in 2019. TPL's portfolio of acquired minerals and royalties is also performing very well. We began acquiring minerals and royalty interests in 2018 and in the third quarter, that portfolio was responsible for 18% of TPL's consolidated royalty production. Combined, the minerals and royalties acquisitions are generating a mid-teens pretax cash flow yield. TPL's legacy NPRIs are also performing well with double-digit growth year-over-year. Turning to our Water Services and Operations segment. This business rebounded considerably from last quarter. As I mentioned earlier, water sales revenue was a record for third quarter 2025. Although rigs and frac spreads have trended lower, upstream operators continue to prioritize development efficiencies, as we see persistent deployment of co-completions and simul and trimul fracking. Our investments in brackish and treated water infrastructure have established TPL as one of the few systems in the Permian capable of accommodating the volume intensity required to keep up with operators. On the produced water royalty side, revenues and volumes continue to perform well. Year-over-year, quarterly revenues and volumes were up 16% and 19%, respectively, as we see strong demand for both in-basin and out-of-basin pore space. Similar to our oil and gas royalties, TPL's Water segment has benefited from both organic investment and inorganic growth. Since its formation in 2017, we've invested nearly $200 million to build out our source water and recycling infrastructure. We've also acquired approximately $220 million of surface acreage in pore space. These acquisitions were substantially funded by approximately $150 million of 1031 and 33 exchanges and land sales, consisting of acreage that was either noncore or have limited strategic value. In return since inception, the Water segment has generated over $600 million of earnings, a $142 million of earnings in the last 12 months. Size and scale of our water segment across both sourced and produced is one of critical competitive advantages. For source water, it allows us to maintain and grow market share and preserve pricing when the overall industry is pulling back on completions. For produced water royalties, our size and scale allow us to grow our market capture, attain strong royalty rates and meaningfully complements our recycling and water sales efforts. Although commodity prices today are lower than what the industry believes ideal, we consider this current cycle a uniquely attractive opportunity to consolidate high-quality Permian assets. First, current oil prices are well below average historical oil prices. Since 2010, Brent prompt month oil prices have averaged $78 per barrel. Brent prompt month today is around $65. Although we are not in the business of predicting commodity prices over the short term, we do believe that longer-term mid-cycle oil prices will be higher than current spot prices. OPEC reducing spare capacity and bringing barrels back to market has resulted in looser supply and demand balances, and consequently, a weaker price environment. However, longer term, this ultimately will result in a healthier market dynamics. Despite uncertain macroeconomic conditions over the past year, global liquids demand continues to grow at a steady pace. Oil supply will eventually rationalize in response to pricing signals, albeit the process can unfold slowly as CapEx and development cycles tend to be sticky over the short term. Although we firmly believe that the Permian still has substantial remaining inventory and growth runway, other shale basins that have historically contributed to U.S. supply growth now appeared to be in terminal decline. According to the EIA, the Bakken's most recent peak oil production month was in late 2019 at 1.5 million barrels per day. Today, the Bakken is down to 1.2 million barrels per day. The Eagle Ford's most recent peak oil production month was also in late 2019 at 1.4 million barrels per day; whereas today, it's 1.1 million barrels per day. In fact, if you were to exclude the Permian, total U.S. oil production appears to have peaked 5 years ago and is down about 1 million barrels per day from that peak level. Though the U.S. contribution to global oil supply will still benefit from Permian growth, it could likely be offset with increasingly larger declines from non-Permian basins. We suspect that extracting additional global supply will be much harder going forward. Permian was responsible for virtually all of the world's crude oil supply growth over the last decade. Since the beginning of 2015, global supply growth of crude oil, excluding NGLs and other liquids, has been 4.2 million barrels per day. Permian crude oil supply growth during that time was 4.8 million barrels per day, which implies that, on an aggregate basis, the Permian made up for global crude oil declines over the last decade while also providing all of the incremental growth. With structural liquids demand globally still on a growth trend for the foreseeable future, many key supply regions in structural decline and OPEC reducing spare capacity, we believe that over the long term, there is a very favorable skew towards right tail high oil price cycles. Despite the low commodity price environment today, TPL still retains abundant access to attractively priced to external capital. Last month, TPL closed on its inaugural credit facility with $500 million of lender commitments that accrues interest at SOFR plus a spread of either 225 or 250 basis points depending on TPL's debt-to-EBITDA leverage ratio. TPL's first-ever credit facility enhances our liquidity and allows us even greater flexibility towards funding growth opportunities and other general business purposes. The simultaneous occurrence of below mid-cycle commodity prices and a robust supply of low-cost capital has historically been rare and short-lived for oil and gas companies. But currently, those elements have aligned for TPL. Because TPL is built and managed towards long-term value creation, we can arbitrage depressed valuations for long duration assets impacted by short-term volatility. During these periods where TPL can take advantage of down cycles and opportunistically leverage our resilient business, high cash flow margins and fortress balance sheet to consolidate high-quality Permian royalty surface and water assets. We can tolerate periods of low commodity prices for assets that will likely generate cash flows for many decades. To that end, yesterday, we announced acquisitions of Permian oil and gas royalties and surface acreage, which fits seamlessly into the broader TPL portfolio. On November 3, 2025, we acquired approximately 17,300 net royalty acres, standardized to 1/8th, located primarily in the Midland Basin in Martin, Howard and Midland counties. Total purchase price was approximately $474 million, funded entirely by cash on our balance sheet. Approximately 70% of the acquired interests are adjacent to or overlapping drilling spacing units that TPL already owns. Meaning, we essentially acquired additional royalties in current and future well locations we already retain an interest in. Approximately 61% of the royalty acreage is operated by Exxon, Diamondback and Occidental. The royalty acquisition currently produces more than 3,700 barrels of oil equivalent per day with an approximately 80% oil and natural gas liquids cut. We expect to generate a double-digit pretax cash flow yield at realized oil and natural gas prices of approximately $60 per barrel and $2 per 1,000 cubic feet, respectively. In September, we closed on an acquisition of approximately 8,100 surface acres in Martin County, Texas. The surface acquisition is adjacent to land TPL already owns, providing TPL an even larger contiguous block in a strategic area that is prospective for source and produced water, SLEM and other next-gen commercial opportunities. In conclusion, we're not overly concerned with near-term commodity price volatility. Although TPL's oil and gas royalty revenues remain below the peak from third quarter 2022, it's entirely attributable to lower commodity prices as our royalty production has increased 55% since then. We can't make any promises as to if or when commodity prices improve. But as TPL's royalty production has substantially grown both organically and inorganically, TPL retains immense upside leverage to the next oil and gas price up-cycle. That potential incremental revenue represents pure inflation-protected margin, as our royalties are not burdened by capital costs in most operating expenses. In addition, our water business just had a record quarter, as we execute on multiple growth opportunities such as out-of-basin disposal and produced water desalination. Overall, TPL is positioned exceptionally well over the near and long term, and we remain intently focused on exploiting our commercial potential while deploying capital opportunistically, as we seek to maximize shareholder returns. With that, I'll hand the call over to Chris. Chris Steddum: Thanks, Ty. For the third quarter of 2025, consolidated total revenue was $203 million, and consolidated adjusted EBITDA was $174 million. Adjusted EBITDA margin was 85%. Free cash flow was $123 million, representing a 15% increase year-over-year. Royalty production this quarter was approximately 36,300 barrels of oil equivalent per day. The royalty acquisition that we announced with yesterday's earnings release closed after September 30 and did not contribute to the production or revenue for the third quarter 2025. As of quarter end, TPL had 6.1 net permitted wells, 9.9 net drilled but uncompleted wells and 3.1 net completed but not producing wells. We expect our recent royalty acquisition to add approximately 2 net wells to our line of sight inventory. Turning to our desalination project. Construction continues on our 10,000 barrel per day facility in Orla, Texas. We expect to begin commissioning the facility by the end of the year. Once fully commissioned, we will expand our testing process, as we seek to evaluate the system's capabilities at scale and assess its performance under a wider variety of operating conditions and water specifications. Our previous CapEx estimates remain unchanged from our last update. On the regulatory front, we have received an additional approved land application pilot permit from the Texas Railroad Commission. This permit allows us to use the facility's treated freshwater output to irrigate land with the aim of restoring native bush grass in a nearby area. With respect to our TCEQ discharge permit, we continue to be responsive as we work towards permit approval. We believe our proprietary desalination technology and beneficial reuse efforts can play a critical role in providing a sustainable solution for Permian-produced water beyond just subsurface sequestration. In the near term, our goal is to prove that our patented freeze desalination process can work economically at scale to advance on the regulatory and compliance fronts and to further investigate waste heat capture, process efficiencies and colocation designs. We plan to provide updates on these key initiatives next year as our Phase 2 facility ramps operations. Turning to our balance sheet. Yesterday, we announced that our Board approved a 3-for-1 stock split of the company's common stock. This stock split is expected to be completed in December 2025, subject to finalization of the record date and distribution date by the Board. At the quarter end, TPL had $532 million of cash and cash equivalents and no debt. As Ty discussed, last month, TPL closed on a credit facility with $500 million of lender commitments. Credit facility was oversubscribed. It contains favorable terms and the interest rate spreads for borrowed funds are attractively priced for TPL. The facility was undrawn at close and remains undrawn today. This augments our liquidity position even as we maintain a net cash balance sheet today, and it expands our ability to capitalize on opportunities countercyclically. As always, we remain intently focused on maximizing intrinsic value per share with a disciplined capital allocation approach aimed on maximizing returns over the long term. And with that, operator, we will now take questions. Operator: [Operator Instructions] And our first question comes from the line of Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ]. Derrick Whitfield: Congrats on a strong [Technical Difficulty] we would assume flattish activity. What's a good run rate for the business? And how much of your water sales are recycled barrels versus water firm source [Technical Difficulty]. Operator: And our next question comes from Oliver Huang with TPH. Hsu-Lei Huang: Just wanted to, I guess, hit on the royalty acquisition you all announced this morning or last night. Just any sort of color on how this deal came together? Also how many incremental net locations on a 10,000-foot equivalent basis would you all say were acquired in your valuation underwriting for the asset? And just when we're kind of thinking about the 2 net incremental, I guess, work-in-progress wells, any sort of color in terms of which bucket it falls into? Chris Steddum: Yes. Thanks for the question. We probably won't go into the total location count. But when we think about this type of asset and the type of assets we've purchased in the past and hopefully, the type we'd want to purchase in the future, having a lot of inventory that allows for future growth for years to come is one of the most important aspects of the types of assets that we look to acquire. And so our view is that this is going to be a great asset. It's going to provide a great growth outlook to complement our legacy asset base, and so that's kind of how we've thought about it. Obviously, some of that growth is dependent on the level of activity and commodity prices, but we still think it's a very high-quality asset. It's operated, as you heard in the comments, by some of the most well-capitalized operators in the Permian. And so we feel really good that over the coming years, it's going to grow and provide really strong returns for TPL. Hsu-Lei Huang: Okay. Perfect. And maybe just, for a second question, on the power side of things, just power data center type of conversations that are occurring. How do you all feel about your position in terms of being able to participate out in West Texas versus, say, a quarter ago or even the start of the year to capture some share of this market? And just given the expansiveness of your footprint, just any sort of color you can provide in terms of which areas seem more prospective for getting such deals executed on? Tyler Glover: Yes, sure. Thanks for the question. Look, we feel like TPL is very well positioned. We have all of the attributes needed to be very attractive to power generators and data center developers, hyperscalers. I think we've probably got more available land with those attributes needed than anyone else in West Texas, and I think West Texas is quickly becoming more and more popular as an area to build out multi-gig facilities and campuses. I would just say that we're -- we continue to have really good conversations. I think we're pretty close on a couple of opportunities that are very interesting. So hopefully, we'll have additional news to share here in the very near future. Operator: And next up, we have Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ]. Derrick Whitfield: Let's try this again. Can you hear me? Tyler Glover: Yes, we got you now, Derrick. Derrick Whitfield: Awesome. Sorry about that, and congrats on a strong financial and operational update. For my first question, I wanted to focus on your outlook for water resources business. Over the last 2 quarters, we've seen a bit of volatility in water sales, assuming flattish activity, what's a good run rate for that business? And how much of your water sales today are recycled barrels versus water from source water wells? Robert Crain: When you look at -- Derrick, it's Robert. When you look at the change of quarter-over-quarter, it's something that we're always trying to work to minimize that volatility and you can really attribute it to -- mainly to consolidation and diverse acreage position that you see. Our footprint allows us to expand off that legacy acreage, and that's what we're attempting to do to capture as much as that diversity that we see because of the consolidation is so centralized in activity area from one area to another. As far as what the produce looks like, it's really a moving target every quarter. Obviously, the goal is to maximize the amount of recycled produced your putting it on operation, but there's a lot of factors that go into that, mainly the availability produced and the demand of what that frac is going to be in that area. So that's where our team works with the operators every day to look at what that balance looks like, how can we maximize produced and how can we backstop it with the brackish and keep up with the simul and trimul demand that we see today. Derrick Whitfield: Makes sense. And then for my follow-up, Robert, we could probably stay with you. Just wanted to focus on how you're thinking about progressing desal beyond Phase II and Phase III and the degree of conversations you're having with the industry about your technology? And then also I'd love to get your views on the permit that was just approved for NGL for 800,000 barrel produced water treatment plant for beneficial reuse and recharge into the Pecos River basin, sorry? Robert Crain: I'll start on desal. I'd say that we were the first entry into desal in the market. I think our expanse of footprint and diversity of operators and midstream companies allowed us to see that desal was going to be necessary at some time in the future. And we got to think, we're 4 years into this at this point of starting from exploring different technologies, doing the R&D on which technology we selected, we're confident in desal and our technology to bring desal to the future. When we look at commercialization of desal and how that fits into the upstream market, what the ultimate commercial model looks like right now is yet to be determined for the industry as a whole. What we see the biggest benefit on ours is you go back to the power component, waste heat capture of really what we'll be exploring a waste heat capture and use of our technology and then freeze technology and how that fits into direct air cooling and direct chip cooling utilizing the freeze technology. So when we look at 2026, for us, it's not necessarily growing in volume, it's working with those other synergies of how we how we implement direct capture. And you got to think anything that you can do in that to, one, decrease the input cost of energy into desal and to maximize any value you can get of the output of the water greatly helps the economics of bringing desal to full commercialization. On the NGL permit. There were a couple of draft permits issued. There have been no final permits issued so far from the TCQ. NGL and us included, are in draft permit phase right now, as we work with the commission to get that into permit -- final permit approval. Derrick Whitfield: And maybe one more, if I could, on M&A more broadly. While we tend to see less opportunity at lower prices due to wider bid-ask spreads, you guys are having success as evidenced in this quarter. I guess when you kind of think about the broader picture, both surface and minerals, how would you characterize the competitive landscape in the Permian at present and the opportunities really you're seeing across the broader Permian footprint, both Delaware, Central Basin Platform and Midland? Tyler Glover: Yes. I mean we've been successful getting some of these deals done here recently. They've been sourced just through our relationships. I mean the lower commodity price environment makes it a little tougher because of the bid-ask spread, like you said. But I think we're still seeing a pretty healthy amount of opportunity in the pipeline, and so I think we'll continue to be successful. And there's probably some equally interesting opportunities in the Delaware and the Midland and starting to see some kind of interesting stuff across the platform as well when you think about out-of-basin disposal in some of these next-gen type projects, power generation, data centers, things like that. So pretty excited looking forward on the opportunity set in front of us. Operator: Thank you. And with that, this does conclude today's question-and-answer session and it also concludes today's teleconference. And thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.
Operator: Thank you for standing by. My name is Amy, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Canada Goose Inc. Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Neil Bowden, Chief Financial Officer. You may begin. Neil Bowden: Good morning, everyone, and thank you for joining us on the Canada Goose Q2 Fiscal '26 Earnings Call. Today, you'll hear from myself, Dani Reiss, our Chairman and CEO; Carrie Baker, President of Brand and Commercial; and Beth Clymer, President and Chief Operating Officer. We'll start with prepared remarks and then answer questions. Today's presentation will contain forward-looking statements that are based on assumptions and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements, except as required by law. You can read about these assumptions, risks and uncertainties in our press release issued this morning and our filings with the U.S. and Canadian regulators. These documents are also available on the Investor Relations section of our website. We report in Canadian dollars. So the amounts discussed today are in Canadian dollars unless otherwise indicated. Please note, the financial results described on today's call will compare second quarter results ended September 28, 2025, with the same period ended September 29, 2024, unless otherwise noted. With that, I'll turn the call over to Dani. Dani Reiss: Thanks, Neil, and good morning, everyone. We are extremely pleased to share with you today our results of our second quarter. Our core direct-to-consumer business continued to show strong momentum across the board. Direct-to-consumer comparable sales grew 10% year-over-year with positive comps in all regions and notable bright spots in the United States and China. This marks 10 consecutive months of positive comps beginning last December as our operating imperatives drive stronger consumer engagement and results. I'll talk more about that in a moment. Wholesale represented about half of our total revenue in Q2, which is typically our largest wholesale quarter. Revenue for the quarter was in line with our expectations, slightly down year-over-year and flat through the first half. We see strong positive leading indicators in the channel with stronger sell-through globally, improved inventory health and greater product diversity and excitement from our partners about our upcoming collections. Our continued top line strength is a result of disciplined execution across our 4 operating imperatives. First, expanding our product offering to enhance year-round relevance. Revenue from new styles as a percentage of total revenue more than doubled year-over-year, driven by new products in both our downfilled and non-downfill categories. This drove notable growth in our DTC channel with revenue from newness now representing roughly 40% of DTC sales for the quarter compared to 10% last year. We see significant runway for growth through product newness. Striking the right balance between new products and a very strong core is critical to our long-term success. Apparel remained our fastest-growing category as we continue to strengthen our year-round relevance and reach a broader range of consumer lifestyles and environments. Second, building brand heat through focused marketing investments. Our fall/winter 2025 campaign presents our brand with a fresh perspective rooted in both city life and the outdoors, amplifying the hero products through compelling storytelling, bold design and seasonal relevance. We launched an exciting new product collaboration with Canadian basketball player and our global brand ambassador, Shai Gilgeous-Alexander, NBA Champion and MVP. This was a cultural moment fusing style and heritage in a way that speaks to today's global luxury consumer. We also announced an exciting new global brand ambassador, acclaimed actor Hsu Kuang-han. His impact in APAC and Mainland China, in particular, have been immediate, driving engagement, reach and relevance. Later this month, our Snow Goose collection returns at the height of our peak season with another bold statement of who we are and where we're going. We are speaking more frequently to our consumers, and it is really resonating. Third, driving business expansion through strategic channel development. We continue to deliver an elevated experience at every touch point. The direct-to-consumer comparable sales growth has been consistently strong, showcasing our integrated approach to store execution, inventory availability and enhanced more frequent marketing activities. Store conversion rates have increased year-over-year in every region for the third quarter in a row, a tangible indicator that our renewed focus on disciplined retail execution is working. We also strengthened our store network this quarter, opening one store in Macau and completing 2 strategic relocations, one in Beijing and most notably a new Paris store on Champs- lys es. We are thrilled about our new location in Paris, strong traffic and luxurious adjacencies and have introduced an elevated store design. I personally attended the grand opening just last week, and 2 things stuck out to me. How busy the store was during the day with a full mix of consumers eager for our product and its elegant design elevated unmistakably Canada Goose. In wholesale, we are evolving our brand presence with more relevant assortments and elevated visual storytelling. This quarter, we unveiled a new brand expression through key in-store activations such as the Fall/Winter '25 Chilliwack immersive pop-up with an archive discovery experience at Selfridges in London and Galeries Lafayette in Paris. With these activations, we're bringing our brand to life in a consistent way everywhere. Our fourth operating [ imperative ] is operating efficiently with pace and accountability. Neil is going to talk about this one in more detail, but I want to emphasize that we are very pleased with our top line results so far this year, although our margin in the first half was pressured year-over-year. This was deliberate and driven by key investments in marketing and in our stores that will fuel growth in the second half and beyond. We are very happy to report that the second half is off to a strong start with positive DTC comps in October. We are entering our peak season well positioned and with confidence across both store and e-commerce channels and with a clear focus on translating that progress into sustained profitable growth and stronger margins. In closing, the combination of more consistent marketing, a stronger mix of in-season product newness and sharper channel execution is driving improved financial performance and deeper consumer engagement. I'm confident in our direction and proud of the foundation that we've built for long-term growth. On behalf of our senior leadership team, I want to again thank our Canada Goose teams around the world for their passion for the brand and relentless preparation for our peak season. And with that, I'll turn it over to Neil. Neil Bowden: Thanks, Dani. Before diving into the financial results, I want to cover 2 key points to frame our financial performance in Q2. First, we are very pleased with our top line results, particularly strength in the DTC channel. A year ago, we reported weak comps, and we're in the early stage of implementing a number of changes to our D2C operations, which began delivering results late in the third quarter of fiscal '25. We look at the performance over the last 3 quarters as evidence that those changes across our network are working. The channel mix is where we want to be. Strong D2C performance underpinned by comp growth, wholesale performance meeting internal expectations through H1 and reduced emphasis on activity in our other channel. Second, given our SG&A profile this year, particularly spend in our stores, marketing and product creation, our EBIT dollars and margin are lower than they were a year ago in both Q2 and the first half of the year. On the back of stronger-than-expected comp performance and tighter cost control, we are well set up for the balance of the year. That said, we are focused on operating margin expansion, and I'll cover the puts and takes as we move through these comments. Okay. Let's get into the details. Revenue for the second quarter was $273 million, 2% higher than $268 million in Q2 of last year, but down 1% on a constant currency basis. Now some color on channel performance before getting into the regional results. All the revenue figures I cite are on a constant currency basis. D2C revenue was up 21% with sustained strong performance in all our regions and across both stores and e-commerce. Channel growth was fueled by direct-to-consumer comparable sales growth of 10%, led by North America and APAC, while EMEA was slightly positive. That's 3 consecutive quarters of positive comps, a clear indicator of sustained momentum and solid execution of our operating imperatives. Wholesale revenue was down 5%, in line with our expectations and down 3% on a year-to-date basis as we continue to focus on elevating brand positioning within the channel and maintaining a healthy inventory position. You heard us say over the past few quarters that we expect it to be stable this year, and this is exactly where we are as we exit H1. Revenue in our other channel totaled $10 million compared to $27 million last year, reflecting an intentional pullback in friends and family events in the first half of the year. We expect somewhat limited activity in Q3, given our focus on executing in the most important quarter of the year. Now commentary on the geographic revenue trends in Q2. In North America, outstanding D2C comp performance in Q2 was the most important factor. The brand is performing very strongly in both Canada and the U.S., where stores and e-commerce comps grew in the low teens. Channel mix away from both other revenue due to fewer activities and timing of wholesale shipments led to the regional revenue being down 8% year-over-year. In APAC, revenue increased 20%, driven by growth across both DTC and wholesale channels. The region delivered high single-digit comp growth during the quarter with Mainland China leading the way. Our performance in this market remains solid, even as consumer sentiment in China is somewhat mixed. Demand in Japan was robust with substantial revenue growth supported by new store openings and a full quarter of performance from our flagship in Tokyo Ginza that opened late in Q2 fiscal '25. E-commerce performance in the region was solid on a comp basis and was further aided by growth in our Douyin channel. In EMEA, revenue was down 7% year-over-year. The trends in this region have been consistent, strong performance on the continent and a more challenging consumer environment in the U.K. With this backdrop, we delivered slightly positive comps accompanied by a timing shift in the wholesale order book to later in the year as compared to fiscal '25. We remain focused on optimizing conversion in our channels and marketing execution to mitigate those trends. Moving down the income statement. Let's turn to gross profit, which was $6 million higher than the prior year. Gross margin expanded 110 basis points year-over-year to 62.4%, primarily due to favorable channel mix, more DTC and less revenue in the other channel, partially offset by higher product costs and a higher mix of apparel. Shifting to SG&A. Reported SG&A expense for the quarter was $188 million, an increase of $25 million or 16% year-over-year. Excluding the quarterly earn-out charge for our knitwear manufacturer, SG&A as a percentage of revenue was 67.6%, up 730 basis points year-over-year, reflecting planned investments in key revenue-driving areas such as marketing and stores ahead of peak. This was mitigated somewhat by corporate SG&A leverage. The increase in marketing expenditure this quarter reflects our deliberate shift toward upper funnel activity to build cultural relevance and brand desirability as well as a more balanced approach to our marketing calendar throughout the year following a quieter period in H1 last year. We've continued to invest in our stores with a focus on labor and training to prepare for peak season as well as key store openings, which led to some deleverage in Q2. These investments are partially offset by leverage from our corporate expenses, which are growing at a much slower rate than revenue, even while we're adding talent in areas like product creation. We recognize there's still meaningful runway to improve SG&A costs as a percentage of revenue. And while we continue to invest in key areas that will deliver long-term value, we remain disciplined and thoughtful about how and where we spend. In our fourth operating imperative, operating efficiently with pace and accountability, we continue to enhance the flexibility and agility of our operations to better support growth. Here is an example of one such win. In July, we closed our largest U.S. warehouse and nearly all shipments to North American retail stores are now fulfilled from Canada. This gives us a single larger pool of inventory, allowing us to deliver products to stores more quickly while reducing overhead costs. For clarity, this was neither in reaction to any tariff concerns nor does it change our trade risk profile based on what we know today. It was about simplifying our operations and reducing costs. With revenue growth and gross margin expansion offset by planned SG&A growth, our adjusted EBIT was a loss of $14 million for the quarter, which decreased from a profit of $3 million in Q2 last year. Adjusted net loss attributable to shareholders was $13 million or $0.14 per share compared to a profit of $5 million or $0.05 per share in Q2 of fiscal '25. We ended the quarter with a strong balance sheet. Inventory was $461 million, down 3% from last year, reflecting stronger consumer demand and tighter inventory management. Inventory turnover was 0.9x, slightly improved compared to the same period last year. Net debt at quarter end was $707 million compared to $826 million in the second quarter of fiscal '25 as net working capital improvements over the past 18 months, particularly inventory, delivered operating cash flows that led to reduced short-term borrowings compared to the same period last year. During Q2, we successfully amended our term loan by extending the maturity until 2032, solidifying our capital structure. Our net debt leverage was 2.6x adjusted EBITDA compared with 2.9x adjusted EBITDA at the same time last year. CapEx in the second quarter was higher versus the prior year, as planned, given our fiscal '26 store opening program. As we've said, we'll be opportunistic in adding stores as our confidence in delivering comp sales growth increases, which has been demonstrated around the world for the past 3 quarters. We enter peak season with confidence based on execution to date and our plans ahead but with our collective heads down working towards continued success in the second half of fiscal '26. And with that, I'll turn the call over to our operator. Operator, you can open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Oliver Chen with TD Cowen. Oliver Chen: Regarding direct-to-consumer comp sales, the momentum and solid numbers you're seeing there, what initiatives are you prioritizing to sustain the momentum here? And how close are you to the longer-term opportunity of $4,000-plus sales per square foot and thoughts there? Carrie Baker: Oliver, thanks. It's Carrie here. We're really excited about our DT comp sales. I think that has been such a big effort over the last 18 months, and you've seen us quarter after quarter start to deliver on that. There's a few things. It's not just one or the other. It's the combination of we've better trained our staff. We've hired earlier and so that they're ready for peak. They're starting to deliver that. So sharper channel execution. There's also a product piece, which is really exciting. So we -- as you heard Dani talk about, we've delivered so much more newness, 40% of newness now being DTC revenue. And that's both seasonal relevance. So there's better product for Q2 so that people are choosing something they're wearing it right now, but then also the inventory availability. So we've done a lot of work of making sure that the stores and online, they're ready for peak, they're ready for people to come in when we're marketing it. So the third piece is the marketing. Really, it's been such a boom to the traffic, the engagement, the excitement that we're seeing from consumers. As you heard Neil talk about, we're marketing earlier. It's a more consistent execution that we're seeing. So that combination of all those 3 things is really driving our success in DTC, which we're thrilled about, and we're seeing that continue into Q3. Dani Reiss: In terms of the productivity, Oliver... Neil Bowden: Sorry, Oliver. Yes, just in terms of the productivity, we closed the year last year a little bit below that $4,000 sort of magic threshold. But I don't think anyone in this room feels that that's the opportunity. We think that's the minimum. And certainly, our historical numbers have been higher than $4,000 and well above, and we're aiming to be more in that zone than just at $4,000. And so we feel great about all the things that have happened, and we know there's a lot more to go. Oliver Chen: Okay. And a follow-up. Any thoughts on globally in terms of U.K. softness or other regions that you're slightly more cautious on? And as we think about SG&A ahead, what would you speak to in terms of fixed versus variable that we should know about? Carrie Baker: So on the U.K., yes, so I don't think it's anything different than we've been seeing the trend. You heard Neil talk about that as well. Many brands are experiencing that. It's very different than what we're seeing in Continental Europe, so which remains strong. And so we're doing what we're focused on. The teams are focused on maximizing every person that comes into the store, every visit online. And so that's sharper execution. I think we have opportunities still to improve that, but I think the efforts that we've been implementing the incentives in store staff, having the product inventory available has really helped us there, and we'll continue to monitor that. Beth Clymer: Oliver, it's Beth. I'll take your question on SG&A. Part of the reason we are so energized by the positive comp results is that, that creates a really nice opportunity for margin expansion over the medium and long term because of our fixed variable makeup. Obviously, the more we can drive from comp store sales growth, the more we can leverage the fixed costs in our retail network. So we feel really good about our revenue growth profile, allowing us to continue to drive productivity there. Obviously, as you know, we are making investments this year, investments in Q2. That is intentional. That is to drive growth not only in peak season, but in fiscal '27 and beyond, brand relevance, store experience, right? So there are obviously investments that are pressuring the margin and the SG&A as a percent of revenue at the moment, but we feel really great about the underlying productivity and our ability to drive that margin in the medium to long term. Operator: The next call comes from the line of Jonathan Komp with Baird. Jonathan Komp: I want to follow up on the comps that you're seeing. And clearly, the newness and especially some of the transitional seasonal items appear to be working. Just can you speak more on your confidence of sustaining that comps momentum across regions as you reach the seasonal and colder weather periods and any signals that you're seeing there? Carrie Baker: For sure. Thanks for your question. It's Carrie again. We're feeling really encouraged. I mean the thing to me is like despite the differences in all of our markets, the consistency of our performance there and being able -- higher conversion, the comps increasing, it's just -- it makes us feel very good, and we're also seeing that continue into Q3. I think, as I said earlier, it's really a number of factors. The teams are well trained. They are ready for peak. We've got the inventory. And the newness we're seeing, let me comment a little bit on that. It's not just that we're broadening the assortment to more seasonally relevant. That is a big part of it. But it's also newness and animation of some of our classics. So if you're looking online or if you're going into our stores today, you'll see a big focus on our Chilliwack. And Dani mentioned some of the activations that we're doing in some of our wholesale partners. And that is a big part of what people come to Canada Goose for, but we're giving them a new reason to be excited. So the Chilliwack is a classic product that we've had in our line for at least 10 to 15 years. When you come in store today, you see 6 different animations of it, versions of it, different fabrications, whether it's wool, a puffer version, our Chilliwack fleece is flying. That is like the #1 demand product right now. People are asking for more. So that's the way we're animating and bringing people back into store or attracting new consumers, and that's consistent across every region. Jonathan Komp: Okay. Great. That's helpful. And then, Neil, maybe a follow-up. I mean the tone sounds very positive on the sales trends. It's hard to project the margin that we should expect. So could you maybe just talk about the factors that will drive changes in the leverage point as you come up on your key seasonal period here? It seems like you'd have much more ability to improve the margin performance year-over-year. But if you could talk a little bit more about some of those drivers and how they shift into Q3 here, that would be helpful. Neil Bowden: Thanks, Jon. Yes, I think I'd point to a couple of things. So obviously, the fuel that comes from positive comps is critical to driving overall channel margin expansion as well as being able to leverage the corporate costs to the extent that they're fixed. And so we're absolutely focused on continuing, just to your first question, continuing to drive that comp sales. Second is ensuring that the investments that we've made up to this point, whether that's marketing or whether it's store labor are delivering in season as we expected. And we've been pretty clear this year that not everything will deliver in season, but some will. And then third, how do we get enough leverage out of maintaining a disciplined approach to the corporate kind of fixed cost here in the center so that when we grow the revenue in the channels, we are leveraging that fixed cost. And so those are the 3 levers that we're pulling. And you're absolutely right to hear degree of confidence around continuation of that top line performance and where we think we've got control over the other things. Operator: Your last call comes from the line of Ike Boruchow with Wells Fargo. Robert Bischoff: This is Robert up for Ike. Can you just talk about some of the trends you're seeing in North America? It looks like there was a drop in third quarter -- or second quarter, sorry. Is that -- was that primarily because of the wholesale shift? Can you quantify that? Carrie Baker: Absolutely. So yes, I think there's 2 things that are sort of masking the actual amazing sales results that we're seeing in DTC. One is wholesale, and that is just purely timing. As you heard Neil talk about, wholesale remains stable. Our expectations are exactly where it should be. That strategy of like intentionally pulling back and making sure that we're growing with the right partners, that is working. And so you're just going to see that timing difference there. The second part is the intentional pullback of -- in our other channel. And so that was -- last year, it was important for helping us clear through some inventory, and that just didn't happen in Q2, and that was intentional on our part. So we're really encouraged and the momentum that we're seeing is not just in one or the other market. It's in both Canada and the U.S., and we see that again continuing into Q3. Operator: There are no further questions at this time. Mr. Bowden, I turn the call back over to you. Neil Bowden: Thank you, operator, and thanks to everyone who listened on the call, and we look forward to updating you in a few months' time after we finish our peak season. And so happy holidays to everyone, and we'll talk to you soon. Thanks. Operator: Thank you. That does conclude our call for today. You may now disconnect.
Berit-Cathrin Hoyvik: Good morning, everyone, and welcome to Hexagon Composites Q3 presentation. My name is Berit-Cathrin Hoyvik, and I'll be moderating today's presentation. Joining me in the studio today is our CEO, Philipp Schramm; and CFO, David Bandele. They will take you through our company update, financials and outlook before we wrap up with a Q&A session. And with that, I'll hand the word over to Philipp. Philipp Schramm: Thank you. Good morning, everyone, and thank you for joining us for our Q3 presentation. Let's start with a high-level summary of the third quarter this year. The macroeconomic uncertainty continues to negatively weigh on our business and our core markets are in a cyclical downturn in combination with an unprecedented macro environment. This has significantly affected our volumes and our profitability this quarter, and our Q3 results are weak with group revenues, which came in with NOK 538 million and led to an EBITDA of negative NOK 54 million. August contributed to the majority of our Q3 EBITDA loss. With our banking partners, we decided to initiate an equity raise to improve our balance sheet, and we have raised NOK 590 million. In September, we launched a group-wide cost savings program targeted at reducing our cost base, improving our EBITDA breakeven point and securing our liquidity. I will come back to the results and details of this program in more detail shortly. In addition, we remain focused on executing the strategic steps that will drive the adoption of natural gas in North America and in Europe. So let's take a closer look at how we are managing the current environment. First, let me give you some content to our current market exposure. On the one hand, our Transit, Refuse and aftermarket segments represent sectors that operate largely independently of the macroeconomic environment and typically have an uptick in tough times. This is exactly what we are currently experiencing with our Refuse business. These segments provide our business with resilient cash flows. At the same time, Truck and Mobile Pipeline are cyclical by nature with higher sensitivity towards the macroeconomic environment. These are also the 2 segments which represent Hexagon's largest growth opportunities. For a deeper look into how these 2 cyclical growth markets are developing, I will explain some of the factors that are impacting Truck and Mobile Pipeline in North America. These 2 segments are currently operating in an unprecedented environment affected by a unique combination of external factors. Constantly changing trade and tariff policies have created a wait-and-see environment. In our discussions with customers, as one example, the announcement and then the quick postponement of tariffs on trucks in September further delayed both spendings and projects. Shifting emissions regulations have had a similar effect. The current U.S. administration has created uncertainty on whether the existing emissions, regulations will hold or if other regulations will replace them. This too has caused fleets to sit on the fence. But I do want to be clear, though, that from a regulatory perspective, the removal of the zero emission mandate has supported CNG as the alternative fuel solution to replace the base fuel diesel. The high cost of capital and lower shale activity due to low oil and gas prices are impacting the demand for Mobile Pipeline. Currently, Gas transportation companies have a strong focus on asset utilization in these high capital-intensive markets. For trucks, the freight decline has spent now 4 years. Industry forecast for the Class 8 truck market in 2026 have dropped dramatically over the last few months. Fleets are more reluctant in this environment to adopt to new technologies and to incur higher upfront CapEx cost despite the positive total cost of ownership that CNG now delivers to heavy-duty fleets, thanks to the new game-changing 15-liter engine. If these projections become reality, then we are preparing to navigate this environment. We cannot control the timing of recovery. However, actions that we are now taking will mean that we will be in a more profitable position in the future. So what does this exactly mean? As a company, we are laser-focused on reducing our cost base through this down cycle. In connection with the equity raise in September, we launched a group-wide cost and cash savings program. It follows cost-saving measures that were already implemented earlier this year. In total, by the end of Q3 2025, we have reduced personnel costs by approximately NOK 190 million compared to 2024 on an annualized basis. Approximately NOK 70 million of this reflects structural annualized run rate improvements by the end of Q3. As part of the ongoing program, we are delivering on additional measures and expect to see further effects in the coming quarters. We also see similar positive effects from other operating expenses. Beyond personnel costs, our investments are well below 2024 level and will remain that way. In 2026, we will limit CapEx to a maximum of NOK 80 million for our core businesses. In addition, we have identified significant optimization potential within our inventories. A strategic focus on utilizing our existing assets and raw materials will contribute to a further NOK 150 million to NOK 200 million reduction in the first half of 2026. Improved payment terms will help us as well. As we have communicated in previous quarters, we remain focused on the core business and will have strict investment discipline. We will continue to review how our current assets can create the best value for you, our shareholders. Despite the current environment, this unprecedented market will rebound. We remain focused on driving the adoption of natural gas vehicles, especially in heavy-duty trucking. While the pace of adoption has been slower than expected, we are proactively doing our part to drive the adoption. In September, we formed a strategic partnership with Cummins and Clean Energy to launch Pioneer, an independent leasing company that is dedicated to mobility applications with alternative fuels. In addition, we launched our own demo truck program in October, enabling fleets across the United States and Canada to test how natural gas-powered heavy-duty trucks work in their specific and individual environment. For fleets to experience the potential of these trucks in their specific environment is reducing the barrier and is essential to accelerate adoption. We are already seeing huge interest and confirmation from fleets that they are seeing savings, lower emissions and the diesel-like performance, which can now go hand-in-hand without any compromise. In October, we also closed the full acquisition of SES Composites and will now focus on leveraging synergies in consolidating the European market. With a cylinder site in Poland and a valve manufacturing business in Germany, this acquisition further strengthened our position in the European Transit Bus segment. With that, I will hand over to David who will walk you through the financials. David Bandele: Thank you, Philipp. Good morning, everyone. On a group level, Q3 revenues were NOK 538 million with an EBITDA of negative NOK 54 million. That's after booking severance costs of NOK 9 million. The quarter was heavily impacted by the prolonged market uncertainty in North America. Volumes were lower across all segments and especially in Mobile Pipeline. As Philipp has confirmed, to mitigate the effects of these weaker volumes, we initiated a new cost savings program in Q3. We are laser-focused on our main priority, which is supporting liquidity through this down cycle. In September, we proactively strengthened our balance sheet by NOK 590 million and negotiated an updated bank agreement. We are already seeing the effects of positive working capital releases, and these efforts will continue to become more visible over the next 2 quarters. Headcount reductions totaled approximately 20% as of the end of this quarter compared to 2024 levels. And in light of the market conditions this year, this cost savings program is delivering results with more to come. Now let's look at these results and their drivers in more detail segment by segment. In Q3, our Fuel Systems segment generated NOK 372 million in revenues, weaker than the third quarter of 2024, which was bolstered by deliveries to the large UPS order received in the back end of 2024. The Refuse sector has been incredibly strong in 2025 with continued year-over-year growth in Q3, albeit at slightly lower volumes than last quarter's record performance. Transit delivered steady volumes with deliveries to multiple municipalities, including the large previously announced order to Dallas, Texas. As expected, the Refuse and Transit sectors continue to deliver a stable baseload of demand even amid the current market uncertainty. For the segment as a whole, the EBITDA margin in Q3 came in at negative 4% due to low truck volumes impacted by additional tariffs and further market uncertainties. Now over to Mobile Pipeline, which remained under pressure with continued impact from broader market uncertainty in the quarter. Lower shale gas activity and falling LCFS and RIN credit prices are resulting in customers halting their CapEx spending. With new investments being limited in our core energy end markets, including oil and gas and renewable natural gas, module utilization is being favored by our largest customers who are employing a wait-and-see approach. In North America, this demand halt has resulted in a significant decline in profitability that has impacted group margins. Revenues for the quarter were NOK 93 million with negative margins of 49%. Now outside of North America, the results delivered remained steady compared to the prior quarter. Now moving to our Aftermarket segment, which is our most resilient segment. Aftermarket delivered steady revenues of NOK 97 million in Q3 on par with the same quarter last year. Our Parts and Services business delivered solid volumes in the quarter across both FleetCare and Hexagon Digital Wave. Profitability, while stable, came in lower at 8% EBITDA margin due to an unfavorable mix of internal services and one-off charges. As mentioned previously, 2025 has been a known down year for our modal acoustic emissions technology. At these low levels, the unit actually delivered close to EBITDA breakeven this quarter with cylinder inspection and testing activity picking up in 2026 as the 5-year requalification cycle reaches their next annual milestone. And to counteract and navigate the headwinds, we're experiencing in our cyclical businesses and with continued uncertainty on the timing of demand recovery, we are accelerating our actions on 3 targeted major themes. The first one, key, preserving liquidity through 2026 and beyond. The second one, lowering the breakeven point of our group operations through significant indirect and fixed cost reductions and then in turn, lowering our reliance on demand recovery. And the third, as you've heard from Philipp, increased measures to stimulate the adoption of natural gas transportation in North America, Europe and the rest of the world. As an extension of these actions and to strengthen our balance sheet, announced in September, our refinancing arrangements with the banks have resulted in a suspension of leverage covenant testing up until Q3 2026, at which point, the target will be 4.2x on that quarter based on net interest-bearing debt divided by the last 4 quarters rolling EBITDA with some allowance for certain one-off adjustments. The steep falloff in demand that we have experienced in 2025 has significantly reduced our EBITDA levels and made it technically difficult to show normal leverage until EBITDA levels are steadily built up again over time. In light of this development, we secured a covenant holiday to counter that difficulty and the relevance of the test in such situations. As a condition, our banking partners implemented a conditional reduction in debt levels, commitments and availability. A capital raise was a necessary condition to secure this flexibility and was successfully executed in September, again, raising NOK 590 million. Key changes to the financing facility are described in the Q3 report and include a total facility reduction by NOK 200 million down to NOK 2 billion, of which NOK 1.6 billion is fully accessible and NOK 400 million accessibility is dependent on leverage being less than 2x. Also, that NOK 400 million will be reduced to NOK 200 million progressively through 2027. You also see the reduced covenant levels shown and also introduced a minimum liquidity requirement of NOK 200 million. I will also note that M&A investments and financial support will be subject to the lenders' consent. These updated terms alongside the capital raise have strengthened our balance sheet. While July trading performance was around about breakeven levels, August results generated losses with continued weakness in realized mobile pipeline sales versus our probability-weighted expectations. With the reduced visibility impacting both core businesses and increasing debt and leverage levels, a maximum capital raise under the authority of the Board was executed to ensure that we can best navigate these market headwinds. Hexagon will continue to focus on responsible actions within our control, focused on balance sheet resilience as we face these uncertainties in our markets. Here, we illustrate the impact ranges of our additional cash flow and profitability initiatives for the 4 quarters through to that important milestone of Q3 2026. These are split between balance sheet and profitability drivers. On the balance sheet side, we expect between NOK 150 million to NOK 200 million in working capital reductions as we intentionally reduce our built-up carbon fiber raw materials and other key inventories through negotiated pauses in purchase commitments and, of course, a pull-through of sales. We can reduce CapEx in the short term by a further NOK 50 million to NOK 80 million from an annualized run rate of around about NOK 130 million but we should not hold to those levels in 2027. Interest costs can be reduced by NOK 20 million to NOK 30 million with benefits from the reduction in our absolute debt levels. Of the NOK 150 million cost saving target disclosed in connection with the cap raise in September, an estimated NOK 70 million of positive run rate effects have already been realized by the end of quarter 3, and we expect to realize the remaining NOK 80 million over the coming quarters. We are also actively working on that additional ambition of NOK 50 million communicated in September, which would give us a range then of NOK 80 million to NOK 130 million over the next 4 quarters. Total potential cash improvement is as shown and both before any additional cash generation from sales. Again, I'll reiterate, these are before any additional cash generation from sales. So in summary, we expect to reduce our interest-bearing debt levels over the next 4 quarters. While our cost savings initiatives will give a good boost to EBITDA, we will also be dependent on sales and mix developments in the year ahead. We, therefore, need to keep laser focused to hit our covenant target at Q3 '26, which technically is highly sensitive then to the EBITDA development. Hexagon has a market-leading position and a history of profitable growth, and the market will recover over time. We will, of course, keep close and continuous dialogue with our banking partners in this period. And with that, I'll hand it back to Philipp to share more on our outlook. Philipp Schramm: Thank you, David. So let's turn to the outlook. Overall uncertainty continues to provide limited visibility on how quickly the market will rebound. But we are confident that Q4 will come in better than this quarter with several orders being delivered during the fourth quarter of this year. Our cost-saving program will also have a growing positive impact over the next few months and will improve our margins. Beyond Q4, we will continue the delivery of our strategy. Entering 2026, our visibility beyond our current backlog is limited for our cyclical segments. Our aftermarket and public service segments of Transit and Refuse will continue to provide a baseload of relatively stable cash flows. However, based on our experience and market seasonality, we expect the first quarter of 2026 to be a weaker one. With our cost savings program, we are focused on our cost optimization program. We will deliver efficiency improvements alongside this. This will bear fruit. We have a sound liquidity position, as you have heard, and active cost management will help us as well. And that means despite the current market softness, our growth ambition remains firmly intact. We see 3 major drivers for when our markets will rebound. The first driver is the U.S. Class 8 truck market is at a cyclical low with an aging fleet. Those truck assets will need to be replaced at some point in time. The fact underpins recovery will happen, but the time line and how quickly they get replaced is largely dependent on the macroeconomic situation and how fast freight rates recover. The second driver of our cyclical rebound is pure economics. Natural gas is the only cost-effective and widely available solution to decarbonize long-haul trucking, and it offers an economic payback over traditional diesel trucks. The third driver lies in the positive signals from fleets. The X15N is changing the game, and it is expected to unlock CNG adoption. In talking to fleets and seeing the positive response to our own demo truck program, we are very confident that this technology will scale. The industry ambition remains unchanged at 8% to 10% CNG adoption of Class 8 trucks. In addition to these drivers, we are focusing on key strategic priorities. Driving the adoption of natural gas vehicles is one of those strategic priorities. We are also actively working to broaden our geographic and end market exposure with a purpose of smoothing the current cyclicality and growing our business. Our current opportunities represent market entries, which require limited capital that again can provide us with additional volumes and broaden our market exposure. So it remains a question of when, not if this market cycle rebounds. And when it does, we as the market leader for natural gas fuel system with then an improved cost base, we are in the pole position to capture growth more profitably. So to sum it up, our key markets on a cyclical downturn that is being compounded by overall macroeconomic uncertainty. We are, as Hexagon, doing our utmost to weather the storm and remain focused on driving further cost reduction and cash discipline to secure our liquidity and improve EBITDA breakeven. We remain confident in the long-term growth of Hexagon. That growth story is firmly intact, and we are taking measures to both accelerate the adoption of natural gas and diversifying our geographic, customer, product and end market outreach. With that, I will hand back to Berit-Cathrin for the Q&A. Berit-Cathrin Hoyvik: Thank you, Philipp. We'll start with the first question is for you, Philipp. How have you managed to get in this situation? Shouldn't you have started to cut costs a lot sooner? And what signals are you getting from customers on orders? Philipp Schramm: Okay. Thank you for that question. Since I started, we started to adjust to changing market dynamics. Already in Q1 and Q2, and as I also communicated, we have reduced the cost base. Nevertheless, with the weak results of August, we have taken one of our negative scenarios and initiated more. That was the start point of this major cost reduction program to preserve liquidity, improve our EBITDA level due to the fact that we are seeing more and more fleets are being on the fence, the wait and see to respond to the macroeconomic uncertainty and this unprecedented downturn in trucking in the United States. Nevertheless, the uncertainty is in the market. I cannot deny that. But our growth story is intact. CNG is the only alternative now to replace the base fuel diesel for heavy-duty trucking in the United States. So the growth story is intact. We're adjusting to the new reality. We're adjusting to a declining outlook. But I'm confident that we will weather the storm and come out of the storm stronger than we entered it. Berit-Cathrin Hoyvik: I'll move over to you, David, a question on cash flow. Can you drag us through what the cash flow from investment activities relate to? What is included in the NOK 43 million of CapEx, the NOK 18 million in loan to Cryoshelter and the NOK 50 million in other investments? David Bandele: Sure. So the NOK 15 million was a modest investment into Pioneer, a strategic relationship in order to boost adoption of natural gas trucks. On Cryoshelter, and Cryoshelter, remember, is a pre-revenue company. They're actually working on a contract also on a customer of ours. So we supported their ability to do so. And then on CapEx, it's fair to say it's a normal CapEx that we have been -- that we need to do. But we also note that we've had quite a few ERP programs actually coming to conclusion in Q3. So moving to a cloud system, which has been successful globally for the company and also another ERP project within Digital Wave. Berit-Cathrin Hoyvik: And then continue with you, David. Questions on SES. These 2 questions. So I'll start with the first. Could you please indicate the net interest-bearing debt you took on when you consolidate SES? David Bandele: SES is a debt-free transaction, pleased to say. Berit-Cathrin Hoyvik: Thank you. And the second, in round numbers, what will SES contribute to the Q4 numbers for EBITDA? David Bandele: That's a good question. Obviously, when you do due diligence, we're not yet a feet under the table properly. But of course, as announced, it was reporting around about EUR 30 million in top line and around about EUR 2 million in EBITDA. So we will progress along that basis over the next few quarters. Berit-Cathrin Hoyvik: And then also another one for you, David. Why did payroll increase from the second quarter to the third quarter in 2025? And the second, may we expect other operating costs to stay between NOK 100 million and NOK 105 million per quarter for the fourth quarter and 2026? David Bandele: Yes. The other operating costs as disclosed in the report, that's a fair assumption from the ask of the question. On the other matter, it's just technical. So we have our long-term incentive program costs. We had a credit in Q2 and then more of a normal but reduced run rate in Q3. And that reflects the financial performance projections. So it's just some accounting between Q2 and Q3. One other thing. In Q3, we also booked NOK 9 million of severance cost. Berit-Cathrin Hoyvik: And we will continue with questions on working capital also for you, David. You have more than NOK 1 billion tied up in working capital. Why are you expecting so little working capital release? And the second part of the question, are you committed to purchase some raw materials beyond 2026? David Bandele: We -- of course, we have stated that we expect at least NOK 200 million. We do also expect market recovery in 2026. But yes, there's a good reason to take down working capital as much as we can. Berit-Cathrin Hoyvik: We'll continue questions on Mobile Pipeline. There's 2 questions. So there's one for you, David; one for you, Philipp. So first, David, in your investor presentation in relation to the equity raise, you show Mobile Pipeline is not expected to reach 2024 levels before 2028. Why did you expand capacity by 50% last year? David Bandele: The capacity program was essential also in terms of flexibility of operations. So we have quite a good program of new products coming online, and that gives us increased flexibility. There was also productivity gains, as we mentioned at the time. But at the end of the day, Mobile Pipeline delivered $40 million in EBITDA in 2024 for a $3 million to $4 million investment. We feel that's the right way to set us up also going forward. And of course, we did come into the year with elevated levels of backlog, which we successfully reduced. Berit-Cathrin Hoyvik: And then the second part for you, Philipp, on Mobile Pipeline. You control 50% of the market according to the same slide. Do you not have a dialogue with your largest customers? Philipp Schramm: We do have a dialogue with every one of our customers. And as we stated, and I said multiple times before, is that customers within the gas transportation industry are highly impacted by the oil and gas prices, first for shale activities. On the other hand, the RNG side is impacted by lower credits, as we stated also in this presentation today. This is focusing these companies on asset utilization. And these discussions we are having. But one thing which has changed is now these customers are also truck customers. So every customer who has a CNG unit, one of our Mobile Pipeline trailers can haul these trailers with an X15N engine truck. So we are combining this and approaching all of our customers with every of our product offerings. This is a change which we haven't had last year, and this is what we are moving forward with to offer our customers the entire portfolio, of course. And these discussions are ongoing [indiscernible] yes, unprecedented macroeconomic environment where there's a lot of uncertainty, where there's a lot of wait and see. But if the utilizations and some of the uncertainty is going away, we see also their momentum from the discussions with our customers that this might change. But this is what we are preparing for. And as I said, we are doing our utmost to weather the storm, to improve our cost base, secure liquidity because we are prepared. We have the capacity to do so, and we can scale up. And as I said, it's not about if, it's about the when. And we trust in the market of 8% to 10% as every other industry player does of CNG adoption of the entire Class 8 fleet. Berit-Cathrin Hoyvik: Back to you, David. Even with cost cutting of NOK 190 million, the Q3 covenant looks tight, implying revenue run rate must also come up. How do you see that happen with truck volumes weakening further? David Bandele: Yes. Obviously, we mentioned the maximum effect we expect from the cost initiatives of up to NOK 130 million additional for the next 4 quarters. And the rest, as mentioned there, should come from sales, and that's a fair statement. So if you just repeat that question, sorry. Berit-Cathrin Hoyvik: So even with the cost cutting of NOK 190 million, the Q3 covenant looks tight, implying revenue run rate must also come up. How do you see that happening? David Bandele: Right. So in terms of the recovery, I think you heard it in the presentation that we believe the assets are close to being replacing -- being replaced on trucks. So we look for a truck recovery far closer than we look for a Mobile Pipeline recovery. In Mobile Pipeline, there's also split geographies. So North America is obviously our biggest. But we see promising increases in Mobile Pipeline in the rest of the world and Europe, particularly the Jordan contract, for example. So yes, so those are sort of brighter elements of potential recovery. Berit-Cathrin Hoyvik: And then for you, David, also on working capital. The working capital reductions, is that relative to 3Q '25 level? David Bandele: Correct. So on the slide, we presented additional cash P&L and the balance sheet initiatives. Those are all in addition to Q3 run rate. Berit-Cathrin Hoyvik: And then we have a question for you, Philipp. Hexagon Purus will need more cash or be bought. Will you let anyone buy them? And what is the best case scenario with regards to Hexagon Purus as you see it? Philipp Schramm: I think it's an evaluation. And as I stated before, we believe that we have provided Hexagon Purus with enough liquidity to get through this challenging time. And as with every one of our minority share holdings, we are looking for opportunities to generate and improve shareholder value. So we evaluate situations closely as opportunities come by, and that's the same also with our shareholding in Hexagon Purus. Berit-Cathrin Hoyvik: And then a question for you, David, on gross margin. Could you please elaborate on why the gross margin improved significantly from the second quarter to the third quarter? David Bandele: It's a pretty technical answer, but I'm happy to maybe take that more offline. But of course, any improvement is good. Berit-Cathrin Hoyvik: And that's a question for you, Philipp. Why are you so bullish on truck recovery when the data you're presenting shows further decline in truck orders in 2026? Philipp Schramm: Because I trust first in our case. Secondly, the numbers speak for itself. It's an unprecedented downturn in Class 8 truck decline in the United States. The age of the fleet is increasing. So at some point, there will be a turning point that trucks need to be replaced. And that makes me confident that this will change. And it's not me saying this, if you listen to other market players in this area, they are also seeing that there might be a change. But when it is, that's the question. And that's my role as the CEO of Hexagon Composites to prepare us for this. That's why we have initiated the cost reduction program and the preservation of liquidity. And this is my goal that we are weathering these times and preparing us for the future because as I said before, the adoption in other markets for CNG is possible. So I truly believe why should it be different from our main market in the United States, where the regulations, as I said before, with the move away from the zero emission mandate is actually putting CNG in the spot to be the alternative to replace the base fuel diesel for heavy-duty trucking and heavy long-haul and high energy-intensive mobility applications. Berit-Cathrin Hoyvik: And then a question for you, David, on backlog. Why do you not provide any order backlog information, which would really help outside shareholders close some of the information gap between insiders and outsiders? David Bandele: Sure. I don't think it's relevant in the truck industry with the frame agreements, LTAs that we have. And it is a long-running question when it comes to Mobile Pipeline. We've chosen not to do that historically for those reasons. Berit-Cathrin Hoyvik: Thank you. And then one question for you, David, on the cyclicality. Given the immense cyclicality you apparently are exposed to, should you ideally have financial debt at all? David Bandele: It's a good question to have. But obviously, it's always a balance of your capital structure between equity and debt. So I'll leave it there. Berit-Cathrin Hoyvik: And I think that we have one final question here from -- for you, Philipp, in terms of can you comment on new contracts and the pipeline for Pioneer? Philipp Schramm: For Pioneer. I cannot comment for our partner, an independent company. What we see and what I hear, there is interest, and it's the same interest which we see. As I heard, there might be something coming, but I cannot -- it's just speculation, and it's up to Pioneer to comment on that. Berit-Cathrin Hoyvik: I think that concludes our presentation for today. Thank you for joining. Philipp Schramm: Thank you very much.
Operator: Welcome, and thank you for joining Rayonier's Third Quarter 2025 Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Collin Mings, Vice President, Capital Markets and Strategic Planning. Collin Mings: Thank you, and good morning. Welcome to Rayonier's investor teleconference covering third quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release and Forms 10-K and 10-Q filed with the SEC list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They're also referenced on Page 2 of our financial supplement. Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Mark McHugh, our President and CEO. Mark? Mark McHugh: Thanks, Collin. Good morning, everyone. Before turning to our third quarter results, I'd like to briefly touch on the proposed merger of equals transaction that we announced with PotlatchDeltic on October 14. As detailed on our joint conference call a few weeks ago, we believe that this transaction will deliver significant strategic and financial benefits beyond what either company could achieve independently, including roughly $40 million of estimated run rate synergies. The combination will create a premier land resources company with a high-quality and well-diversified timberland portfolio spanning over 4 million acres, a dynamic real estate platform and a well-positioned wood products manufacturing business. The merger will drive -- will further drive enhanced opportunities to grow our land-based solutions and Natural Climate Solutions business, given our increased scale and complementary revenue streams. The combined company will benefit from a strong balance sheet, exceptional talent pool and a shared focus on disciplined capital allocation. I'm both excited and confident about the long-term value creation potential of this merger for our shareholders. The merger remains on track to close in late first quarter or early second quarter of 2026, subject to the satisfaction of customary closing conditions, including the receipt of required regulatory approvals and the approval of Rayonier and PotlatchDeltic shareholders. I've been pleased by the progress made during the initial phases of our integration planning, which is a testament to the cultural alignment of the two companies. Both organizations are very focused on the opportunity to create value for our shareholders through synergies, operational efficiencies and the sharing of best practices, and we look forward to providing further updates as we get closer to closing. Moving to our third quarter financial results. I'll make some high-level comments before turning it over to April Tice, Senior Vice President and Chief Financial Officer, to review our consolidated financial results. Then Doug Long, Executive Vice President and Chief Resource Officer, will comment on our Timber results. And following the review of our Timber segments, April will discuss our real estate results and our outlook for the balance of the year. In the third quarter, we generated adjusted EBITDA of $114 million and pro forma net income of $50 million or $0.32 per share. Adjusted EBITDA roughly doubled compared to the prior year quarter, driven by strong performance in our Real Estate segment, improved results in our Southern Timber segment and favorable overhead costs, which were partially offset by lower results in our Pacific Northwest Timber segment. In our Southern Timber segment, we generated third quarter adjusted EBITDA of $43 million, which was up 13% from the prior year period as increased harvest volumes more than offset a modest decline in weighted average net stumpage realizations. The 24% increase in harvest volumes versus the prior year quarter reflects drier weather conditions as well as the normalization of green log demand following significant salvage activity during the first half of the year. While overall market conditions continue to be challenging, we are pleased with our operational execution and financial results during the quarter. Turning to the Pacific Northwest Timber segment. Third quarter adjusted EBITDA of $6 million was roughly $2 million below the prior year quarter as higher log prices and lower costs were more than offset by a 34% decline in harvest volumes due to the Washington dispositions we completed at the end of last year. In our Real Estate segment, we generated adjusted EBITDA of $74 million in the third quarter, up $54 million from the prior year period. The significant increase in adjusted EBITDA reflects a large contribution from a conservation sale in Florida as well as strong results in our real estate development business. Turning to our outlook for the balance of 2025. We are on track to achieve full year adjusted EBITDA at or above the higher end of our prior guidance range, driven largely by the continued strong momentum in our real estate business. With that, let me turn it over to April for more details on our third quarter financial results. April Tice: Thanks, Mark. As you review our financial results for the quarter, please note that all periods presented have been retrospectively adjusted to recast the historical results of the former Trading segment into the Southern Timber and Pacific Northwest Timber segments as we have eliminated the Trading segment following the sale of our New Zealand business. Moving to the financial highlights on Page 5 of the supplement. For the third quarter, sales totaled $178 million, while operating income was $42 million and net income attributable to Rayonier was $43 million or $0.28 per share. On a pro forma basis, net income was $50 million or $0.32 per share. Pro forma items in the quarter included a $7 million asset impairment charge associated with the fair value assessment of certain real estate assets that were part of the Pope Resources acquisition. Our adjusted EBITDA was $114 million in the third quarter, up from $57 million in the prior year period. Moving to our capital resources and liquidity at the bottom of Page 5. Our cash available for distribution, or CAD, for the first 9 months of the year was $154 million versus $77 million in the prior year period. The significant increase was driven by a combination of higher adjusted EBITDA, lower cash interest expense, higher interest income and lower capital expenditures. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page 8 of the financial supplement. During the third quarter, we repurchased 1.2 million shares at an average price of $24.55 per share or $30 million in total, as we continue to believe that share repurchases represent a compelling use of capital. As of September 30, we had $232 million remaining on our current share repurchase authorization. However, given our pending merger with PotlatchDeltic, our ability to repurchase shares has been and will continue to be limited prior to the closing. We finished the third quarter with $920 million of cash and roughly $1.1 billion of debt. At quarter end, our weighted average cost of debt was approximately 2.4% and the weighted average maturity on our debt portfolio was approximately 4 years. Our net debt to enterprise value based on our closing stock price at the end of the quarter was 3%, and our net debt was less than 1x the midpoint of our adjusted EBITDA guidance. As a result of the taxable gains arising from the sale of our New Zealand joint venture interest, we declared a $1.40 per share special dividend on October 14, which will be paid on December 12 in a combination of cash and shares. The number of common shares issued as a result of the dividend will be calculated based on the volume weighted average trading prices of the company's common shares on the New York Stock Exchange on December 1st, 2nd and 3rd. Similar to the dividend paid earlier this year by issuing shares to meet part of our REIT taxable income distribution requirement, we have retained significant flexibility for allocation priorities. I'll now turn the call over to Doug to provide a more detailed review of our Timber results. Douglas Long: Thanks, April. Let's start on Page 9 with our Southern Timber segment. Adjusted EBITDA in the third quarter of $43 million was 13% above the prior year quarter as higher harvest volumes more than offset lower net stumpage realizations. Total harvest volumes increased 24% versus the prior year quarter as production improved due to drier weather conditions and increased demand for green logs as salvage operations in our Atlantic region subside. Meanwhile, non-timber revenue was modestly lower compared to an exceptionally strong prior year period due to lower pipeline easement revenue. Average sawlog net stumpage pricing was $27 per ton, a 3% decrease compared to the prior year period, primarily due to reduced sawmill demand, coupled with the lingering market impacts of elevated salvage volume earlier in the year. Pulpwood net stumpage pricing of roughly $14 per ton was 20% lower than the prior year quarter, driven by weaker demand following recent mill closure announcements, excess supply due to prior salvage operations and an unfavorable shift in geographic mix. Overall, third quarter weighted average net stumpage realizations fell 5% versus the prior year quarter to roughly $20 per ton as lower pulpwood pricing was partially offset by an increased proportion of sawtimber volume. Last quarter, we noted that salvage volume from hurricanes in 2024 was normalizing in our Atlantic markets, with mills shifting back to a green log procurement. While salvage operations are largely in the rearview mirror, pricing improvements to date have been limited as recent mill closure announcements have tempered the pulpwood demand outlook in certain market areas. Looking beyond the current market headwinds, we continue to expect the supply side of the equation to tighten significantly in these markets over the next several years. The Georgia Force Association estimates that approximately 26 million tons of pine and 30 million tons of hardwood were impacted by last year's hurricanes, a substantial hit to regional supply that the market will contend with for years to come. In gray markets, soft in-market demand, coupled with weaker residual markets, led some sawmills to reduce production during the quarter. Although construction activity is slowing seasonally, we expect U.S. lumber production to eventually ramp up in response to higher duties on Canadian lumber imports, the recently announced Section 232 tariffs of 10% on all softwood lumber imports and the prospect of additional interest rate cuts and improved housing demand as we move forward. In pulpwood markets, conditions remain challenging through Q3. Mill closures announced earlier this year in the Gulf region, followed by more recent announcements in Atlantic markets have reduced regional demand and weighed on pricing. In our Gulf markets, dry conditions led to softer pricing but allowed us to harvest some difficult access areas. In the Atlantic, recent mill closures have resulted in some pricing pressure as wood flows adjust to these new demand patterns. As we move forward, we are optimistic that the recent capacity reductions to support improved operating rates across the remaining containerboard mill base, although the benefits will vary by region given the localized nature of pulpwood markets. Moving to our Pacific Northwest Timber segment on Page 10. Third quarter adjusted EBITDA of $6 million was 26% below the prior year quarter due to lower harvest volumes, partially offset by higher log prices and costs. Total harvest volumes decreased 34% in the third quarter as compared to the prior year period, reflecting the impact of the Washington dispositions we completed late last year. At $100 per ton average delivered domestic sawlog pricing, the third quarter increased 5% from the prior year period, primarily due to a favorable species mix. Meanwhile, at $36 per ton, pulpwood pricing was up 20% versus the prior year quarter. While lumber prices softened during the quarter, leading mills to build inventories, reduce production and implement quotas, we remain confident in the region's positioning for the structural changes ahead. Lumber produced in Pacific Northwest competes more directly with Canadian production making those in the region, particularly well positioned to capture market share as higher duties constrain the supply hearing from Canada. The region should also benefit from the Section 232 tariffs on imported lumber further supporting domestic producers over time. I'll now turn it back over to April to cover our real estate results. April? April Tice: Thanks, Doug. As detailed on Page 11, the contribution from our Real Estate segment during the third quarter was significantly above the prior year quarter due to a higher number of acres sold, partially offset by a lower weighted average price per acre. Real estate revenue totaled $91 million on roughly 23,300 acres sold at an average price of $3,500 per acre, which included a 21,600 acre conservation sale in Florida. Real Estate segment adjusted EBITDA in the third quarter was $74 million, above our prior guidance range of $50 million to $65 million due to the successful closing of the large conservation sales as well as better-than-expected results in our improved development category. Drilling down, sales in our improved development category totaled $21 million, with our Wildlight development project contributing $17 million, and our Heartwood development project contributing $4 million. Sales in Wildlight consisted of 3 residential pods totaling 212 acres at an average price of $78,000 per acre. These sales represent the first closings within the second phase of entitlements at Wildlight or DSAP 2, which allows for the development of about 15,000 homes and 1.4 million square feet of commercial uses. Key infrastructure supporting DSAP 2 was completed during the third quarter, and we were excited to announce the initial builders involved in this new face of Wildlight during September. As we have discussed in the past, we will capture additional value from these pod sales through participation fees received from the homebuilders as deliveries occur based on the final home sale prices. Heartwood sales in the quarter consisted of a 14-acre parcel for the development of a senior living community for $4 million or $271,000 per acre. We also sold a 2-acre commercial used parcel in Kitsap County, Washington, for roughly $400,000 or $200,000 per acre. Overall, we continue to see a favorable growth trajectory for both Wildlight and Heartwood moving forward. The work we've done over the last several years to build our entitlements pipeline, enhance infrastructure and catalyze these markets continues to translate into strong interest from both commercial and residential end users. In the rural category, third quarter sales totaled $7 million, consisting of approximately 1,500 acres at an average price of roughly $4,800 per acre. We experienced a fairly light quarter of closing activity, but our pipeline for rural land sales remain strong, and we continue to see healthy interest from potential buyers. Timberland and nonstrategic sales during the quarter totaled $53.5 million, which consisted of a 21,600 acre property in Levy County, Florida, sold to a conservation-oriented buyer for roughly $2,500 per acre. We view this property as nonstrategic as it was only 55% plantable, had an average plantation age class of just 7 years and was fairly distant from our core holdings in the region. The pricing we achieved on this sale reflects a strong premium to timberland value and a strong return on our original investment, and we're pleased that the property will now provide a unique recreation and conservation area in the state of Florida. Now turning to our outlook for the balance of 2025. As Mark discussed earlier, we are on track to achieve full year adjusted EBITDA and pro forma EPS at or above the higher end of our prior guidance range of $215 million to $235 million and $0.34 to $0.41, respectively. With respect to our individual segments, starting with our Southern Timber segment, we expect full year adjusted EBITDA will be modestly below our prior guidance range, due to continued softness in end market demand and lower anticipated harvest volumes. In our Pacific Northwest Timber segment, we expect full year adjusted EBITDA toward the lower end of our prior guidance range, as the anticipated improvement in lumber markets from the increase in duties on Canadian imports has been slower to materialize than previously expected. In our Real Estate segment, we expect full year adjusted EBITDA to exceed the high end of our prior guidance range due to our strong third quarter results and our transaction pipeline for the remainder of the year. And as in recent quarters, we are providing quarterly guidance for our overall adjusted EBITDA and EPS to help manage expectations around quarter-to-quarter variability. For the fourth quarter, we currently expect net income attributable to Rayonier of $13 million to $17 million, EPS of $0.08 to $0.11 and adjusted EBITDA of $50 million to $60 million. I'll now turn the call back to Mark for closing comments. Mark McHugh: Thanks, April. As we wrap up our comments on the quarter, I'd like to commend our team for their relentless focus on operational execution amid challenging market conditions. We continue to focus on optimizing our near-term financial results while also advancing important strategic initiatives and allocating our capital with a view towards building long-term value per share. As we discussed last quarter, housing starts and repair and remodel activity have underwhelmed in 2025. However, we are optimistic as we approach 2026 that a combination of factors, including higher duty rates, new tariffs stemming from the Section 232 investigation and lower mortgage rates will collectively drive increased U.S. lumber production, which should be a positive for U.S. timberland owners. In addition, with greater clarity on tariffs, and anticipated improvements in pulp and paper mill operating rates, we're optimistic that our pulpwood customers will see fundamentals improve next year as well. In our real estate business, we are on pace for another strong year in 2025. We continue to capitalize on opportunities to unlock value across our portfolio given the continued strong demand for our rural properties, the healthy interest from conservation-oriented buyers and the favorable momentum at both our Wildlight and Heartwood development projects. On the land-based solutions front, our team continues to advance solar, carbon capture and storage and carbon offset project opportunities with high-quality counterparties. I remain very encouraged about the long-term value creation potential from our land-based solutions business. In particular, the substantial capital that continues to flow into AI and data center infrastructure is driving significant growth in energy demand and utility solar remains poised to play a major role in meeting the need for cost-effective renewable energy. Turning to the merger with PotlatchDeltic. I see a tremendous runway for the combined company as significant strategic and financial benefits will be realized by combining our portfolios and our teams. Our shareholders will benefit from a more diversified timberland portfolio, a complementary Wood Products manufacturing business and an enhanced platform to unlock value through HBU real estate opportunities as well as natural climate and land-based solutions. We continue to estimate run rate synergies of $40 million by the end of year 2, which will be primarily driven by corporate and operational cost optimization. Integration planning is progressing well, and our teams are working to position the combined company to hit the ground running following the closing of the merger. In sum, while timber markets continue to face some headwinds, our team is focused on navigating the current environment with a long-term perspective and we're energized by the significant value creation potential that we see on the horizon. That concludes our prepared remarks, and I'll now turn the call back to the operator for questions. Operator: [Operator Instructions] The first question in the queue is from Mark Weintraub with Seaport Research Partners. Mark Weintraub: So definitely lots of positive developments, it seems on the real estate side. And maybe I wanted to get a little bit of an update on how sustainable some of like the increased activity in the various categories might be as you see it? And then separately, though, also on the pulpwood side, it's quite challenging. And in the past, there has been conversations about alternative demand sources. And just curious whether or not you have any updated views on whether there might be any developments there to help offset some of the lost demand we've seen as mills have shut. Mark McHugh: Mark, this is Mark. I'll take the first question on real estate, and then I'll turn it over to Doug to address the pulpwood question. As we discussed in the past, real estate sales are invariably going to be lumpy. And in this particular quarter, we had a large conservation sale as well as a pretty strong results in our development business. Recognize that it can take quite a while for a conservation transaction of this scale to come together, this particular transaction has actually been in the works for about a year now. So even though it's a lower price per acre than we typically see for some of our smaller rural HBU transactions, we still felt that the value was pretty compelling given the timberland attributes relative to the conservation potential of this particular property. And look, if we can realize a significant premium to underlying timberland value and even more significant premium to the implied public market trading value of our lands, we see that as a smart arbitrage opportunity. So this level of real estate activity is certainly not going to be the type of thing we're going to see on a regular basis. But we were very pleased to have a couple major transactions get over the finish line in the third quarter. Douglas Long: Mark, this is Doug. I'll take the second part of your question around the pulpwood. Yes, as you know, we're always looking at other strategic alternatives to diversify our pulpwood markets, kind of beyond our traditional domestic pulp and paper customers. And while not new as meaningful as it was before China ban logs from the U.S., we started to see some renewed export activity to other markets, particularly in that Port of Savannah area. And as part of the larger trade barrier negotiations, the Trump administration is actually involved in seeking some regulatory relief for timber exports to Europe, specifically challenging the EU restrictions on fumigation for Southern Yellow Pine chips. So this was an important market for pulpwood chips. And so we're kind of actively involved in that and seeking to see what happens there. But there's also been renewed interest from the European side as we're looking for European deforestation, free regulation compliant fiber. So I think there's definitely a push from our side and there's some interest from the other side, and we'll see how that plays out. But probably going more to what you're talking about. The volatility and the policy shifts that have happened over the last year or so, I guess, let's say, put more risk or large-scale investments for biofuel refineries and things like that currently. But we're still seeing growing demand globally for products such as same as fuel and biofuels for those industries are hard to abate like the aviation shipping. And so this opportunity continues to work, but I'd say it's much more behind the scenes now. So you don't see as many press releases about it and things like that as folks are keeping their head down and trying to work through that. So announced projects in Louisiana and East Texas, totaling over $10 billion investment, and they're backed by major airlines and then some Japanese investors could collectively consume several million tons of woody biomass annually in that area. And to date, best of our knowledge, others have achieved final investment decision, but successful execution of them, [indiscernible] facilities will establish the biofuels market and be significant demand for Southern Timber markets. In addition to that, our land-base solutions team continues to see strong interest in the voluntary carbon market, but not only for IFM projects also for uses pine biomass for carbon dioxide removal credits. And you think of things like biochar or biocoke and different things like that. While these individually won't be as a multibillion-dollar refinery, they are a fraction of the cost to establish and they're replicable. So you can build one of these for something in the tens of millions of dollars. And so if you have those specific wood basket to be meaningful for that area. So we continue to work with folks on projects like this and seek that and believe that there's a good opportunity for those in the near future. Operator: The next question in the queue is from Matthew McKellar with RBC Capital Markets. Matthew McKellar: First for me, the comment about the volume of timber destroyed in Georgia through last year's hurricanes was pretty interesting. Do you have a sense in percentage terms of how much less potential supply there should be in that market over the next few years? Douglas Long: Yes. I don't have a quantitative percentage. I just have more of an anecdotal from driving around and seeing the devastation. And I would say -- it's definitely significant. I mean Georgia is a large timber production state. So I don't think wrong, there's still a lot of timber there for the existing mills, but it's definitely put a significant dent when you drive around, there's a lot of stands that were younger harvested than they should have been and a lot of mature stands that they were harvested. So I can't quantify it, but qualitatively, I can say it's definitely going to be impactful for the near term for sure. Matthew McKellar: That's fair enough. That's helpful. And then just a quick one on real estate. Are you seeing any differences in strength of rural real estate sales by geography compared to maybe 1 or 2 years ago? Mark McHugh: Yes, I wouldn't say it's really changed. I mean our strongest HBU markets continue to be Texas and Florida. And really, that's where we see the most opportunity. And again, I think it's worth noting that we have a large portfolio in both areas. And so if you look at our historical HBU realizations, I think that they've generally been sector-leading. And so we expect that, that will continue. Operator: And the next question in the queue is from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with, on the Southern Timber, there was a pretty nice uptick in that non-timber sales line. Can you just give us some sense of kind of what is driving that? And how should we think about it going forward? Douglas Long: Yes. This is Doug. I'll take that. Yes. So that nice uptick in Q3 was probably around pipeline easements. We had similar kind of uptick last year in that. So -- these are kind of episodic as they happen, but we do tend to have them almost every year, they come through. And so just coincidence, they happen to be both in the same in the Q3. But -- so that's something we see, and particularly as we've seen growth in the area and support for the kind of oil and gas industry as well as carbon capture storage industries, we see there's opportunities for pipelines to continue on going forward. But that was kind of a onetime in Q3. That said, we expect to have more of those. We're in negotiations talking to folks about those. So they kind of continually are in discussions year-over-year on these things, and they just happen to be when they occur. It sound like real estate, they happen at one time. Ketan Mamtora: Understood. Okay. No, that's helpful. And then just one more on the pulpwood dynamics, you kind of mentioned a lot of other potential revenue streams. Do you have a sense on how should we think about the timing of some of these things materializing for actual pulpwood demand? Is it -- are we talking about a couple of years? Are we talking about 3 to 5 years? How would you have to think about it? Because you've seen a number of these mill curtailments on the pulp paper side here in the U.S. South. So beyond -- if you just keep the cyclical element aside, just structurally, there has been a lot of demand pressure on the pulpwood side. Douglas Long: Yes. I think the traditional expansion we've heard about it, Georgia-Pacific Alabama River and IP Riverdale and places like that. Those are going to be more immediate. Obviously, those are traditional manufacturing where they're making adjustments. And so I think those are going to be very short term. When you talk about things like the biofuels biorefineries, you're right, those are still -- I mean, I think those are 5 years out, those are not quick. The other ones I mentioned that the smaller ones are generating other uses from biomass, I believe those are shorter term. Those could be in that several year type of opportunity. I think that's -- one of the things I would say also, just with respect to pulpwood markets, they are very regional. And one thing, while we never want to see mills close down as we've seen in one area, it tends to help the operating rates in other areas. So we have seen other areas of the opportunities where mills have started operating 5% and 10% more than they were before. So hopeful to see those end markets recover for them and then we see them really start to make progress. Ketan Mamtora: Got it. And that in the short term, so I'm talking about, let's say, 1 to 2 years, is there anything you can do to modulate harvest for pulpwood here given sort of the current pricing dynamics? Is that -- do you have kind of much flexibility to do that? Douglas Long: There's some ability, I'd say it's probably more on the sawlog side of things and that a lot of times, the pulpwood is coming along. We don't typically go out and harvest pulpwood stand. So it's often part of the harvest of a sawlog stand or it's part of our culture regime for thinning. And so you can do some things there, but the reality is, a lot of that is part of the process we're working through. So I would say it's more on the sawlog side we have there. What more we have is flexibility to move it geographically with our kind of spread from South Carolina to Georgia across -- to Texas across the South. If we see weakness in a particular market, we can shift away from that market for a period of time and harvest in other areas and hope to see some more balance come back in place. So I'd say really being able to shift volumes around across the diversity of the asset is an important part of that process. Mark McHugh: Ketan, this is Mark. I would note that we've also been continuing to shift our product mix increasingly towards sawtimber. So while we saw a pretty material decline in pulpwood pricing on a period-over-period basis, that the mix of sawtimber improved. So the weighted average decline was actually quite a bit less than that. So that's a trend that we continue to -- we expect to continue to increase in that direction. And so that's a positive just in terms of long-term outlook. Operator: And the next question in the queue is from Buck Horne with Raymond James. Buck Horne: Just a quick question on capital allocation thoughts going into year-end. I fully appreciate that you guys are somewhat limited on repurchases until the deal closes, and you still have to get through the special dividend process and all those calculations. But thinking out maybe into early next year, if this massive public versus private market timber disconnects were to persist. I'm wondering as you've had a chance to kind of evaluate both the combined portfolios, what would your thoughts be around potentially accelerating some noncore timber dispositions to try to either prove out this disconnect or reallocate capital to more accretive uses? Mark McHugh: Yes. Maybe just at a high level from a capital allocation standpoint, recognizing that we're anticipating the merger with PotlatchDeltic to close early next year. As we discussed in the merger call a few weeks ago, I'd say the Rayonier and PotlatchDeltic share a very similar philosophy on capital allocation. I'd say we've both been nimble and opportunistic with a view towards building long-term value per share. We both shied away from putting out prescriptive targets as market conditions and the merits of different capital allocation strategies can certainly change over time. And sometimes it can change pretty rapidly. I'd say the playbook we've followed historically as two separate companies will likely be very similar going forward as a combined company. We laid out some of those key capital allocation priorities in the presentation materials for the merger call. That includes maintaining an investment-grade balance sheet, growing our dividend over time and investing in growth opportunities, when we think it makes sense to do so. To your point, we also see share buybacks is very compelling at the current share price, and we expect to have ample flexibility to be opportunistic on that front after we close the merger as well, recognizing that at least in the near term, we will be navigating some of these regulatory hurdles. Buck Horne: Appreciate that. And just kind of as a follow-up. I mean as it stands today, obviously, the stock price is dynamic and things like that. But if we were in a similar position a few months out from now, what would be a more accretive or attractive use of incremental capital for you potentially repurchases? Or reinvesting or growing the Potlatch Wood Products division? Mark McHugh: Yes. Again, our philosophy on capital allocation is to play the hand that we're dealt. Certainly, in the current environment, assuming kind of status quo, where the stock price is today on a post-closing basis, we continue to believe that buybacks are very compelling. But again, we view the Wood Products manufacturing business is just another tool in the capital allocation toolkit. And if we see an opportunity for high return projects there, we will certainly evaluate that. But we're going to look at that through the same lens as we look at and any other capital allocation priority, it's really with a view towards building long-term value per share and what's the best alternative. Hard to -- it's a pretty high bar, though, for external growth right now, kind of given where the stock price is. Operator: [Operator Instructions] The next question in the queue is from Michael Roxland with Truist Securities. Michael Roxland: Congrats on all the progress. Doug, I just wanted to follow up, not trying to beat this topic to death here. But just on pulpwood in the U.S. South, you mentioned the potential for -- once some of these mills are closed for the remaining assets of these companies to run at higher utilization rates and they will consume more pulpwood. But that's -- you're still going to be -- it's going to be a net loss, right? So you're not going to see one for one. Is that fair to say? Douglas Long: Yes, that's fair to say. I'd say we've seen growth in both the pulp business and the OSB business over time and continue to see more investments in that. But to your point, in specific markets, there's going to be excess pulpwood over demand. Michael Roxland: Got it. All right. Perfect. And then just on the Pacific Northwest. Last quarter, you mentioned not seeing any tension there. It sounds like that those conditions have persisted in 3Q as well. Or are there any signs of things that are going to change? What are you seeing in the Pacific Northwest? Is there -- I mean, I think one of the overhangs was maybe going back a quarter or so is -- there's lumber inventories in the channel. I think a lot of -- from what I've been hearing, a lot has been worked through. Wondering if the Pacific Northwest is now positioned in a better place where you could start to see some tensioning whether it be through less supply or just for maybe housing picking up in near term sometime next year. So I think you have the Pacific Northwest and what's happening and why still -- why it's not as tension as I think it should be... Douglas Long: Yes, sure. Kind of hit two questions there. I think one thing kind of on -- just going back on the pulpwood side of things, and obviously, a lot of questions around that. I think we're -- on that -- my question has been around basically how we see those things. And one thing I talked about is that one of the things we've seen where we've had the pulp mill closures in non-operating area is that like the IP mills that closed in [indiscernible], we have 8 other major pulpwood outlets within 100 miles of that shuttered mill basically. So kind of different in some places where a mill shut down and then there wasn't much demand there. We still have quite a few mills that are within a short distance of our -- or short minimal haul distance of our operating region there in that northeast corner. So while we see those impacts are significant, I think the hurricane impacts have also been a major impact in that area. And so we're still working through what that looks like and contend there. So it's kind of -- we're optimistic that there's improved operating rates that I mentioned before, these other mills, will help in some of that process of offsetting that and fiber will find its way around, just kind of following up on that one. But moving to the Northwest, you're right, that market has softened a little bit in recent months, and that was not what we kind of thought was going into here. Earlier there was a pretty substantial premium on Douglas for lumber, and that helps support log pricing, but that premium has eroded as we haven't seen that in demand really grow as much as we thought. Last call, we talked about before the tariffs went in place that there was a considered amount of lumber that came from Canada into the Pacific Northwest and really all the way into Houston basically into the United States. And so I think we're still seeing with a more muted demand working through that as we go forward. So I think that's part of why we haven't seen that kind of response we thought we'd see. The good news is most facilities, they have spare capacity and they can ramp up quickly to your point. So we start to see that in demand happen, I think we'll see some improvement there. Log inventories kind of this type of year typically start to get constrained by weather. So -- and so that's an important part of this process. But lumber inventories right now in that area in particular still remain a bit elevated. And so that's something we need to see work through. In the South, I've heard of some mills basically taking some slower production time going through the holidays basically and trying to come out of the year with lean inventories as they move forward, just don't want that inventory in the books. I think we're seeing a little bit in the Northwest also. We've heard about some recent mills talking about taking some downtime and some shifts down. So I think what we're seeing is folks are trying to kind of constrain and restrict that lumber inventory. They built up thinking things are going to go great when tariffs put in place. We've seen that kind of muted demand still need the housing and repair and remodeling to step back, which we see these -- hopefully, we see these forecasted reductions in rates going into next year, and we'll see that happen. So I think there is some optimism, but at the same point in time, people don't want to just keep cutting wood on top of what they have. So I think you mentioned that the China markets and that has historically been something that provided pricing support. And while we don't have that now. I do believe that the Douglas fir, the SPF market is a strong market, and it can recover very quickly. We've seen this happen before in that market where things can swing quite quickly. So if we see a housing demand kind of start to rebound, I think it's going to be the first places with the well-tensioned markets where we'll see that response come back. Operator: And I'm showing no further questions at this time, and we'll turn the call over to Collin Mings. Collin Mings: All right. This is Collin Mings. I'd like to thank everybody for joining us. Please contact us with any follow-up questions. Operator: This concludes today's call. Thank you for your participation. You may disconnect at this time.
Operator: Greetings, and welcome to the Kimbell Royalty Partners Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, with Investor Relations. Thank you, Rick. You may begin. Rick Black: Thank you, operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the third quarter, which ended September 30, 2025. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today, November 6, 2025. So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward-looking statements made pursuant to the safe harbor provisions for the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call, which by their nature, are uncertain and outside the company's control. Actual results may differ materially. Please refer to today's earnings press release for our disclosure on forward-looking statements. These factors as well as other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA and cash available for distribution. Reconciliations to nearest GAAP measures can be found at the end of today's earnings release. Kimbell assumes no obligation to publicly update or revise any of these forward-looking statements. I would now like to turn the call over to Bob Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob? Bob Ravnaas: Thank you, Rick, and good morning, everyone. We appreciate you joining us this morning. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. To start off, we are pleased to report solid third quarter results with production increasing organically by approximately 1% over Q2 and exceeding the midpoint of our 2025 guidance. This performance once again demonstrates the resilience of our high-quality, diversified and low decline production base. Despite the current general slowdown among U.S. oil and natural gas operators, for the first 9 months of 2025, our production averaged 25,574 BOE per day, which included a full first quarter of production from the Boren acquisition also exceeding the midpoint of guidance. This operational success against the backdrop of headwinds within the broader energy sector is the result of the seeds that we planted over the last several years with our targeted M&A strategy across the leading basins in the U.S. Our active rig count remains strong with 86 rigs drilling across our acreage representing a market share of U.S. land rigs at 16%. In addition, our line-of-site wells continue to be above the number of wells needed to maintain flat production, giving us confidence in our production as we wrap up 2025. Finally, cash G&A per BOE was below the midpoint of guidance, reflecting operational discipline and positive operating leverage. Today, we are also pleased to declare the Q3 2025 distribution of $0.35 per common unit as we continue to focus on returning value to unitholders. As we approach the end of 2025, we are very grateful to our employees, Board of Directors and advisers for helping us achieve another successful year at Kimbell. We remain excited about our role as a leading consolidator in the oil and natural gas royalty sector and the prospects for Kimbell to generate long-term unitholder value for years to come. And now I'll turn the call over to Davis. Davis Ravnaas: Thanks, Bob, and good morning, everyone. I'll now start by reviewing our financial results for the third quarter. Oil, natural gas and NGL revenues totaled $76.8 million during the third quarter, and run rate production was 25,530 BOE per day. On the expense side, third quarter general and administrative expenses were $10.1 million, $5.9 million of which was cash G&A expense or $2.51 per BOE. Total third quarter consolidated adjusted EBITDA was $62.3 million. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. This morning, we announced a cash distribution of $0.35 per common unit for the third quarter. We estimate that approximately 100% of this distribution is expected to be considered a return of capital and not subject to dividend taxes, further enhancing the after-tax return to our common unitholders. This represents a cash distribution payment to common unitholders that equates to 75% of cash available for distribution, and the remaining 25% will be used to pay down a portion of the outstanding borrowings under Kimbell's secured revolving credit facility. Moving now to our balance sheet and liquidity. At September 30, 2025, we had approximately $448.5 million and debt outstanding under our secured revolving credit facility, which represented a net debt to trailing 12 months consolidated adjusted EBITDA of approximately 1.6x. We also had approximately $176.5 million in undrawn capacity under the secured revolving credit facility as of September 30, 2025. We continue to maintain a conservative balance sheet and remain very comfortable with our strong financial position, the support of our expanding bank syndicate and our financial flexibility. Today, we are also reaffirming our financial and operational guidance ranges for 2025. As a reminder, our full 2025 guidance outlook was included in the fourth quarter 2024 earnings release. Even in the face of a general slowdown among U.S. oil and natural gas operators, we remain confident about the prospects for continued development as we wrap up 2025, given the number of rigs actively drilling on our acreage, especially in the Permian as well as our line-of-site wells exceeding our maintenance well count. We continue to believe that the overall demand for U.S. energy will continue to grow over the long term, and we are very well positioned to benefit from this trend for years to come, given our diversified portfolio of high-quality royalty assets across the leading U.S. basins. With that, operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: First, I wanted to ask a little bit on the macro given your visibility across a number of basins. We did see the line-of-site wells come down a bit. It looks like 7.07 is the lowest since the middle of 2023, yet you've been able to hold production flat throughout the year. So can you talk about kind of what you're seeing across your footprint? There was a large Permian operator this morning talking about seeing a slowdown. What gives you confidence that you can kind of stay flat or grow a little bit despite the line-of-site reduction and what others are saying in the industry? Davis Ravnaas: Sure. Sure. Yes. Thanks, Tim. Well, I think first, what I'd say is we're very proud of this quarter. I think we delivered exactly what we've consistently told investors, which is to expect steady production from our portfolio. So we'll see certain areas in certain basins that are up quarter-over-quarter, certain areas in basins that are down quarter-over-quarter. We're very encouraged by our rig activity. It's been relatively flat over the course of the year. Our market share is relatively flat over the course of the year of the entire U.S. rig fleet. I would say that the DUC inventory goes up and down quarter-over-quarter. We had a nice drawdown this quarter, and we'll probably expect to see the benefits of those DUCs coming online next quarter. So I wouldn't draw any major -- looking at the data, I wouldn't draw any major conclusions on a Permian slowdown. If anything, we're seeing most of our operators indicating that they want to keep production relatively flat. So I think that's encouraging. We're paying a 10% dividend right now, waiting for oil and gas prices on the environment, the macro environment to ultimately improve. All of that is return of capital this quarter. So we think we're delivering a very consistent, steady yield that has massive tax advantages. And again, we continue to see good rig activity across the acreage and the DUC and permit inventory should go up and down over time. I'm not seeing any major trends here that things are slowing down in a material way. Timothy Rezvan: Okay. Okay. That's helpful. And then if I could dig in a little more. People think that you've expanded in the Permian quite a bit, but you have a lot of Mid-Con and Haynesville exposure. You see an acceleration there. Can you talk in those areas, what you're seeing specifically? Davis Ravnaas: Yes. Thanks for bringing that up. So I think that really highlights the benefits of a diversified portfolio. Almost surprised candidly by how active the Mid-Con has been quarter-over-quarter, obviously benefit from a higher gas cut in those basins in this environment. So in this sort of -- in this macro environment, we've got oil prices relatively low and gas prices now above $4, which is great to see. We would probably expect a greater contribution to our production growth, all things being the same from the Mid-Con, the Haynesville and other areas across our portfolio. And really, that's all by design. I mean the idea is to have a balanced portfolio that allows us to deliver steady, consistent results despite whatever is happening on a relative basis between oil and gas prices. Timothy Rezvan: Okay. Okay. That's great context. And if I could sneak one last one in, really more of a modeling question. The marketing and other deductions expense item, it was abnormally low last quarter. It seems to have -- was abnormally high this quarter. Can you talk about what's happened there? Is that just sort of a timing issue with something? And should we continue to expect that at that roughly $1.80 per BOE level going forward? Davis Ravnaas: Yes, great question. Nothing gets past you, Tim. I love that. I would say for modeling purposes, somewhere in between those levels make sense. We saw tremendous production growth in the Mid-Con, which has higher marketing costs. And so I think that kind of biased that line item a little bit higher this quarter. We would expect in a more normalized environment something closer to our historical average, if that makes sense. Operator: Our next question comes from the line of Paul Diamond with Citi. Paul Diamond: Just want to touch quickly, you guys have that 6.5 net DUC and permits or net DUC and net permits kind of run rate to hold production steady. And with the efficiency you've seen across the space as part of a larger macro, is that being pressured down at all? Or is it pretty stable at that 6.50? Davis Ravnaas: Great question, and I'll ask my team this. I believe we update that once a year based on what we're seeing in our portfolio. So over time, with the maturing portfolio, just state the obvious, I know you know this, but just for the benefit of the wider audience. As higher decline wells come down in terms of production mix, so does their decline rate. So the number of wells necessary to keep production should, all things being considered, continue to go down over time. We'll update that guidance at the appropriate time, probably with full year guidance for next year. Matt, I don't know if you want to add anything in terms of how we've updated that historically. But very happy to see -- go ahead. Go ahead, Matt. Matthew Daly: No, I agree with that. I mean it modestly went up with the Boren acquisition from 5.8 wells to 6.5. But yes, you're right, Davis. We do that once a year, and it will likely slightly go down a little bit. Davis Ravnaas: Yes. So I think -- so Paul, I'm actually glad you brought that up because now we're dealing with a maintenance level of 6.5 that's now 9, 10 months overdue for updating, if that makes sense. It's a massive undertaking for us to do that exercise. So one would expect for that maintenance level to go down, which gives us increased confidence on the maintenance level delta relative to the DUC and permit inventory that we have to maintain or grow production rates. So again, feel really good about how we're positioned with near-term catalysts for growth relative to maintenance production in this, particularly in this kind of environment, so. Paul Diamond: Got it. Makes perfect sense. And just circling back on more of a wider M&A landscape. Has the removal of Sitio from that landscape kind of shifted the opportunity set? Or is it kind of too early to tell? Davis Ravnaas: Yes. I'd say that there's always been only a small number of publicly traded mineral companies. I'd say that the larger competitive dynamic is between the privates overall. We selectively -- we'll look at -- gosh, I think last year or so far this year, we've looked at and placed bids on over 200 assets. And I think we've only gotten one that we're happy with, which was Boren, thank goodness, back in January, which has been an outstanding asset for us. The drop of one competitor on our landscape or 2, I mean, it's obviously helpful on an apples-to-apples basis for us to have fewer competitors in the market. But each of us kind of does a different thing and the public market is a slightly different strategy. And so we actually rarely compete head-to-head with the public mineral companies. It's more that there's an abundance of private guys out there that, for one reason or another, decide to get more aggressive on price deck or development timing compared to us making acquisitions. We tend to be very careful and very selective, and the bar is extremely high for M&A. I think on average, we've done somewhere between 1 and 3 deals per year. So we try to stay very disciplined on that. Operator: Our next question comes from the line of Noah Hungness with Bank of America. Noah Hungness: Yes, for my first question here, I was just wondering -- so I wanted to go back to production and the production outlook. I know it's too early for 2026 full year guide or an outlook there. But maybe on our estimates, it takes 6 to 9 months for a reduction or addition in rig activity to affect the production stream, right? So really, I think that for us, that puts 2026 at risk. How do you think the first half of '26 production would kind of compare to your '25 guidance, if you can look out that far? Davis Ravnaas: Yes, I'd say flat to increasing. We see no indication of production on our properties falling. We've actually gotten a lot of good indications recently on Q4 production so far. So that feels good. We'll see if that -- it's still early. We'll see if that plays out to fruition, but feel very good about activity on the acreage. And no, I think one thing that perhaps you're missing, we constantly are getting checks in the mail from things that we haven't even been able to quantify because we didn't even know that we own them. And we have interest in hundreds of thousands of acres with hundreds of thousands of wells, millions of acres with hundreds of thousands of wells. So we're constantly getting positive surprises from operators that are drilling different benches, expanding plays, doing different things, and all of that accrues to our benefit, and it's impossible for us to quantify. So all of our metrics that we have out there are, by definition, unduly conservative. So that's why -- I mean I think in this environment, the ability to grow production sequentially organically, we did no acquisitions, 1% quarter-over-quarter is quite extraordinary. And I think exactly what we want to deliver to our investors and our messaging, which is expect us to be the steady company that delivers a very solid tax advantage yield to you and despite what happens to oil and gas prices. Noah Hungness: Yes. I appreciate that color. For my next question, you guys have continued to build cash on the balance sheet. And I guess I was just wondering, why you build the cash on the balance sheet versus just paying down the revolver? Davis Ravnaas: Yes, pay down the revolver immediately after we pay out the distribution. It's just a timing thing. Operator: Our next question comes from the line of Derrick Whitfield with Texas Pacific Land Corporation. Davis Ravnaas: Yes. I didn't realize you were with Texas Pacific Land Corporation. Derrick Whitfield: Did it come across as Texas Pacific? That should have been Texas Capital. That was a miss on the operator, I believe. One of your peers recently announced a multiyear outlook on growth. So while not holding you guys accountable to a number, could you speak to the underlying growth potential of your asset base out of the Haynesville and Mid-Con if we were to see this near 30 Bcf per day inflection of gas demand play out over the next 5 to 6 years? Davis Ravnaas: Man, I love that you asked this question. So I love to see that analysis. We obviously saw that. A lot of respect for our peers at that business, great business they've got, proud of them. We're very conservative. We don't want to wind out multiyear projections on oil and gas production on our properties. At higher natural gas prices, $4, $5, what some of these people are expecting for natural gas growth is extraordinary and heroic. Obviously, if that materializes, you're going to see a huge increase in production on our asset base across all of the gas basins that we participate in. I think it's sometimes lost on folks that half of our production is natural gas. So we would expect tremendous growth in natural gas prices or natural gas production on our assets if this bullish case, given all the nice macro factors and tailwinds and electricity demand and natural gas' role in that materialize. I wouldn't want to put something out there for a 5-year outlook or beyond that suggest dramatic growth. But to state the obvious, if anybody looks at our position in the Haynesville, I think they'll be blown away by the number of counties that we have interest in and the amount of upside and inventory life that we have there. So we would expect tremendous growth in natural gas on our assets in an environment like that. I just think that we're very -- we do not control operations on our acreage. We obviously cannot control natural gas prices. So we like to put out guidance 1 year at a time, and we feel that, that is probably a conservative prudent path to take. Derrick Whitfield: Makes sense. I mean it would seem that it would be outsized relative to the U.S. increase in aggregate just because you're getting it from the key basins in which you would see the growth. Is that a fair characterization? Davis Ravnaas: Absolutely. Absolutely. Yes. We fully support that. I totally agree with you. Derrick Whitfield: All right. Terrific. And then for my follow-up, I wanted to go a different direction on M&A. What are your general thoughts on pursuing organic mineral acquisition opportunities similar to the Western Haynesville and a lot of the derivative plays that are coming out of that? Davis Ravnaas: Yes. We -- the bar is high for M&A. We have historically not pursued small ground game acquisitions. It's very labor intensive. It doesn't dramatically move the needle for us in terms of adding or contributing to the overall business' production base. We're more focused on cultivating relationships with folks that are putting together portfolios and finding the right time where they're willing to sell and we're willing and able to buy and linking those up in a material way that is material for our business. So we were obviously aware of and talk to teams all the time that are putting together production all across the Western Haynesville. We'll wait probably until some of those portfolios have matured to a place where they could be accretive on both DCF per share and also on NAV. So we'll wait until that nice nexus where the play has been developed to a point where we think it's derisked enough, and then I think you'll see us start to transact. Operator: And this now concludes our question-and-answer session. I'd like to turn the floor back over to management for closing comments. Bob Ravnaas: We thank you all for joining us this morning, and look forward to speaking with you again next quarter. This completes today's call.
Operator: Greetings. Welcome to the Alpha Metallurgical Resources Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin. Emily O'Quinn: Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's third quarter 2025 earnings release and the associated SEC filing. Please also see these documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chief Executive Officer, Andy Eidson; and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Munsey, our Chief Financial Officer; and Dan Horn, our Chief Commercial Officer. With that, I will turn the call over to Andy. Charles Eidson: Thanks, Emily, and good morning, everyone. This morning, we announced our financial results for the third quarter, which include adjusted EBITDA of $41.7 million and 3.9 million tons shipped. It was another good quarter for our team. Similar to Q2, the highlight of the period is the outstanding performance on cost of coal sales. For the second quarter, we missed a sub-$100 level by only $0.07. In Q3, we were able to shave almost another $3 off the prior quarter level, coming in at $97.27 per ton. We're proud to have posted the best cost of coal sales performance for the company since 2021 and back-to-back quarters. Our focus remains on finishing the year strong by continuing to safely keep costs in line. Our cost discipline is especially important as we continue navigating the current stage of the market cycle and as metallurgical coal indexes reflect softness in the market environment. Broadly, the indexes [ hog on ] current levels for several months with oscillated pockets of volatility. The underlying economic conditions informing steel demand around the globe remain vulnerable to uncertainty and lackluster economic growth expectations. Against this backdrop, we're in the process of planning for 2026, putting together budgets and anticipating what we believe could be another challenging year for the coal industry. At the same time, we remain in discussions with our North American customers about domestic sales commitments for next year. With those conversations and budget planning still in progress, we're not quite yet ready to issue guidance for 2026. Once domestic negotiations conclude and we have greater visibility into the coming year, we will share additional information about our expectations and guidance. Until then, we will keep working hard to manage costs, operate safely and effectively and finish 2025 on a strong note. I'll now turn the call over to Todd for additional information on our third quarter financial results. Todd Munsey: Thanks, Andy. Adjusted EBITDA for the third quarter was $41.7 million, down from $46.1 million in the second quarter. We sold 3.9 million tons in Q3, same amount as in Q2. Met segment realizations decreased quarter-over-quarter and average realization of $114.94 in the third quarter, down from $119.43 in Q2. Export met tons priced against Atlantic indices and other pricing mechanisms in the third quarter realized $107.25 per ton, while export coal priced on Australian indices realized $106.39 per ton. These results are compared to realizations of $113.82 per ton and $109.75, respectively, in the second quarter. The realization of our metallurgical sales in Q3 was a total weighted-average of $117.62 per ton, down from $122.84 per ton in Q2. Realizations in the incidental thermal portion of the met segment increased to $81.64 per ton in Q3 as compared to $78.01 per ton in the second quarter. Cost of coal sales for our met segment decreased to $97.27 per ton in the third quarter, down from $100.06 per ton in Q2. SG&A, excluding noncash stock compensation and nonrecurring items increased to $13.2 million for the third quarter as compared to $11.9 million in the second quarter. CapEx For the quarter was $25.1 million, down $34.6 million in Q2. Moving to the balance sheet and cash flows. As of September 30, 2025, we had $408.5 million in unrestricted cash and $49.4 million in short-term investments as compared to $449 million of unrestricted cash as of June 30. We had $185.5 million in unused availability under our ABL at the end of the third quarter, partially offset by a minimum required liquidity of $75 million. As of the end of September, Alpha has total liquidity of $568.5 million, up from $556.9 million at the end of June. Cash provided by operating activities was $50.6 million in Q3, down from $53.2 million in the second quarter. As of September 30, our ABL facility had no borrowings and $39.5 million of letters of credit outstanding. With additional visibility into remaining payments for the year, we are lowering our capital contributions to equity affiliates guidance to a range of $35 million to $41 million, down from the prior range of $44 million to $54 million. In terms of our committed position for 2025, at the midpoint of guidance, 85% of our metallurgical tonnage in the met segment is committed and priced at an average price of $122.57. Another 13% of our met tonnage for the year is committed, but not yet priced. The thermal byproduct portion of the met segment is fully committed and priced at the midpoint of guidance at an average price of $80.27. I will now turn the call over to Jason to provide an update on operations. Jason Whitehead: Thanks, Todd, and good morning, everyone. Last quarter, I spoke to the cost reduction efforts carried out in Q2 being twofold, a 10% increase over Q1 in tons per man hour that lowered labor and other fixed costs. And the team is achieving these efficiency gains while reducing supply and maintenance expenses. I'm pleased to report on the operations team's continued success in managing costs and increasing tons per man hour again by another 2%. Q3 marks the second quarter in a row of record quarterly cost performance since 2021 at $97.27 per ton. In addition to the very positive cost performance by operations in the quarter, I'm pleased to report strong progress on our new new Low Vol mine, Kingston Wildcat. The slope development is complete and has intercepted the coal seam. We are now in development production, working our way toward the areas where we will install ventilation shafts and dewatering shafts. While we plan to short tag this coal, this raw coal to our Mammoth facility to leverage our existing preparation plant. We've also been working hard at building out the supporting infrastructures of the Wildcat mine like [ building ], loading and offloading infrastructure to help move the coal where it needs to go. Development production will continue through the rest of the year, and we expect to ramp up to a full annual run rate of roughly 1 million tons sometime within the 2026 calendar year. Lastly, I'd like to congratulate our Virginia teams on some recent outstanding safety and environmental achievements. First, the Virginia Department of Energy Coal Mine Safety Awards, and those were awarded to Paramont Contura, Deep Mine 41, the McClure Preparation Plant, both 88 strip and 88 strips High Vol miner, the long branch surface mine in High Vol miner and our Three Forks High Vol miner. On the environmental side, the met Coal Producers Association awarded our Toms Creek preparation plant, the Best Active Prep Plant Award, and our [ Stone coal mine ] was awarded Best Reclaimed Underground Mine. Congrats again to all those involved in the safe and hard work that's behind these accomplishments. With that, I'll now turn the call over to Dan for some details on the market. Daniel Horn: Thanks, Jason. Good morning, everyone. As steel demand remains subdued, metallurgical coal markets experienced slight fluctuations during the third quarter but have been largely range bound over the prior 6-month period. The global economic outlook continues to be clouded with uncertainties surrounding policy changes, geopolitical unrest, tariffs and ongoing trade negotiations and shifting trade policies. Future steel demand and metallurgical pricing will also be impacted by these factors. Of the 4 indices that Alpha closely monitors, the Australian Premium Low Vol Index represented the most significant move during the quarter an increase of 9.6%. The Australian PLV Index rose from $173.50 per metric ton on July 1 to $190.20 per metric ton on September 30. The U.S. East Coast Low Vol Index increased from $174 per metric ton at the beginning of the quarter to $177 per metric ton a quarter close. The East Coast High-Vol A Index fell from $159 per metric ton in July to $152.50 per metric ton at the end of September. And finally, the U.S. East Coast High Vol B Index decreased from $147 per metric ton to $144.50 per metric ton at quarter end. Since the quarter closed, all 3 U.S. indices have either remained flat or trended downward while the Australian PLV has increased to $196.50 as of November 4. U.S. East Coast Low Vol Index was $177.50 while High-Vol A and High-Vol B indices measured $150 and $140 per ton, respectively, as of the same date. In the seaborne thermal market, the API 2 index was $107.95 per metric ton as of July 1, and decreased to $95.40 per metric ton on September 30. Since then, the API 2 has increased to $100.70 per metric ton as of November 4. Turning to logistics. We have been working alongside officials at CSX and to understand the implications of a train derailment that occurred on October 25. While the train was not carrying Alpha's cargo, the derailment occurred on an important rail line used to access Dominion Terminal Associates where the majority of our exports originate. Our team members have notified customers of potential for impacts depending on how quickly the railroad can reinstate service. In the meantime, we continue to fulfill shipments from our stockpile at DTA, and we're actively investigating alternative opportunities that could help keep our coal moving on its way to customers if the outage would extend for a prolonged period of time. We remain in close contact with the railroad and their teams and we look forward to the rail line being fully operational in the coming days. Lastly, we are still engaged in discussions about the sale of coal to North American customers in 2026. Given the ongoing nature of these negotiations, I do not have any additional details about the volume or pricing that will make up Alpha's domestic sales book for next year. However, after these negotiations conclude, we will share more information about our domestic commitments and guidance expectations for the coming year, as we typically do. Operator, we are now ready to open the call for questions. Operator: [Operator Instructions] My first question comes from Nick Giles with B. Riley Securities. Nick Giles: Andy, Jason, you and the team have done a really impressive job of cutting costs during this down cycle. And we know there will be a modest incremental benefit from 45x in the new year. But my question is, ultimately, how should we think about the sustainability of some of these cuts? There's always sales-sensitive components on the way up. But just would appreciate any additional perspective on how productivity could shift if prices really start to move here? Charles Eidson: Nick, this is Andy. I'll let Jason have the bulk of this one. But I mean, generally speaking, you're right, there's going to be some volatility quarter-to-quarter, obviously going into Q4 when you have vacation periods, that usually creates a little bit of chaos around cost and production. But I mean, that's usually baked into expectation. But I would just pause for a moment to again congratulate the operations team. Jason and his crew have done an amazing job over the past several quarters, continually ratcheting those costs down while maintaining our safe production mantra, which is above all important to us. So exceptional work there. Jason, any comments on... Jason Whitehead: No, I mean, that's right, Andy. I will say that I think -- well, number one, there's always -- we always run a risk of unforeseen geologic problems that could occur, whether it's us or any of our competitors. But generally speaking, I think the mines are in a better place than they were maybe earlier in the year. We had planned development projects that were going on that are now behind us. So we still -- we have the problems with vacation shutdowns and things like that, that we always see in the fourth quarter. But we're hopeful to all offset a lot of that because the mines are just performing better, but it was planned that way. Nick Giles: Got it. My next question was, I understand that you are unable to offer much additional color on next year's domestic contracts. But if we were to look back at prior years, is there any precedent that could inform us on how much you may flex those volumes? Or are there any year-over-year changes where domestic contracts were changed in excess of 1 million tons? Daniel Horn: Yes, Nick, this is Dan. Every year is different. I don't know. A lot of it is in the our customers. They are -- the steel industry in North America is not running at full capacity or at least the blast furnace segment. so coking coal demand will go with the hot metal production. It's a little erratic. We talk to our customers, the steel pricing is good, but the volumes aren't quite there. The automotive sector in particular. So the demand could -- will shift because of that. I would guess it's going to be similar to last year. You have some new supply entrants in the market on the supply side that might try to take some market share. And again, this is nothing new, this happens every year. So I can't really comment on a 1 million-ton swing, that seems like a lot. But until we're through the negotiations, I really can't say any more than that. Charles Eidson: Yes. And I would say, generally speaking, I'm looking at Dan to either nod or kick me under the table if I got this wrong. But if you look back at our history, going back to, I guess, post-merger in 2019, we've been as low as low 3s and as high as 4 and change in that time period. So I think that's kind of the band that we will stay range-bound in and then the details will come out as we put those together, there could be smaller piece of the business that come in closer to the end of the year. But hopefully, in the next couple, 3 weeks, we'll have -- we'll have more information to share on the bulk of what the book will look like. Nick Giles: Understood. And then maybe 1 more, if I could. Some of your years have come out and talked about rare earth opportunities. This has mostly occurred in the PRB, but it seems like there could be some opportunities to process some waste material at prep plants, things of that nature. Is this just something you've looked into at all? Or is it really less relevant just given your operations are centralized in the East? Charles Eidson: Yes. I mean rares, it is the it's the shiny object at the moment. It's kind of the wild west as far as project announcement and evaluations. We actually have done work going back to 2014, looking at some of these items. And it's been kind of a scattershot approach over the past decade. We've not really done a lot with it. But I mean we are spending some time and a little bit of money, a very little bit of money looking at these opportunities. There are some areas we've probably got as far as in the hundreds of areas to be sampled. I mean, we're not under any illusion that any of this is going to drive any material economic impact simply because, again, we just don't know what we don't know. But it is good to take an inventory of what we have and then also know what we don't have. So we'll spend some -- spend a little bit of time on that in the next couple of quarters and see what we have. But again, we're pretty happy mining metallurgical coal and if something else pops up, that will be great, but that's really not our strategic intent at this moment. Operator: Our next question comes from Nathan Martin with the Benchmark Company. Nathan Martin: Congrats as well on the continued cost per ton progress there. Maybe first 1 for Dan. Dan, you talked about the derailment on CSX's line. Is there an ETA for the full reopening of that line? And then how much more inventory do you guys have left on the ground at DTA to serve customer contracts? Daniel Horn: Yes. Well, actually, the good news is we learned this morning that the first trains have moved through that area. So we expect this to be a relatively short duration. There's a whole lot of empty railcars on one side of the derailment and a whole lot of loaded coal cars on the other side. So it will take some amount of time to get some fluidity on the system there. We have coal on the ground. We were able to continue loading vessels, move some things around. We're the only shipper that could ship out of all 3 of the Hampton Roads coal terminals. So we took advantage of that, and our team did a nice job. So it's -- as far as the inventory number, we had sufficient tons to load the customers that we had to and just kind of kept things moving along. Nathan Martin: Okay. Perfect. Good to hear. Maybe just coming back real quickly to the domestic negotiations. Again, I appreciate those are ongoing. Just curious, if fixed-price contracts can't be agreed upon on the normal, call it, 3 million to 4 million tons you guys just highlighted, would things just move to spot negotiations at that point? Just trying to think about a situation where -- this has dragged on that long, meaning the negotiations with the domestic customers. Just would be curious for your thoughts. Daniel Horn: Yes. Generally, Nate, the domestic customers all want to do fixed price 1-year contracts. So there's not a lot of spot activity in that market. So not I -- spot activity usually only occurs when there's an interruption at a mine or perhaps a ramp-up that they didn't foresee in coke production. But generally, it's fixed price and the volumes are pretty well known across the board. Nathan Martin: Got it. Yes. I mean, just to clarify, I think you said, Dan, I've just never seen it drag out this long. So I was just curious. But it sounds like that regardless, you'll get some fixed price contracts done at some point. Daniel Horn: Yes, agreed. It took -- I've been doing this a long time. We sort of started the process in July and now it's November. That is -- in my experience, it's a long time. But there's -- the steel industry has got some uncertainty to some new acquisitions and some of the steel plants around the U.S. have been idled I think. so it's -- I think our customers have their hands full, too. Nathan Martin: Got it. Maybe just 1 final question. pricing is getting a bit of a lift recently as you guys highlighted, but market conditions do remain largely challenged. We also expect new met coal supply or some restart of supply to potentially come online, I guess, over the next few quarters here. So how does Alpha kind of expect to navigate these market conditions going forward? Daniel Horn: Well, new mines come online and old mines go offline. It's not new. So we'll navigate it. We're watching it closely. We like to think we're the supplier of choice for a lot of the customers. We we do what we do pretty well, and we'll have to deal with the market forces as they are, but we're not afraid of the competition. Operator: [Operator Instructions] Our next question comes from Matthew [ Kline with Bank Texas Capital ]. Unknown Analyst: One of the big teams in the met coal market has been -- that spread between the U.S. East Coast, High Vol A, High Vol B versus the Australian benchmark. I was wondering if you could provide any color on the major factors drive in that spread and whether you would expect it to continue into 2026? Daniel Horn: Yes, Matt, this is Dan. I know a lot of people focus on that spread. I don't necessarily find it particularly relevant. We don't -- we track them both, but the relativities between the 2 are driven by obviously supply and demand. So the Aussie production has been okay this year, not great. I don't really know how to answer that. We don't track that relativity exactly. Obviously, if you have excess supply, it will put pressure on the indices. What we're more hoping for and expecting is some increase in demand in '26, perhaps in Europe or some other markets. And that will affect the spread, too. We see a little more demand. Asia is -- a lot of the PLV that's mined in Australia goes to markets like India and the increasing demand in India should pull on that supply pretty hard. And Hopefully, that will improve the indices as well. Unknown Analyst: Got it. And I was wondering if you could provide any color on CapEx expectations in 2026. Any major growth capital or carryover capital that we should be thinking about into next year? Charles Eidson: No. I mean we're not quite ready to delve into '26 yet. I think numbers are pretty well. They've stopped moving. But the only project that we have ongoing is, as Jason was giving an update on Kingston Wildcat mine, which we began to work on last year. There will be some additional capital spend next year to wrap that up. And I think we've talked about that publicly. The total project was roughly $80-ish million and half of that was spent this year. There'll probably be another $40 million-ish to wrap that project up next year to get it up to full production. But everything else will probably be kind of a standard course, but we'll get those more precise numbers out to you hopefully in the coming weeks. Operator: Oyou're next question is from Nick Giles with B. Riley Securities. Nick Giles: Just looking at your cash balance, you have $400 million today, a pretty nice cushion there. Just wanted to ask about how you're thinking about M&A opportunities. I think back to the tuck-in of [ Maxxim Rebuild ]. So curious if there's opportunities in your supply chain and then just how you're looking at some of the smaller operations out there, whether those are becoming more and less attractive? Charles Eidson: Yes. I mean we have to we have to obviously tread carefully and soberly. Job 1 is always, as we've said for years, protect a franchise, maintain this as much of a cash cushion as we can during these more difficult markets, which we do think is going to be -- continue to be a protracted situation through next year, at least it feels like. We are interested in things like maximum manufacturing, maximum transportation. These things that bring more control and cost reduction in-house. Those are a little bit more challenging to track down because they have to make sense and there have to be synergies where we're not just picking up something that we don't necessarily know how to do. But there are opportunities out there, and we continue to look at those and evaluate those. M&A right now, pretty tough in this landscape because again, cash burns a consideration. Are the assets burning cash and how do you view accretion from a -- whether it's EBITDA net income or cash flow, how do you evaluate and view those in this kind of a market? It's pretty tough. There are some opportunities, some small ones that will kick around, but it's really hard to imagine much at this very second. That's hugely material and executable. Nick Giles: I appreciate that. And 1 more and I promise I'll let you go. I just wanted to ask about safety procedures in this current environment. I mean you never get as much credit when it's good and you certainly do when it's bad. So in this government shutdown, it seems like MSHA is also shut down. So how are you approaching safety? And is this MSHA shutdown really having any impact on your operations? Charles Eidson: Well, I would say this about MSHA, the shutdown, portions of MSHA shut down. The enforcement is still quite active. October, in particular, we've had a lot of MSHA activity at the mine. So they're still very much engaged. So from that perspective, we're not -- we're seeing no impact from, I guess, less enforcement and less monitoring of safety. And naturally, that MSHA transactions don't drive our safety performance. We drive our safety performance. And we've had a couple of blips early in the quarter of safety performance that we weren't terribly pleased with. The team has really responded and recovered. September was the best safety month we've had this year and maybe, gosh, going back years, it was an excellent month. October has been very good as well. So again, outside forces don't drive our safety, we do, and I think we're in a really good spot right now. Operator: We have reached the end of the question-and-answer session. I will now turn the call over to Andy Eidson for closing remarks. Charles Eidson: Well, thanks again, everyone, for joining us today. We appreciate your interest in Alpha, and we hope you all have a great rest of the day. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the CRH Third Quarter 202 Results Presentation. My name is Krista, and I will be your operator today. [Operator Instructions] At this time, I'd like to turn the conference over to Jim Mintern, CRH Chief Executive Officer, to begin the conference. Please go ahead, sir. Jim Mintern: Hello, everyone. Jim Mintern, here, CEO of CRH, and you're all very welcome to our Q3 2025 results presentation and conference call. Joining me on the call is Nancy Buese, our CFO; Randy Lake, our COO; and Tom Holmes, Head of Investor Relations. Before we get started, I'll hand over to Tom for some brief opening remarks. Tom Holmes: Thanks, Jim. Hello, everyone. I'd like to draw your attention to Slide 2 shown here on the screen. During our presentation, we'll be making some forward-looking statements relating to our future plans and expectations. These are subject to certain risks and uncertainties, and actual results and outcomes could differ materially due to the factors outlined on this slide. For more details, please refer to our annual report and other SEC filings, which are available on our website. I'll now hand you back to Jim, Nancy and Randy. Jim Mintern: Thanks, Tom. We'll now take you through a brief presentation of our results for the third quarter of the year, highlighting the key drivers of our performance, our recent capital allocation activities as well as our expectations for the year as a whole. We will also share our thoughts on some of the trends we are seeing across our markets as we look ahead to 2026. So at the outset, on Slide 4, let me take you through some of the key messages from our results. We are pleased to report a record third quarter performance and raise the midpoint of our adjusted EBITDA guidance for 2025, reflecting the continued execution of our strategy, our unmatched scale and connected portfolio of businesses. Assuming normal seasonal weather patterns and no major dislocations in the political or macroeconomic environment, we expect full year adjusted EBITDA to be between $7.6 billion and $7.7 billion, representing 10% growth at the midpoint and another record year for CRH. Supported by our growth algorithm and the CRH winning way, we delivered double-digit adjusted EBITDA growth in Q3, reflecting our leading performance mindset. We have also been busy investing for future growth and value creation across our 4 connected platforms of aggregates, cementitious, roads and water. Our ability to deploy capital in high-growth markets, integrate at scale and deliver unique synergies to our connected portfolio is a real differentiator for our business. In the year-to-date, we have invested $3.5 billion in 27 value-accretive acquisitions, and we have a strong pipeline of further growth opportunities in front of us, supported by our proven growth capabilities. Looking ahead to 2026 and based on the visibility we have across our key markets, the outlook for our business is positive. And I will take you through that in more detail later in the presentation. Turning now to Slide 5 and our financial highlights for the third quarter. A record performance with revenues, adjusted EBITDA margin and diluted EPS, all well ahead of the prior year period. Total revenues of $11.1 billion represent a 5% increase over the prior year, supported by positive underlying demand, continued pricing momentum and contributions from acquisitions. This enabled us to deliver $2.7 billion of adjusted EBITDA in the quarter, a record for CRH and a 10% increase over the prior year. I'm also pleased to report a further 100 basis points of margin expansion in the quarter, demonstrating our relentless focus on performance across our business. All of this translated into further growth in our diluted earnings per share, up 12% year-on-year. So what is driving the consistency of our financial delivery? Outlined here on Slide 6 is our growth algorithm, which we presented during our Investor Day in September. As the leading infrastructure play in North America, we are uniquely positioned to capitalize on 3 large and growing megatrends: transportation, water and reindustrialization, which we believe will support significant above-market growth and value creation for our business going forward. Next, the CRH Winning Way, core to who we are deeply embedded in our culture and the engine behind everything we do. Through our winning way, we execute our superior strategy with discipline and focus. We drive leading performance across 4,000 locations through a culture of continuous improvement. We are responsible stewards of our shareholders' capital. Every dollar we deploy is rigorously assessed to ensure that it drives maximum long-term value, and we leverage our proven growth capabilities to build leadership positions in high-growth markets. All of this is supported by 4 key enablers: customer centricity, empowered teams, unmatched scale and our connected portfolio of businesses. Our winning way is what really sets CRH apart. It is the multiplier that enables us to fully capitalize on growing infrastructure megatrends. It underpins our proven track record of delivering consistent double-digit earnings growth and being the leading compounder of capital in our industry. Now at this point, I will hand you over to Randy to take you through the performance of each of our businesses. Randy Lake: Thanks, Jim. Hello, everyone. Turning to Slide 8 and first to Americas Materials Solutions, which delivered a robust performance in the third quarter against a strong prior year comparative. Total revenues and adjusted EBITDA were 6% and 5% ahead, driven by good underlying demand, positive pricing momentum and contributions from acquisitions. Aggregates pricing increased by 4% or 6% on a mix-adjusted basis. Cement pricing increased by 1%, reflecting regional variances across our operating footprint and supporting another year of margin expansion. In our Roads business, Q3 revenues were 5% ahead, supported by good levels of activity in transportation infrastructure, which continues to be underpinned by strong state and federal funding. We also continue to see significant growth in reindustrialization, particularly in large-scale manufacturing and data centers. I'm also pleased to see continued strength in our margin at approximately 28%, reflecting strong cost discipline and operational efficiency across our business. So overall, a strong performance for our Americas Materials Solutions business. And as we look ahead to the remainder of the year, I'm encouraged by the positive momentum in our backlogs. Next to Americas Building Solutions on Slide 9, where our business delivered strong profit growth and further margin expansion driven by favorable underlying demand and good commercial management. We continue to experience robust data center demand which is a key focus for our business. In addition to being very materials intensive, these highly specified facilities require state-of-the-art water, energy and communications infrastructure, which fits very well with how we've strategically positioned our business and our customer offering. By leveraging our unmatched scale and connected portfolio, we're able to deliver more value to our customers and generate higher profits, cash and returns on these types of projects. In our Outdoor Living business, where we continue to experience resilient underlying demand in residential repair and remodel activity, Q3 revenues were 2% ahead of the prior year. For Americas Building Solutions overall, total revenue growth of 2% translated into a 22% increase in adjusted EBITDA and a further 380 basis points of margin expansion, reflecting the benefits of ongoing business and asset optimization initiatives, including the disposal of certain land assets across our operations. Moving to International Solutions on Slide 10, where our business delivered a strong third quarter, supported by continued pricing momentum, ongoing performance improvement initiatives and contributions from acquisitions. On top of a 5% increase in revenue, we delivered a 15% increase in adjusted EBITDA and a further 170 basis points of margin expansion. In Central and Eastern Europe, we experienced positive underlying demand across our key end markets and early signs of recovery in new build residential activity. While in Western Europe, activity levels continue to be supported by infrastructure and nonresidential demand. In Australia, our business is performing well, benefiting from strong demand and synergy realization from recent acquisitions. At this point, I'll hand you over to Nancy to take you through our financial performance and capital allocation activities in further detail. Nancy Buese: Thank you, Randy. Turning to Slide 12. And as Jim mentioned earlier, we delivered a record third quarter performance with further growth across our key financial metrics. Q3 adjusted EBITDA of approximately $2.7 billion was 10% above prior year, driven by positive underlying demand, continued pricing momentum and contributions from acquisitions. We also delivered 100 basis points of margin expansion, keeping us well on track to deliver our 12th consecutive year of margin improvement in 2025, demonstrating our leading performance mindset and the consistency of our financial delivery. Turning to Slide 13 and to talk about our capital allocation activities so far in 2025. Starting with M&A, where we have invested $3.5 billion on 27 value-accretive acquisitions, further strengthening our connected portfolio and leading positions in high-growth markets. We've also invested $1.2 billion in growth CapEx through the third quarter, leveraging our size and scale to fully capitalize on low-risk, high-returning investment opportunities that expand our capabilities, support margin growth and enhance long-term shareholder value. We also continue to deliver significant accretive returns to shareholders through dividends and share buybacks. Year-to-date, we've returned over $700 million in dividends, and we've also announced that our Board has declared a further quarterly dividend of $0.37 per share. representing an increase of 6% on the prior year, in line with our strong financial position and policy of consistent long-term dividend growth. Through our ongoing share buyback program, we have also repurchased $1.1 billion of shares so far this year. And today, we are commencing a further quarterly tranche of $300 million. Since the inception of our buyback program in 2018, we have returned over $9 billion to shareholders, representing 23% of our outstanding shares at an average price of $49 per share. Overall, we have deployed $6.5 billion towards growth investments and shareholder returns so far this year, demonstrating our focus on the efficient allocation of capital to maximize shareholder value. As we communicated during our recent Investor Day, over the next 5 years, we expect to have approximately $40 billion of financial capacity to invest for future growth and deliver further returns to our shareholders, consistent with our long-term track record of value creation and reinforcing our position as the leading compounder of capital in our industry. I will now hand you back to Jim and Randy to provide some further color on our recent growth investments. Jim Mintern: Thanks, Nancy. As you can see here on Slide 15 in North America, our largest market, we have strategically and deliberately built out our 4 key growth platforms to become the #1 infrastructure play in the region. Let me step you through each of these in turn. It all begins with Aggregates, a valuable finite resource and the backbone of our business. In fact, approximately 95% of our revenue is connected to Aggregates. Aggregates feed into everything we do from our Cementitious business to our roads business to our water infrastructure platform. Here, our position is unrivaled with 230 million tonnes of annual production and 20 billion tonnes of reserves. We own more stone on the ground than anyone else in the industry. Building on that foundation, we are also a leader in cementitious materials with around 25 million tonnes of annual production capacity. Together, Aggregates and Cementitious products are the essential building blocks of modern infrastructure, enabling us to build, maintain and improve the networks that communities and economies rely on every single day. Through our connected portfolio, we are also the largest road paver in the United States. This is a business supported by recurring revenue and robust public funding. We produce more than 50 million tonnes of asphalt annually, equivalent to the next 5 largest players combined. And importantly, our paving operations are almost entirely self-supplied by our own high-value aggregates and asphalt. Finally, we are also the leader in water infrastructure, where we provide customers with engineered systems that collect, protect and transport this vital resource. Our Water business has national coverage and over 80% of the products we produce consume aggregates and cementitious materials. And since over 85% of roads require water management systems, the strength of our water platform further reinforces the benefits of our connected portfolio and shared customer base. Taken together, these 4 platforms, Aggregates, Cementitious, Roads and Water form the foundation of our unique position as the #1 infrastructure play in North America, and we are focused on continuing to invest across these platforms to deliver further growth and value for our shareholders. Let's take a look at some examples of our recent investments, starting with 2 bolt-on acquisitions on Slide 16. First, American Industries, a provider of aggregates, asphalt and road paving services in Connecticut. This acquisition increases our aggregates reserves and expands our presence in an attractive market in the Northeast region of the United States. We also acquired Terracon Precast, a newly constructed concrete pipe plant with 70,000 tons of annual production capacity in North Carolina. This is highly complementary to our existing water infrastructure business and significantly strengthens our ability to serve customers in Raleigh and Greensboro markets. These are just 2 examples out of the 26 bolt-on acquisitions that we have completed year-to-date, fully aligned with our strategy to invest across our 4 connected growth platforms with exposure to growing infrastructure megatrends. Now at this point, I will hand you over to Randy to update you on our recent acquisition of Eco Material Technologies and growth CapEx investments. Randy Lake: Thanks, Jim. First, to our $2.1 billion acquisition of Eco Material, which completed in September. This acquisition strengthens our position as a leading cementitious player in North America with approximately 25 million tons of combined annual production. And I'm pleased to report that early integration is progressing well, and we've already identified significant commercial, operational and logistical opportunities to enhance performance and create long-term value for our shareholders. As you can see on the map on the right-hand side of the slide, it's an excellent strategic fit and highly complementary to our existing platform. It creates a unique national distribution network, enhances our innovation capabilities and positions us to better serve our enlarged customer base. Overall, we expect to unlock strong future growth and synergy realization with Eco Material under our ownership, representing an exciting opportunity to accelerate our cementitious growth strategy and deliver a tremendous amount of value for our shareholders. Turning to Slide 18 and some examples of the types of growth CapEx investments that we're making to support future growth in our existing business. First, we recently completed the construction of a precast pipe and box culvert plant just outside Austin, Texas, which will enable us to meet growing demand for our water infrastructure products. The location is not only very attractive from a market growth perspective, it will also enable us to self-supply our own aggregates and cement from our existing operations in the area. And in Utah, we're modernizing our cement plant in Leamington, which will increase annual production capacity by 240,000 tons to meet strong demand throughout the inland West market. These are just two examples of how we're deploying capital efficiently, low-risk, high-returning investments that are an excellent use of our shareholders' capital. Jim Mintern: Thanks, Randy. Great examples there of how we are deploying capital in high-growth areas. Finally, to outlook on Slide 20, and I'm pleased to say that we are raising the midpoint of our adjusted EBITDA guidance for 2025, reflecting our continued strong performance and a partial year contribution from the Eco Material acquisition. Assuming normal seasonal weather patterns for the remainder of the year and no major dislocations in the political or macroeconomic environment, we expect full year adjusted EBITDA to be between $7.6 billion and $7.7 billion, a 10% increase at the midpoint. Net income between $3.8 billion and $3.9 billion and diluted earnings per share between $5.49 and $5.72. As Nancy mentioned earlier, we also expect to deliver our 12th consecutive year of margin expansion in 2025, demonstrating the consistency of our delivery and relentless focus on continuous performance improvement. Taking all of this into account represents yet another record year of growth and value creation for CRH. Now before I hand over to Q&A and as we look ahead to 2026, I'd like to take a moment to share our thoughts on some of the trends we are seeing across our key infrastructure megatrends in North America. First, to transportation, where the demand backdrop is robust, supported by the continued rollout of federal funding through the IIJA. Approximately 60% of the IIJA funds are yet to be deployed, highlighting the significant runway we still have ahead of us. State level funding is also strong with the 2026 DOT budgets up 6% on the prior year. Through our unmatched scale and uniquely connected portfolio, we are well positioned to benefit. In fact, if you look at the DOT capital spending authority across our top 10 states, it's expected to increase by 13% -- it is also encouraging to see continued support for increased infrastructure investment. For example, we saw Michigan recently approving $1.85 billion in new transportation funding over the next 4 years. Transportation infrastructure remains one of the most recurring and predictable revenue streams of our business. And as the largest road paver in the United States and the #1 infrastructure play in North America, we are well placed to benefit. We also expect to see continued investment in the whole area of water infrastructure, a large and growing market for our business with high single-digit growth projected in the areas of water quality and flow control for 2026. In reindustrialization, we expect continued strong demand for large-scale manufacturing and data center investment. With approximately $690 billion of data center projects either announced or under construction and with each of these projects located within 50 miles of a CRH location, we are very well positioned to benefit in this area going forward. In the residential sector, we expect repair and remodel demand in the U.S. to remain resilient, while new build activity remains subdued as a result of the ongoing affordability challenges with the benefit of recent interest rate cuts unlikely to be felt until late 2026 at the earliest. As we've said in the past, this is not a demand issue, and we believe the long-term fundamentals in this market remain very attractive, supported by favorable demographics and significant levels of underbuild. In our international business, we expect robust demand in infrastructure to continue, supported by significant investment from government and EU funding programs. nonresidential activity to remain stable across our key markets and a continued recovery in the residential sector as a result of lower interest rates. Regarding the pricing environment, we expect positive momentum to continue across our markets, supported by disciplined commercial management as well as the benefits of our connected portfolio. In summary, the overall trend is positive for our business with our strategic focus on growing infrastructure megatrends and the benefits of the CRH Winning Way, leaving us uniquely positioned to capitalize on the strong growth opportunities that lie ahead. So that concludes our prepared remarks today. I will now hand you back to the moderator to coordinate the Q&A session of our call. Operator: [Operator Instructions] We'll take our first question from Anthony Pettinari with Citi. Anthony Pettinari: I'm wondering if you have any further color on expectations for 2026 and maybe specifically how you're thinking about volume, price and contribution from M&A? Jim Mintern: Anthony Yes, listen, I might ask Randy to come in a minute just on some of the detail on volume and prices and Nancy, maybe just on some of the scope impacts on '26. But overall, the outlook for '26 is positive, Anthony. And really the key growth areas we see for ourselves around infrastructure. And for us, that's around transportation and water, but also reindustrialization. Maybe first on transportation. With roads, still 60% of the IIJA is yet to be spent. And indeed, the local state budgets are also strong into 2026. This kind of strong funding backdrop for us leaves us really well positioned given our unmatched scale and connected portfolio in our roads portfolio. And as you know, it's probably our most consistent and recurring revenue streams that we have in CRH. Also on the water infrastructure side. It's a very strong funding backdrop and that ongoing investment, which is really needed and required to address the aging network -- aging water network across the U.S. On reindustrialization into '26, we see data center activity continue to be strong. And really for us, given our connected portfolio, it's not just about delivering aggregates on sites. We're often the very first person on site there with our energy, our water and our communications subterranean infrastructure going in early. So it's a really kind of holistic pull-through of the connected product offering we have. Maybe just touching on residential for 2026. We think it's going to remain subdued, right? It's not a demand issue, but affordability with a 30-year fixed still at 6.2%, it's still too high. And we need continued interest rate cuts before we see any recovery on the U.S. res side. So our kind of assumption is that there's no real benefit for us in 2026. If it is, it's going to be really at the very back end. And -- maybe just in international briefly, again, infrastructure is strong, both strong levels of EU and local government funding as well across our state government funding across Europe. Reindustrialization, we kind of see a stable outlook for 2026. And on residential in Europe, slightly different because Europe and the euro are more advanced on interest rate reductions, and we're beginning already to see the benefit of that coming through in terms of a continued recovery in residential. But maybe, Randy, just on maybe the specific volume and prices. Randy Lake: Yes. Maybe just to build out just a quick comment before I do that, just on maybe an example of a couple of projects we're working on. For example, in the northwestern part of the U.S. and around Boise, working on a chip manufacturing plant and a data center. I think what Jim called out is important that critical infrastructure that focus on the needs of energy and water management allow us early access on these projects. They're highly specified. -- gains us the opportunity then to pull through a variety of other products as part of that connected portfolio, the aggregate, the cement, the ready-mix and ultimately, the paving around those sites. So in the end, that strategy is certainly delivering higher returns and as we gain larger share of wallet of some of those key customers. And I guess that is a lead in to say, hey, Q3 was encouraging. Ag and cement volumes up kind of mid- to high single digits coming out of the Q2 that was a little more weather impacted. So good to see underlying demand coming through. And again, a positive pricing environment. Ag, in particular, up 6% on a mix-adjusted basis. So that's good to see. In cement, another year of progress in terms of low single-digit pricing. And as we look forward, we talk about this all the time, the backlog, whether that's for our roads business, the critical infrastructure business, we have good visibility kind of 6 to 9 months out. The bidding environment remains positive. So we're bidding more than we had at this point last year, and our backlogs would reflect an increase in revenues in quantums as we look into next year. In terms of what that means for an outlook in regards to demand, we're looking at our aggs volume in that low single-digit improvement from '25 and mid-single digits in regards to pricing. And cement, very similar, again, low single-digit volumes and pricing, another year of advancement there. So it's building off of a good '25. But again, the backlogs would be encouraging in regards to what our expectations are as we get into next year. Nancy Buese: Yes. And circling back to the question about the M&A contributions. It has been a really active year for us, 27 deals so far. Eco was the largest, and that was completed in September. So if you think about the contributions from all of this M&A thus far in 2025, I would roughly estimate about $200 million of EBITDA net incremental in 2026. And we'll talk a lot more about 2026 at our year-end results in February. We'll give you full guidance at that point in time. Operator: Your next question comes from the line of Adrian Huerta with JPMorgan. Adrian Huerta: Pretty impressive what the company has done in terms of margins in the last in the prior 2 years and also even in this year where it's heading to be more than another 1 percentage point. Can you share with us more color on how this trend should evolve? How do you see the price to cost spread, especially across the 3 different divisions? I mean the margin improvement in this quarter, mainly coming from the Building Solutions in the U.S. and from International Solutions. How do you see this evolving and the opportunities for 2026? Jim Mintern: Adrian, Jim here. Yes, listen, really pleased again with the margin improvement in the quarter, up 100 basis points. And based on the guidance we've given this morning for the full year, that's -- this will be our 12th consecutive year, which is really reflecting that proven track record of and consistency of delivery year in, year out. As we said actually recently, I mean, we don't see any structural ceiling to where we can take the margins, and it really is embedded as part of our performance mindset and deeply embedded in the culture of the company. And at the recent Investor Day, the fact is we raised our ambition on the margins, and we're forecasting margins and targets out of 22% to 24% by 2030. And there's a number of reasons which have given us confidence that we're going to achieve these margin increases. Firstly, it's around the CRH Winning Way, that continued consistent execution of our superior strategy, the relentless quarter-on-quarter, year-after-year focus on driving performance, whether that's operational, commercial or even procurement. And secondly, you would have noticed that we did communicate, we did step up our growth CapEx expenditure, about 18 months ago, and we're beginning to see now the benefits of that coming through in terms of margin expansion, and we've got reasonably good visibility on that as we look forward. Maybe, Randy, do you want to comment specifically on some other aspects maybe on actually maybe what's happening in the cost inflation side of things? Randy Lake: Yes, absolutely. Maybe just to build on the growth CapEx. We have a really good backlog of projects, high-returning projects that certainly drive underlying improvement in the business. Everything from kind of capacity expansion to automation, in a variety of different ways. If we look at our Critical Infrastructure business, kind of enhancing our pipe manufacturing process through the use of automation, just another means by which to drive those efficiencies and meet growing demand in that segment. When we look at the environment in terms of cost inflation, we certainly are still in an inflationary environment. So labor, raw materials, parts, maintenance, subcontractors, those costs continue to move forward. I think it certainly highlights the need for that further pricing momentum that I talked about as we go into next year. But all in all, as Jim called out, in terms of that structural -- no structural ceiling to our margins, I think we should expect another year of margin expansion as we go into next year. Operator: Your next question comes from the line of Trey Grooms with Stephens. Trey Grooms: So you guys are raising the midpoint of the EBITDA guide, which you pointed out that it now includes Eco Materials, and there's definitely several moving pieces here. But could you dive a little bit more into -- and maybe walk us through some of the key drivers here of the updated 2025 guidance? Jim Mintern: Yes, absolutely, Trey. Yes, listen, very firstly, very pleased to be announcing this morning the tightening and the raising of the full year EBITDA guidance by about $50 million at the midpoint. And maybe I'll ask Nancy to come back on maybe some of the puts and takes at the end of this. But with the increase of $50 million, that gives us a midpoint of $7.65 billion, which is 10% growth, which is off a very strong 2024, in fact, a record year for CRH in 2024, which highlights the kind of durable growth nature of the connected portfolio of local brands that we have. The increase in guidance reflects really a strong quarter 3 again with EBITDA up 10%, margins up 100 basis points and contributions from recent acquisitions as well. And again, I guess we should remember that Q3 2024 was a record quarter for us as well. So we're stepping off kind of like-for-like a very strong quarter 3 in 2024. The quarter -- Q3 did benefit from some land sales, but actually, year-to-date land sales are down year-on-year, right, over 2024. And maybe ask Randy, maybe, Randy, would you want to comment on how we think about and how we manage land sales across CRH. Randy Lake: Yes. I think we look at kind of optimizing that portfolio of assets as we do of any other part of kind of driving underlying performance. So it's about optimizing performance plus the portfolio. You call out the CRH Winning Way. This is an expectation we would have of our teams on the ground. So that relentless focus on operational excellence, maximizing shareholder value, and that includes the management of the assets. We take advantage of the scale that we have, 4,000 locations, the ability for us to recycle and optimize that asset base. That's an important part of how we compound earnings for our shareholders. And as you call out, year-to-date, those dollars are lower than prior year. Nancy Buese: And then just to follow on, our updated guide does really reflect our strong year-to-date performance across all of our key metrics. And as we've talked, it has been an active year for M&A, and that does include Eco having closed in September. And just as one reminder, while the adjusted guidance does include our partial year EBITDA contribution from Eco and other M&A. Also remember, though, the size and timing of the Eco transaction in Q4 and also some transaction and financing costs, you can expect that to be EPS dilutive into Q4 of 2025. Operator: Your next question comes from the line of Michael Feniger with Bank of America. Michael Feniger: I'm just curious if we could unpack the drivers of the performance and the margin expansion in Americas Building Solutions. There's been a lot more data points pointing to weakness in repair and remodeling, incremental weakness in residential. And we saw the performance in Americas Building Solutions this quarter. Hoping you can kind of unpack what you're seeing there, what you feel is sustainable going forward and into 2026? Jim Mintern: Yes. Mike, yes, as you know, firstly, maybe America Building Solutions, it comprises both our Infrastructure business in the Americas, but also the Outdoor Living. And maybe I might ask Randy to come back on Outdoor Living. But firstly, on overall, right, a very strong Q3 performance. Adjusted EBITDA up 22% and margin well ahead of last year. What's driving that is overall good underlying demand, good commercial management and as we just mentioned, also the benefit of some asset disposals in the quarter. But what's really driving on the infrastructure, firstly, is what is really the real strength, the underlying strength across the Americas of the whole reindustrialization activity, primarily around data centers. And as you know, given our scale, our national footprint, we're very well positioned for most projects, nearly all projects within 50 miles of CRH location. And in fact, right now, we're working on, in total, about 98 different data center projects. Now they're all at different stages of completion, but it gives you some feel for the kind of scale of activity there. And really what plays into our kind of sweet spot on this is the connected nature of the portfolio. That's a real advantage, right, that we're often, as I said earlier, first on site with our infrastructure products, then we're supporting that with our aggregates and cement. And if you're a contractor building data centers, what really matters right now, it's around quality and speed of delivery, certainty and speed of delivery, and we have a real advantage, competitive advantage there. And that comes through when we get to talk about margins and pricing as well on those jobs. Maybe, Randy, on Outdoor Living. Randy Lake: Yes. Outdoor Living, certainly, I think, performing very, very well when you look at underlying hardscapes, mainstream, packaged products, all really moving forward this year. You have to remember, coming from a very strong performance and growth over recent years coming out of COVID, the team has done a really terrific job in kind of sustaining that momentum, engaging with our customers the right way. And again, this is where we play here has been the most resilient in terms of repair and remodel. That's been a very purposeful effort. But the team has delivered well. It takes a lot of areas of focus, in particular, to call out kind of our category-leading brands. That's really what draws kind of the connected nature with our customers and as well as the logistics network that we've built to be able to service on time on a consistent basis. So I think fundamentally, and Jim has called it out, that business is very deeply connected to the underlying ag and cementitious business. So that combination of delivery certainly has been impressive this year, and we look for more positive momentum even as we get into '26. Operator: Your next question comes from the line of Kathryn Thompson with Thompson Research Group. Kathryn Thompson: I know a lot of focus on data centers and reindustrialization, which is certainly driving demand. And after having gone to a data center construction site, it is pretty staggering the demand that is driving a wide variety of projects. But that said, infrastructure is still a very important part of your business overall. And there's been a little bit of lack of visibility with kind of U.S. in terms of government funding right now with the government shutdown. But it still looks like that infrastructure funding is still chugging along just fine. But we want to make sure that, that is the correct interpretation. More importantly, what is your level of visibility on your roads business and the prospects for the highway bill reauthorization in 2026? Jim Mintern: Yes, maybe just -- you're right, infrastructure for us is our biggest segment. It's a segment which really drives CRH across both the Americas and international. And maybe just to put it in some context and particularly our roads business. As you know, we're the largest road paver in the U.S. with producing in excess of 50 million tonnes of asphalt per annum across 43 states. And as I said earlier, it's actually our most predictable and recurring revenue stream that we have, and it's a highly attractive business. Now there's still very significant runway for growth in the business as we look into '26 with still 60% of the IIJA funds yet to be spent. And as I said earlier, the very healthy local state budgets -- it's a key part of our connected portfolio in the Americas. And a typical year, to give you a bit of scale, we do about 4,000 paving jobs per year. They typically last about 90 to 120 days. And with the connected nature of the portfolio, that paving activity really pulls through the highest quality and the highest value and the highest margin aggregates through our connected portfolio. We called it out recently actually on the Investor Day by actually not just producing ags, we have that ability to take what is kind of an indicative $10 per cash profit per ton and turn that into $60 by turning it into asphalt, adding liquid asphalt and indeed paving it. And it's a real multiplier for profits, cash and returns for us. It's also less capital intensive with higher returns. And ultimately, in terms of the growth and the inorganic side, gives us real optionality for where we deploy capital. Now we're kind of what, 5, 6 weeks out from the year-end. We've got pretty good visibility into 2026 in terms of our bidding on the activity levels, and that's what gives us that confidence in terms of guiding on infrastructure in '26. But maybe, Randy, on specifically what we're thinking around maybe the new highway bill as well. Can you give some color on that? Randy Lake: Yes. I guess, first, just to build on Jim's point, the IIJA, as you know, Kathryn, right about 60% of that funding has yet to really hit the street. So -- and we called that out. I think we said early on, it was a 5-year piece of legislation. It was going to take 7 years to deploy. That's kind of how it is rolling out currently, which is really no different than any other legislation prior to that, just kind of how things have worked from a federal to the state level. So our bidding activity is up, so we're encouraged by that. I think the other thing is it's also encouraging to see the size and the complexity of projects. So to me, that speaks to long-term confidence at the state level about deploying capital in those type of projects. So I guess -- but to your point about what's next, I guess, early conversations are positive. So it's great to hear from the Chairman of the House T&I Committee, from Secretary Duffy from both sides of the aisle in terms of underlying commitment to a new piece of legislation. So the conversations are beginning and so far positive. I think probably the most encouraging thing would be this mindset of moving more dollars to roads, highways and bridges. What that quantum looks like, I'm not sure, but it's encouraging to hear those kind of conversations on both sides of the aisles. And so we're actively participating with those conversations, and we'll see where it ends up, but certainly encouraged by early discussions. Operator: Your next question comes from the line of Michael Dudas with Vertical Research Partners. Michael Dudas: Okay. So Jim, I just want to get your thoughts on the M&A pipeline as you're accelerating on your 4 connected platforms, where now or are you seeing some of the focus on the capital allocation towards M&A over the next 6 to 12 months? Jim Mintern: Yes. Sure, Mike. Yes, listen, really pleased with the execution to date, right, $3.5 billion on 27 deals, the largest, which is Eco Material and maybe come back at that at the end and maybe get Randy to talk about how that's going from an integration perspective and how it started. But great start to the year, 27 deals and really reflects the continued successful execution of our growth strategy and our ability to deploy capital in growth markets across our key platforms. And you said it in the question, actually, we -- at this stage, we've built 4 growth platforms of scale coast-to-coast across the U.S. in aggregate, cementitious, roads and water. It also reflects our ability to integrate. I mean 27 deals year-to-date to be able to integrate those at pace and get early execution and deliver on synergies as well reflects kind of just that growth capability that we have. The pipeline at this stage into 2026 is good. And that, again, is really coming from a lot of the local relationships that we have across the 300 operating businesses across CRH. And it's really, again, when you layer that kind of scale, the connected nature of the portfolio, it really gives us optionality as to where we choose to deploy capital going forward. And at the recent Investor Day, we would have called out that on the medium term out to 2030, we estimate that we're going to generate $40 billion of financial capacity. And we're going to allocate that approximately 70% to the growth side, so growth CapEx and M&A and then 30% in terms of shareholder returns. So the consistent year in, year out ability to deploy capital in value-accretive acquisitions really highlights us as the kind of leading compounder of capital in the industry. But a great start to the year and good activity level across the full business, both the Americas and international into '26. But Randy, maybe on Eco? Randy Lake: On Eco. Yes, early days so far, but the integration is going really well. I think maybe when you stand back, we were excited about the opportunity before and even more so as we've got an opportunity to bring them into the CRH fold. I think I'd call out a couple of things. Obviously, it's a fantastic team, terrific leaders and organization from an operational standpoint and a great brand, and we're going to continue to build off that brand. I think from a cultural standpoint, a great deal of alignment. They're focused on ensuring their teams are safe. That's our #1 value within CRH, great to see. It's the ownership of those relationships, really deep local relationships, the importance of that, and that's in direct alignment with how we look at our local brands and how we go to market. But as we got inside, certainly, we're seeing things that we would continue to build off of. One, they have a terrific offering with current customers, the ability for us to integrate that to our cementitious business with Ash Grove is going to give us plenty of opportunities from a commercial standpoint. And remember, the SCMs are the fastest segment of the cementitious space. And so it was important for us to play there, and they deliver a lot of optionality for customers. I think that's that -- I think I called it out in the opening remarks, the network that they've built. It gives us an additional 55 terminals across the U.S., close to 8,000 railcars to really extend our reach to our customer base, which is very important to provide high-quality product in a timely manner. And I think lastly, what they have done really well is drive innovation in this space. The customers that we're engaged with, whether it's on high-spec manufacturing or data centers, a focus on sustainability, they've done an incredible job of really advancing that in their overall offering. It's going to be a terrific combination with our scale. So overall, excited as to where we are at this point in time. I think there's a tremendous amount of value for our business and overall shareholders and a great opportunity for us to continue to drive margins forward. Operator: We have time for one last question, and that question comes from the line of Colin Sheridan with Davy. Colin Sheridan: My question is on the International Solutions business. And clearly, it's had an excellent Q3 in terms of the profit growth and good margin progress. But looking forward, I just wonder if there's any areas of that business you might think will provide opportunities for some further upside as we go into 2026. Jim Mintern: Yes, listen, as you called out, a really good quarter, actually a really good year-to-date and building off a really strong 2024 as well with year-to-date adjusted EBITDA and margin growth across the International Solutions business. It's an encouraging outlook, Colin, into 2026. And in fact, beyond that, I'd say, for the next 3 to 5 years across the international portfolio. And it's really recovering from what has been a challenging period. It has had numerous headwinds, whether it started out originally with Brexit, then we went into the pandemic, then the energy crisis and the war in Ukraine. And -- but what we're seeing is that Europe is more advanced in the kind of interest rate cycle, the cutting of interest rates. And that's coming through in terms of being more supportive of continued residential recovery. That, together with good EU level and individual state level funding for infrastructure in our key markets is providing a very significant underpin in terms of base activity levels coming from infrastructure. We're also this year in our eighth consecutive year of price increases across the European business, and we're expecting further momentum on that into 2026 also. And in our case also, we would have taken on a lot of portfolio and self-help measures over the last number of years across the -- particularly the European portfolio. And as activity levels are beginning to recover, we're beginning to see really good leverage on the margin drop-through on that business and you see that coming through on the quarter-on-quarter and year-on-year performance as well. And maybe finally, just in terms of Australia. Really, it's a little over 12 months at this stage. Good news, really good delivery on synergies ahead of our expectations and good positive momentum into 2026. Well, I think that brings us to the end of questions today, but thank you all for your attention. And as always, if any of you have any follow-up questions, please feel free to contact our Investor Relations team. We look forward to talking to you all again in February next year when we will report our full year results for 2025. Thank you all, and have a good and safe day. Operator: Thank you. Your conference call has now ended. You may now disconnect.
Operator: Good day, and welcome to Vistra's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Eric Micek, Vice President, Investor Relations. Please go ahead. Eric Micek: Good morning, and thank you for joining Vistra's investor webcast discussing our third quarter 2025 results. Our discussion today is being broadcast live from the Investor Relations section of our website at www.vistracorp.com. There, you can also find copies of today's investor presentation and earnings release. Leading the call today are Jim Burke, Vistra's President and Chief Executive Officer; and Kris Moldovan, Vistra's Executive Vice President and Chief Financial Officer. They are joined by other Vistra's senior executives to address questions during the second part of today's call as necessary. Our earnings release, presentation and other matters discussed on the call today include references to certain non-GAAP financial measures. All references to adjusted EBITDA and adjusted free cash flow before growth throughout this presentation refer to ongoing operations adjusted EBITDA and ongoing operations adjusted free cash flow before growth. Reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to the investor presentation available in the Investor Relations section of Vistra's website. Also, today's discussion contains forward-looking statements, which are based on assumptions we believe to be reasonable only as of today's date. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or implied. We assume no obligation to update our forward-looking statements. I encourage all listeners to review the safe harbor statements included on Slide 2 of the investor presentation on our website that explain the risks of forward-looking statements, the limitations of certain industry and market data included in the presentation and the use of non-GAAP financial measures. I will now turn the call over to our President and CEO, Jim Burke. James Burke: Thank you, Eric, and good morning, everyone. I appreciate you joining us to review Vistra's third quarter 2025 results. This year continues to be a transformational one for our company, and the activity during the quarter was a key driver of our progress. We announced the landmark power purchase agreement at Comanche Peak, announced our plan to develop 2 gas-fired units in West Texas and successfully closed the acquisition of approximately 2.6 gigawatts of natural gas-fired assets from Lotus Infrastructure Partners. Importantly, while we are successfully advancing our growth efforts, we continue to be steadfastly focused on execution in our core business. As we will discuss, our core business continues to point to additional value creation in the years ahead. I'm proud of what our team has accomplished this year as we continue building the foundation for sustainable growth and value creation well into the future. Continuing on the topic of sustainable growth on Slide 5, you can see the positive impact of steps we've taken over the past several years. Combined with a more favorable demand backdrop, those actions are now translating into sustainably higher levels of profitability for our company. At the core of this success are the approximately 7,000 team members across the organization. Their dedication and hard work allowed us to deliver another solid quarter of financial performance. Combined with our results year-to-date, we are narrowing our guidance range for 2025 adjusted EBITDA to $5.7 billion to $5.9 billion, and our 2025 adjusted free cash flow before growth to $3.3 billion to $3.5 billion. Moving to our near-term outlook. We are introducing guidance ranges for 2026 adjusted EBITDA of $6.8 billion to $7.6 billion and adjusted free cash flow before growth of $3.925 billion to $4.725 billion, including the expected contribution from the assets acquired from Lotus Infrastructure Partners. It's worth noting that excluding the benefits from the Lotus assets, the midpoint of our 2026 adjusted EBITDA guidance range is above our previously communicated 2026 adjusted EBITDA midpoint opportunity of $6.8 billion plus, another clear sign of sustainable momentum across our business. We are confident in our forecast as we expect consistent earnings from our retail business paired with strong performance from a reliable, flexible and highly hedged generation fleet. Finally, for 2027, we are introducing an adjusted EBITDA midpoint opportunity range of $7.4 billion to $7.8 billion. While multiple drivers of gross margin variability remain, including the 2027, 2028 PJM capacity auction, our hedge percentage, which currently sits at approximately 70% of expected generation, provides line of sight to our adjusted EBITDA midpoint opportunity. Finally, the recently announced power purchase agreement at Comanche Peak marks a major milestone for our company, for our site and for Texas. We believe this 20-year agreement, which enables our customer to energize up to 1,200 megawatts of new load ensures the Comanche Peak nuclear plant will continue to deliver power to Texans at least through the middle of this century. As you may recall, we recently relicensed Comanche Peak out to the 2050s, and this agreement provides the financial backing to maintain operations through that date and potentially beyond. Further, the customer's commitment to bring significant backup generation to the site will also enhance resource adequacy while meeting their own reliability needs. I want to commend our team for their hard work and constant dedication in getting this agreement over the finish line, working, of course, very closely with our customer. We believe this is yet another example of why Vistra is a reliable and trusted partner for these types of long-term agreements needed to meet the ever-increasing power demand across the U.S. We continue to see multiple pathways for long-term agreements at other sites as we believe our fleet and development capabilities are well positioned to provide a variety of power solutions to meet the needs of these large load customers. Turning to Slide 6. Our 4 strategic priorities remain integral to our success. We believe our integrated business model and comprehensive hedging program provide our stakeholders greater visibility into our future financial performance. Our diverse fleet of generation assets, combined with our trusted retail brands and strong commercial acumen form an integrated platform that consistently delivers attractive earnings and downside protection. Our generation team achieved another solid quarter of commercial availability of approximately 93% for our coal and gas fleet. This included exceptional performance during the late July nationwide heat wave and the impacts of the extended outage at one of our 3 Martin Lake units. Nuclear also had a solid quarter of performance, achieving a capacity factor of approximately 95%. Complementing our generation portfolio, our commercial team continues to deliver strong results through disciplined execution over a comprehensive hedging strategy. We've established a highly hedged position for '26 as we enter the year, providing enhanced earnings visibility and stability. Over the next 12 months, the team will continue to prudently manage our open length for '27 to further strengthen that position. As I'll discuss later, we are also making solid progress in advancing additional capacity contracts with large load customers, which will further enhance the long-term value of our company. On the Retail side, we continue to see strong customer count growth driven by our portfolio of brands in the Texas market. We believe the team's continuous innovation combined with strong customer service drives the consistent earnings level of the business while outperforming on customer complaint, performance versus our key competitors and maintaining our 5-star ranking. Switching to capital allocation, we remain disciplined in our approach by targeting a significant return of capital, executing on our attractive growth project pipeline and maintaining a strong balance sheet. Since implementing the capital return plan put in place during the fourth quarter of 2021, we have returned over $6.7 billion to our shareholders through share repurchases and common stock dividends. Kris will cover capital allocation in more detail later in the presentation, but you will see that we expect to return at least an additional approximately $2.9 billion through share repurchases and common dividends, including the additional $1 billion authorized this quarter by the Board for share repurchases through 2027. Turning to growth. With the increasing power needs in West Texas, including from the state's expanding oil and natural gas industries, combined with expected demand growth from data center additions, we have made the decision to move forward with developing 2 natural gas units totaling 860 megawatts. We view these projects as attractive for our owners with projected returns in excess of our mid-teens levered return thresholds. Both units remain part of the Texas Energy Fund due diligence process, and we plan to make a final decision on financing in the coming months. Equipment and EPC procurement is progressing well, and we remain on track to deliver this West Texas capacity in early to mid-2028. Lastly, we successfully closed on our acquisition of 7 natural gas plants from Lotus Infrastructure Partners, totaling approximately 2,600 megawatts of capacity. This acquisition, which includes assets across PJM, New England, New York and California reflects our disciplined and opportunistic approach to M&A. It will enhance our already wide geographic footprint and strengthen our ability to meet the diverse needs of our customers. We look forward to integrating these assets into the Vistra portfolio and driving operational efficiencies by running them in line with the high standards of our current large combined cycle and peaking gas fleet. We continue to target approximately $270 million of adjusted EBITDA from these assets in 2026, with potential upside in the out years driven by synergies and higher capacity revenue. Moving to the balance sheet. We continue to prioritize liquidity and low leverage to manage the business prudently. While we currently have a strong balance sheet with leverage of approximately 2.6x, we expect additional deleveraging through the end of 2027 through higher earnings and continued prudent management of our debt levels. As we stated on our last call, we believe the lower leverage levels, combined with a reduction in business risk as a result of more contracted revenue sources, puts us on the path for an upgrade to investment-grade credit ratings. On our strategic energy transition, we continue to execute on our strategy of utilizing existing land and interconnects to develop solar and energy storage projects. Our Oak Hill solar project in ERCOT reached commercial operations last month, bringing 200 megawatts of clean energy to the ERCOT grid. Our Pulaski and Newton sites remain on schedule for commercial operations by year-end 2026. We continue to evaluate the remainder of our development portfolio for additional opportunities as long-term power agreements materialize. Finally, we believe nuclear, with its carbon-free profile and 24/7 availability, is a vital component in meeting the country's electricity needs for decades to come. Large load customers clearly have a preference for this type of generation. To meet these needs, we continue to evaluate upgrade opportunities at our nuclear plants with studies planned to be completed by the end of this year. Initial assessments are promising, indicating the potential to increase capacity at nuclear plants by approximately 10%, with the additional capacity starting to come online in the early 2030s. Turning to Slide 7. We continue to see a structurally improved demand environment, which carries significant positive implications for our business. As we've discussed over the past several quarters, electricity consumption across the country is undergoing a fundamental shift. Load growth in our largest markets remains well ahead of national averages. With weather-normalized load in PJM rising approximately 2% to 3% and the ERCOT market growing around 6% year-over-year. Importantly, customer investment continues to send stronger, more sustained market signals. Data center development remains robust with a number of planned facilities across the U.S. more than doubling from 12 months ago. Our largest markets, PJM and ERCOT, continue to be targeted for a larger share of these developments. As an example, ERCOT's market share of these announcements is over double the region's market share of currently installed data centers. While it's unlikely that every announced project ultimately reaches completion, even factoring in a haircut, we believe this data indicates the load growth levels we covered at the top of the slide will materialize. In fact, we continue to see the potential for even greater acceleration. This is especially evident in recent results calls from the hyperscalers where they've emphasized expanded investments in AI and data infrastructure, signaling that development activity is expected to remain strong, if not increase further, in the year ahead. This load growth is already leading to higher utilization rates for our combined cycle gas assets where capacity factors have increased from the low 50% range to the high 50s over the last several years. Growing consumption should efficiently drive existing assets to higher utilization levels over time, potentially reaching rates in the mid-80% range for combined cycle gas plants. This is evidence that there is capacity currently on the grid capable of meeting the load growth anticipated over the next 3 to 5 years. In addition to supply-side solutions, there is also increasing interest in demand-side solutions. The infrequent super peak hours can also be met through practical solutions like on-site backup generation and demand response, approaches that large load customers are continuing to develop and implement. This framework supports accelerating demand growth from emerging sectors such as data centers, crypto operations and other industrial load, allowing them to integrate into our markets by leveraging existing grid investments, while improving system utilization and lowering unit costs for end customers. Turning to Slide 8. Vistra is in the middle of a multiyear plan to drive significantly higher profitability levels against the backdrop of accelerating electricity demand growth just outlined. The team has already delivered on several initiatives that have led to our increased outlook through 2027. Our retail business consistently achieved strong margin performance and high levels of free cash flow conversion. Our commercial team through our comprehensive hedging program, lock in benefits from stronger power markets, while our generation team looks for attractive and cost-effective ways to organically add capacity, such as our natural gas upgrades in Texas. Inorganic expansion has also been a big value driver through both the acquisitions of Energy Harbor and the natural gas plants from Lotus. However, we see an extensive list of near-term and long-term opportunities that are not included in our outlook that will enable us to grow our business through the end of the decade and beyond. Some of these initiatives are already underway, such as the 1,200-megawatt power purchase agreement at Comanche Peak, or the Coleto Creek coal-to-gas conversion, and these are expected to begin contributing to profitability in the next few years. Projects like the new Permian gas units and the Miami Fort coal-to-gas conversion are in the early stages of project execution. Others such as the nuclear uprates, while still early in the process, could provide significant additional optionality around our assets. Long-term power purchase agreements will also be a key driver of increasing our earnings visibility, and we see multiple pathways to agreements across our large diversified fleet of more than 40,000 megawatts of nuclear, gas, coal and renewable generation. We also see numerous opportunities for contracting new build capacity across our geographies and our experienced development team is actively progressing these options. We continue to see an acceleration in strong customer interest we outlined last quarter, and we believe the momentum we have today should enable us to realize multiple contracting opportunities. In fact, we set aside roughly $50 million per year over the next several years, including 2026, and increased expenses for investments in people and development activities to capture these opportunities and handle the level of customer interest. Importantly, all the potential future drivers I've outlined remain incremental to the core objective of delivering for our customers for running an efficient and reliable fleet that benefits from improving power market fundamentals. We believe there is significant optionality embedded in our large generation fleet, particularly our combined cycle and peaking gas fleet given that strong market fundamentals can drive higher volumes and higher revenue without significant incremental investment. Now I'll turn it over to Kris to provide more details on our third quarter results, outlook and capital allocation. Kris? Kristopher Moldovan: Thank you, Jim. Turning to Slide 10. Vistra delivered $1.581 billion in adjusted EBITDA in the third quarter including $1.544 billion from Generation and $37 million from retail. Consistent with last quarter, the Generation segment continued to realize material benefits from our comprehensive hedging program, with average realized prices over $10 per megawatt hour higher compared to the same quarter last year. The stronger realized price benefit, together with the higher capacity revenue in our East segment, and the expected nuclear PTC revenue recognized at Comanche Peak, more than offset the impacts of extended outages at Martin Lake Unit 1 and our battery facilities at Moss Landing. On a year-to-date basis, the incremental contribution from 2 additional months of Energy Harbor results, combined with stronger realized wholesale prices and higher capacity revenue, have more than offset the impact from the outages and are driving the strong year-over-year performance gains. Moving to Retail. As a reminder, based on the shape and level of supply costs, we typically expect lower profitability in the first and third quarters, with this year being no exception. Notably, the third quarter, like the first 6 months of the year, benefited from strong customer count and margin performance, with results in the quarter being offset by weather-driven gains in the third quarter of last year that were not repeated this summer, and some expected intra-year timing impacts of supply costs. Importantly, the Retail business continues to generate strong earnings to our business in a variety of market conditions and remains on track to outperform 2024 results. Turning to Slide 11. Based on our expectations for 2025 and 2026 and the range of midpoint opportunities for 2027 that Jim outlined earlier as well as our expectation that we will continue to achieve a targeted medium-term adjusted EBITDA to adjusted free cash flow before growth conversion rate of at least 60%, we project to generate a significant amount of cash, approximately $10 billion through year-end 2027. The confidence in our outlook and the cash generation of our business continues to be underpinned by our comprehensive hedging program, and the downside support provided by the nuclear PTC, resulting in a highly hedged position over the next several years. As we've highlighted in previous quarters, our share repurchase program has generated significant value for our shareholders. Since beginning the program in November 2021, we have reduced our shares outstanding by approximately 30% through repurchase of approximately 165 million shares at an average price per share under $34. We continue to expect to return at least $1.3 billion to our shareholders each year through share repurchases and common dividends. With the Board's recent authorization of an additional $1 billion of share repurchases, we have approximately $2.2 billion of share repurchase authorization, enough to meet our annual share repurchase target through 2027. We will continue to execute the share repurchase program through our 10b5-1 plan, allowing us to stay in the market even when in possession of material nonpublic information. While this plan allows us to remain consistent buyers of our shares, we have designed it such that it accelerates repurchase amounts during times of market dislocation. On the balance sheet, after increasing our net debt to reflect the closing of the Lotus transaction, and the financing activities completed in October as well as incorporate the midpoint of our 2026 guidance range for adjusted EBITDA, our net leverage ratio is approximately 2.6x. As mentioned last quarter, we are targeting leverage metrics consistent with investment-grade credit ratings and believe the improvement in our net leverage levels, combined with the higher earnings visibility from more contracted earnings streams, could position us for an upgrade, potentially within the next 12 to 18 months. Turning to growth investments. We will continue to be opportunistic, yet disciplined in the deployment of capital. In addition to our planned solar and energy storage investments, we will be allocating capital to our new gas-fired units in West Texas, which we estimate will require approximately $900 million before any offsets from project financing. Finally, we expect to continue to evaluate M&A opportunities for both the generation and retail businesses. Even after allocating approximately $3.4 billion to our equity holders through share repurchases in common and preferred dividends and $2.6 billion for accretive growth investments, including closing the acquisition of the gas assets from Lotus Infrastructure Partners, we still expect to have approximately $4 billion of additional capital available to allocate through year-end 2027. Share repurchases remain an important capital allocation priority, and we still believe our shares are trading at an elevated free cash flow yield, especially when compared to the average free cash flow yield for companies in the S&P 500. A strong balance sheet is also important, and we see multiple benefits to achieving investment-grade credit ratings. Finally, the shift in power market fundamentals have led to a significantly wider opportunity set for growth compared to years past. Notably, while the opportunity set has changed, our approach is not. We remain disciplined, seeking to balance growth with shareholder returns and a strong balance sheet. We continue to place a high threshold on capital, targeting at least mid-teens levered returns for any opportunity we pursue. Finally, moving to Slide 12. As Jim mentioned, we are in a multiyear execution plan that is leading to a sustainably higher level of earnings power for our business. This is evident in the higher adjusted EBITDA and adjusted free cash flow before growth guidance we've provided today. While these metrics have been the focus of our guidance historically and will likely continue to be going forward, at least in the short term, these metrics don't fully capture our best-in-class capital allocation demonstrated over the past several years. As a result, we've included a new perspective focused on adjusted free cash flow before growth per share through 2026. We view this metric as a direct indicator of long-term value creation for shareholders. It demonstrates both our ability to generate recurring cash flow and the capacity to deploy that cash toward value-enhancing initiatives. It's also an important measure within Vistra's long-term incentive compensation framework, keeping management and shareholders aligned on how we define success. You can see from the chart on the left that based on actions taken to date, forward curves at the end of October and a stable share count as of September 30, we see a trajectory for adjusted free cash flow before growth per share to grow by approximately 50% from 2024 through 2026. We think this level of improvement over the 2-year period is compelling and is a testament to both the operational excellence and disciplined capital allocation by the team. As Jim outlined earlier, the number of opportunities for our business have never been higher, and we continue to see heightened engagement from our customer base. These opportunities vary in the amount of capital required as well as our ability to control them. Some of these opportunities, like continued share repurchases, are fully in our control. Many of these opportunities, like the recently announced Permian gas units, the 1,200-megawatt Comanche Peak PPA or other new long-term contracts at existing or new build generation assets are highly accretive, but are not expected to begin contributing immediately to our results. The continued improvement in power markets remains a potentially significant source of future growth in our business. Collectively, we see these multiple drivers leading to a meaningfully higher adjusted free cash flow before growth per share with a compelling growth rate over the next 3 to 5 years. We will continue to deploy our excess capital to maximize the value creation from these opportunities, and we'll provide updates as they materialize. In closing, the growth and results we shared today reflect the strength of our strategy and the dedication of our entire team in consistently delivering for our customers and our shareholders. As we look to the months ahead, our focus remains on finishing the year with solid execution, ensuring reliable performance through the winter season and setting the stage for continued success in 2026. With that, operator, we're ready to open the line for questions. Operator: [Operator Instructions] And your first question today will come from Shar Pourreza with Wells Fargo. Shahriar Pourreza: So just maybe focusing on the '27 opportunities, which is generally in line with expectations. I guess, what's currently embedded in that range? Obviously, it's a little early for the Comanche deal ramp. But I guess where do you see opportunities to improve versus the midpoint? Is it sort of market vol and locking in some of the forward curves? Or is there a more strategic dry powder just given the $4 billion of cash available for allocation? James Burke: Thank you, Shar. I think there are a number of levers still to pull. Obviously, there is an open position. We've disclosed we're still open in 2027. We disclosed about a 70% hedge percentage. So as you continue to see the markets strengthen, we have exposure to that for sure. In terms of strategic deals, obviously, contracting is one of these topics that comes up, and we see opportunities to have contracts, some of which could start in a 2027 time period. We do not have that embedded in our forward view. And so I do think, Shar, there's -- it's always difficult to put numbers that far out and make too many assumptions because we have to deliver on these opportunities, but we think there's upside in our business. That's why we have a wider range there. And our goal would obviously be to continue to do what we've done in the past, which is trend upwards as we get closer to the delivery year. And I think we've shown a track record of doing that, and I think we have quite a few levers to pull. Shahriar Pourreza: Perfect. I appreciate that, Jim. And then just on the '27 sort of like you talked about contracting opportunities. I mean peers have been talking about deals becoming unanimously more front of the meter for obviously, reasons including circumventing political sensitivities and reliability arguments. Is this how you're thinking about your Eastern fleet like Beaver Valley? And are you seeing converging pricing between front and behind the meter? James Burke: Yes, that's a really good question, Shar. There are challenges and opportunities with both co-located deals and front of the meter. The additionality concept comes up. And so folks -- some folks are doing the bridge power to then get started and potentially then later get a grid connection. Some are starting front of the meter from the get-go. I do think, ultimately, customers are going to look for a grid connection. I think that's been integral to long-term reliability from a data center point of view. The way we think about this is that each deal, and we've talked about this for over a year, each deal has unique characteristics, and that's hard, I think, to explain in advance because customers have different goals around sustainability, around speed to market, around which markets they prefer to actually support from a data center standpoint. So when you even think about the new build opportunities, which we're part of, that we're in discussions with parties, some of those are looking at how can they bring additional resources to the marketplace to address the long-term concerns folks have that loan growth ultimately is going to have to be met with additional generation. It doesn't have to be in the near term. I think one of our key messages that I think is starting to resonate is there is excess capacity on the system in most markets today, particularly the major markets we're in, ERCOT and PJM, to meet most of the load growth during these non-super peak hours. And then the super peak hours, the customers are bringing some solutions as well with their backup generation. So I really think all options are on the table from a customer standpoint, whether it's front of the meter, whether it's co-located, whether it's bridge power to then get to the grid or bridge power to then get to building an on-site generation resource that more directly supports their data center. We haven't seen any options come off the table from our discussions with customers. And I think that's what's really important is customers are being creative as well because they want to work with stakeholders like the regulators and the state leaders who want to make sure things stay reliable and affordable. So I don't see a trend yet, Shar. I still see the same variety of options on the table that we were talking about a year ago. Operator: Your next question today will come from Jeremy Tonet with JPMorgan. Jeremy Tonet: I just wanted to pick up on some of the comments in the prepared remarks there. I believe you talked about meaningfully higher adjusted free cash flow before growth and compelling growth rate over the next 3 to 5 years here. Just wondering if you might look to quantify that in some sense for the market in the future, given there's a lot of variables as you laid out there, but just wondering any more sense you could provide to that? Kristopher Moldovan: Yes, Jeremy, this is Kris. I appreciate the question. And I think we talked about this, and we're expecting this question. As we look forward, there are so many opportunities that we just think it's a disservice to try to put a growth rate on there and to give a range because there's just a number of different things that could come and the timing of them and when they come could be different. So I think we do see -- we laid out all the opportunities on the right side of that slide, and we see a lot of those opportunities. And we feel like that the right time to announce those, we'll continue to update the growth on likely on a -- at least on an annual basis. But we're just not going to try to forecast when and at what level all these opportunities are going to become reality. James Burke: Jeremy, this is -- I would just like to add that when we give you our '26 view and our '27 midpoint opportunities, we're in a highly hedged position, obviously, when we provide that. So part of our strategy has been, let's give our investors the information that we've got, the hedging and the contracting, to give you high confidence in it. As you go further out and you start looking 4 and 5 years in a cycle where there hasn't been capacity clears and auctions, you haven't necessarily hedged that far out. The degrees of variability out there are wide. And I think that's actually positive from a Vistra shareholder standpoint because the fundamentals of the business, as we talked about in our prepared remarks, are really strong. But to just to put a number out there and put a growth rate number out there, I think, is there's too many variables at play that I think you would have many more questions about what are the assumptions underlying that. And I don't think we would be giving you enough confidence around all those assumptions to say, take that to the bank. We've been, as a company, very consistent, I think, in our view that we want to give you things you can count on, and that's our focus. And I think what we've given you in disclosures in the '26, '27 time frame, meet that hurdle. Jeremy Tonet: Got it. That's helpful. And just wanted to come back to, I guess, contracting discussions, if we could. And any color you might be able to provide here, granted deals happen when they happen. But just as far as conversations related to gas power generation relative to nuclear, wondering if you could provide any more color, I guess, on how those trend? James Burke: Sure. And I'm going to ask Stacey to provide some feedback here as well. You noticed in our prepared remarks, we talked about investing in growth even [Technical Difficulty] which we're reluctant. I have to tell you, our business is one where we know that in a fundamentally in a commodity-driven business, you need to be a low-cost operator. But then these are unique opportunities and the pace at which we have not seen before. In fact, this is the highest level of engagements we've been part of is what we're in right now. And so recognizing that, we're adding people, and we're adding dollars to make sure that we can handle the level of inbounds that we're getting. And it's an exciting time. It's a stressful time because there's a ton of work that customers are asking of us. But I think the range of options from gas to nuclear to doing some things that are more short term versus long term, those options are on the table. And frankly, our people are excited to see the growth opportunities they haven't seen in this industry and their whole career. So we're investing in that, not only in SG&A and O&M, but also some CapEx assumptions to capture it. But I'd like Stacey to weigh in on this. Stacey Dore: Yes. Thanks, Jim. Jeremy, yes, I would just say, to echo what Jim said, all options continue to be on the table, and we continue to see sort of record levels of interest across our portfolio as well as in opportunities to do new build generation. Demand actually seems to be accelerating from our standpoint based on the conversations we're having and also lengthening into the later years of the decade, whereas I would say, a year ago, customers were very focused on 2026, 2027 power. They're now starting to recognize that they need to layer in longer-dated deals as well and serve their needs in the later part of this decade. And so we just continue to have a number of conversations across our fleet. The number of engagements we have currently and the number of inbounds we're getting are the highest that they've ever been. So we're really excited about the opportunity, but we're also very committed to being disciplined about what opportunities we pursue, making sure that we can deliver and execute on those opportunities. Jeremy Tonet: Understood. Real quick last one, if I could. As it relates to '27 hedging price levels, are you able to provide any color there? James Burke: We are not providing that at this point. We will next quarter. That's our typical cadence for providing the roll forward, if you will, of the hedge disclosures. But obviously, we've been laddering into an increasing power market through time. And so you would expect to see that increase year-over-year, and you've seen that from '24 to '25, '25, '26, you're going to see it again in '27. As you know, our philosophy isn't to try to capture the absolute peak on any of this because the volumes that we're hedging are so large that you do need to thoughtfully execute in the marketplace, both on the retail customer contract side, any of the large commercial and industrial and data center contracts as well as third-party hedging in the market. But we will provide that disclosure, Jeremy, in the next quarter. Operator: And your next question today will come from Steve Fleishman with Wolfe Research. Steven Fleishman: Jim, so just on that last question on the hedging, just given the kind of bullish factors you mentioned, all the demand, et cetera, and time to power, I'm just curious, though, why not have you considered maybe a little less hedging kind of than the ratable you've done in the past? And just how you're thinking about that? I guess it sounds like you -- just your volumes are so big, you just feel like you need to get a decent chunk of it put in with customers. But I'd be curious, your view? James Burke: Yes, Steve, that is a really -- it's a great question. Even if you look at this year, and I know you follow these markets very closely. You can be hedging out in the forward and even in like 2026, it can look like your hedges are out of the money because the market continues to move up after you hedge. Then you can get into like a third quarter of 2025 at ERCOT, where the weather really didn't materialize and now all those hedges settle deeply in the money. And so I do think there is a reality that when you decide you want to hedge, it still takes some time to be moving some of these volumes. And I think that gives certainty to our investors that our share buyback program and our dividends and our CapEx plans to sustain and grow the business, debt paydown that we can deliver on all of those. So I don't think the idea for a fleet this size producing over 200 terawatt hours a year is easy to just back off and then say, now it's time to hit the gas pedal on the hedging. And so we do have to be thoughtful. We do use a point of view, so we're not constantly hedging in a programmatic way. We do, just like our share buyback, we have some flexibility in our program that when we like prices at certain times, we'll do more. But I do think it's partly a reality of the hedging dynamic of a large fleet. It's also the retail customers pulling through their pricing and their products because they too want to hedge some of their exposure. And that's part of the value add that we have as Vistra is to meet customers in their needs when they want to meet them. And we have the discussions all the time internally, how far out should we go? What's the right risk premium for going out that far? But I do think you're hitting on the key aspects, Steve, in terms of the size of the business being -- having a method to it. Steven Fleishman: Okay. And then just on the kind of M&A and investment-grade metrics, maybe you could talk to how to balance those -- how you're looking at balancing those things? And I know you've got $4 billion cash still available. Is that enough for the M&A opportunities you're seeing? If you saw something bigger, would you be willing to go above the metric targets a little bit on debt to do it? How should we just think about that? Kristopher Moldovan: Yes, Steve, thanks. That's a good question. As we -- and we have been upfront in our discussions with the rating agencies that we think that the opportunity set for inorganic growth is at a high level right now. And we don't want to be in a position where we're not able to be opportunistic. And so one of the things why we think that it could be -- I said 12 to 18 months is we have certainly talked to the agencies about having some cushion that we don't want to just get into investment-grade land and then be at risk of missing an opportunity. I do think, though, that if you look at our -- where our metrics are going, even with the $4 billion and we've noted in the presentation that, that would assume a 2.3x leverage ratio that there is a lot of dry powder there and where we'd still meet investment-grade metrics, and that leverage could probably come. As our business risk improves, that leverage -- there's probably some room there even with that to increase that leverage. So there's probably a little bit more than $4 billion. And then the last thing I'll say is, if it's the right opportunity, we do view -- we're buyers of our stock. But the stock could be used -- our equity could be used as a currency as well. We've seen others in our industry do that. That would obviously have to be for the right opportunity, but that could be a path as well for us. Operator: Your next question today will come from Bill Appicelli with UBS. William Appicelli: Just a question around your views on the forward curves. You mentioned earlier about the soft weather and the forwards held up reasonably well all things considered. You highlight here about 6.5% year-to-date growth on a weather-normal basis in ERCOT. When you guys think about the potential for constructing additional generation, I know you made the decision to move forward with the peak curves. But maybe just some updated thoughts around where the curves are and as you sort of look out to the demand profile and what's your bias on the pricing level from here? James Burke: Sure. Bill, great question. I'll start with our decision, obviously, for Texas because the 860 megawatts, which is in addition to almost 500 megawatts of gas augmentations and things that we've done in the ordinary course to bring more megawatts to the grid. But 860 megawatts of putting that in West Texas is a unique opportunity because of what we've been seeing in West Texas specifically. That hub out there used to trade at a discount to the north hub, which picks up the Dallas-Fort Worth area. Now it's trading at a premium, a significant premium, and we're looking at fundamental supply and demand activity in West Texas, driven with the electrification of oil and gas load as well as data centers. And we think that these -- having a site there already, our Permian gas site, which we're tripling by virtue of bringing these turbines to that site, that's a unique opportunity. It would not have penciled in the same manner in other parts of Texas. So I think that's just an important thing to note is I don't think this is all of a sudden new build economics, and you saw we're building these at 1,100 a KW, which is lower than where a fully priced new build would be because we had preordered some of this equipment, and we have good relations on our EPC that we feel good about being able to deliver this really at a below market cost. So that's unique. But to your forward curve aspect, we are seeing more life in ERCOT forwards than we had seen obviously a year ago. And I think that's still not fully reflective of the load growth forecast that we have, and we're conservative in our load growth forecast. And we've -- I'd say, conservative. We try to ground our forecast and our best view of physically what can come on to the grid in a certain time frame. And we have lower numbers than where the utilities are and even where ERCOT is, and we're comfortable with our numbers, and we're comfortable the forward curves don't even reflect that level of load growth. So we're still bullish on where we think power prices could go just on supply and demand. In PJM, that market has actually not shown as much life on the energy side. It had on capacity because it's predicting supply demand on capacity driven by load growth. But in the actual load, that's materializing and then looking at the dynamics of supply and demand, we haven't seen those curves move as much. But in the last quarter, we have seen more life in PJM. And we think that also is not reflective of where load growth is likely to take energy prices in PJM, but it is starting to, I think, recognize that tightening aspect. And we don't know if coal plant retirements and any extensions, what might happen fundamentally with supply-demand in the next 3 to 5 years, but you get beyond that, you're going to have to still deal with load growth and ultimately, what new resources will come on in the 2030 plus time frame and what do we do with some of the older assets? There's more coal to retire in PJM as a market than, say, ERCOT. And so I do think those supply-demand fundamentals over time will still show strength in the forwards that we really still don't see with today's marks. William Appicelli: Okay. That's very helpful. And then just one other one around the nuclear upgrades. I think what you described sounds like potentially 600 to 700 megawatts. How would you consider pursuing that? Does that have to come with offtake agreements or contracting of that output to potentially pursue it? Or maybe just to think through, I know you're still evaluating, but maybe just how would that potentially come to fruition? James Burke: Yes, Bill, that's the most [Technical Difficulty] That is still, while it's maybe less expensive than building new nuclear, it's still expensive. And so the market price [Technical Difficulty] and the clean attributes, there is interest in the uprates from support with potential data center parties. And so those are conversations that are ongoing, and those are obviously complex because they do take time to bring to market. Those things will come on beginning in the 2030s. So they're not quick capacity. And so to Stacey's earlier point, there are -- the customers are doing longer-term planning. So I think this does meet their interest levels, but we don't think the current forwards in either market would support just embarking on uprates for that reason. Operator: Last question today will come from David Arcaro with Morgan Stanley. David Arcaro: I was wondering, could you give an update on the other data center contracting opportunities that I think in the last quarter, you had suggested could come to fruition by year-end? Just any comments as to whether that time frame is still looking possible for certain opportunities? And then any just directional, is it nuclear versus gas or PJM versus ERCOT? Curious any color you might be able to offer. James Burke: Sure. The exact timing, I think this has come up on our previous calls and certainly some of our peers have had this question. The exact timing is hard to predict just because it's a complex contract, 2 parties need to reach agreement and 2 parties have to get through their own approval processes because these are material deals for both sides of these agreements. I do think there's possibilities of that, David. I think we have stages of contracts that are much closer to execution, and we've got some that are longer in terms of the development cycle to be able to bring those to market. But I do think that, as we mentioned earlier, the activity level is the highest that it's been. I think that also drives a bit of a sense of urgency on both sides of the equation. I think we want to make sure that we're able to deliver and capture this value. But the other side of the equation is the large customers know that there aren't that many immediate opportunities with which to execute. And so we are seeing heightened activity levels, and we certainly hope to be able to give you some more specifics and execute what we call put points on the board by year-end. But I can't predict that specifically. I mean, we're into November, we hit the holidays. But either way, whether it's right before year-end or sometime thereafter, we're signing deals that would be in the 10-, 15-, 20-year horizon. We need to get these right, and that's what we're focused on. David Arcaro: Yes, absolutely. I appreciate that color. And on -- well, congratulations on Comanche Peak. And I was just wondering if you could maybe touch on the further opportunities that exist on the site. What are the prospects for contracting the second unit there? And I'm just curious, is there any other infrastructure on the site that you could be involved in? James Burke: David, it's a really good question. Thank you for actually bringing it up. We thought that might be question number one. And -- but it's always in the rearview mirror, right, once you announce it. But yes, about 5 weeks ago, we were very excited to announce that agreement. And we have great hope for expanding that agreement. There's been some interest on the customer's part to do so. But I also caution that a data center gets up to 1,200 megawatts is still a very large data center. And I'm actually unaware of any data center even operating in the U.S. today that's 1,000 megawatts in terms of actual pulling power and operating. So we want to get the first 1,200 right? It's important for the state of Texas, the state leaders, for ERCOT, for the PUC that we show leadership here on this and getting this right. But the customer conversations have talked about more capacity. They've talked about the potential for uprates. And so once you establish a beachhead like this, I think you're going to have more options, but it all depends on the quality obviously, of our execution here. And so I do think of this as a relationship and not a transaction. And I think there's going to be multiple opportunities. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jim Burke for any closing remarks. James Burke: Yes. Thank you, everyone, for joining. As you can see, this has been a very active time. And we put a lot of points on the board in the third quarter as we like to call it. This is an incredibly exciting time for Vistra. We look forward to executing not only on our large and growing base business, but our growth initiatives that we talked a lot about on today's call. I want to thank our team for their service, to our customers and our communities, and we appreciate your interest in Vistra, and we hope to see you in-person soon. Have a great rest of your day. Operator: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Thank you for attending today's Semrush Holdings Third Quarter 2025 Results Conference Call. My name is Jerry, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Brinlea Johnson. Brinlea Johnson: Good morning, and welcome to Semrush Holdings Third Quarter 2025 Conference Call. We'll be discussing the results announced in our press release issued after market close on November 5, 2025. With me on the call today is our CEO, Bill Wagner; and our CFO, Brian Mulroy. Today's call will contain forward-looking statements, which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements concerning our expected future business and financial performance and financial condition, expected growth, adoption and existing and future demand for our existing and any new products and features, our expected growth of our customer base and specific customer segments, the continued development of our products, industry and market trends, our competitive position, market opportunities and growth strategies, sales and marketing activities and strategies, future spending and incremental investments, our guidance for the fourth quarter of 2025 and the full year 2025 and statements about future pricing and operating results, including margin improvements, revenue growth and profitability, assumptions regarding foreign exchange rates and plans. Forward-looking statements are statements other than statements of fact and can be identified by words such as expect, can, anticipate, could, believe, seek or will. These statements reflect our views as of today only and should not be relied upon representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. For a discussion of the risks and important factors that could affect our actual results, please refer to our most recent annual report on Form 10-K filed with the Securities and Exchange Commission as well as our other filings with the SEC. And finally, during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued yesterday after market close, which can be found at investors.semrush.com. Now let me turn the call over to Bill. William Wagner: Thank you, and good morning. I'm pleased to share that Semrush reported a strong quarter with revenue of $112.1 million, non-GAAP operating margin of 12.6% and cash flow from operations of $21.9 million. Demand across our portfolio once again delivered double-digit revenue growth, and we saw one of our strongest organic net new annual recurring revenue quarters in years. In addition to the growth we continue to see across our industry-leading SEO portfolio, customers are experiencing tremendous value from our new products. We've now introduced 3 new products for our enterprise customers in the last 15 months, and growth in that segment accelerated in Q3 to 33% year-over-year. Our AI search products, including our AI Toolkit and AI Optimization products that were launched this year, added $10 million in ARR in the quarter, more than doubling from Q2 to Q3. These products are not only attracting new customers to Semrush, but we're also seeing unprecedented growth from our existing customers, where our average ARR per customer has increased 17% year-over-year. Before going deeper into the results of the quarter, I'd like to step back and discuss the dynamic environment of online visibility and what we're hearing from our customers and how Semrush is positioned to capture this market opportunity. Over the last decade, the digital landscape has become more crowded, fragmented and competitive. During this period of change, websites and blogs persisted as essential elements, not just as branded destinations for consumers and customers, but as critical content repositories that support a brand's narrative and provide an important underpinning of its digital presence. On top of these foundations, new content channels emerged as social media properties like Instagram and TikTok began to look more like traditional media, competing for eyeballs and selling advertising. The one constant during this period has been the role of search engines in driving traffic, clicks and transactions. Semrush emerged as the category leader by helping companies stand out in this crowded digital landscape, giving marketing teams a single integrated platform to understand their market, track competitors and optimize performance across websites, blogs, social media and other channels. As we exit 2025, we believe we are at another inflection point. For the first time in a generation, we have seen important changes to the search landscape and how people engage online. The headline is that more people rely on search than ever before, but the ways consumers use it and what they expect from it are changing rapidly. Google remains the dominant front door to the Internet with over 5 trillion searches a year, representing more than 90% of all daily searches and continuing to grow. In addition, people are also using LLMs, often for a different type of use case altogether, such as planning a trip, doing product comparisons or other zero-click activities. This means that we are living in a moment of expansion in both the volume and the use cases of search. This, in turn, creates a significant opportunity for Semrush. While AI introduces new ways to answer questions, large language models still need source material, and they start with the same indexes that power the traditional blue links world of classic search. These models don't just read your company's website and content. They also weigh what others say about your brand in order to assess credibility. That creates new challenges and opportunities for our customers. Companies must now track and influence what appears on review sites like Yelp on user-generated platforms such as Reddit and in videos on YouTube. And this isn't only our point of view. Our users and customers have validated it. We recently brought together more than 1,300 marketers, influencers and industry analysts at our Spotlight conference in Amsterdam, and the energy was palpable. Practitioners and experts alike realize that they are at the beginning of a new frontier and suddenly see themselves at the center of attention as CMOs, CEOs and even board members talk about their brand visibility or lack thereof in AI-generated answers. While there's still uncertainty about the future of this emerging space, over the course of a few days, it became clear that this group agrees on 2 things: first, that building a strong presence in LLMs begins with SEO. And second, that while a well-thought-out and executed SEO strategy is absolutely essential, it's no longer sufficient without adding a strategy to increase discoverability in LLMs. AI has raised the bar for discoverability, but it builds on the same fundamentals that already separate leaders from laggards. The winning path is not to abandon SEO, but to combine proven SEO with systematic optimization for AI engines, so brands are found, cited and chosen, whether in a search engine results page or in an AI-generated answer. At our core, Semrush is a data company with a software interface built around it. We have one of the richest and largest data sets in the world, a combination of proprietary and industry data that includes 27 billion keywords, 43 trillion backlinks and over 800 million domains. To this data set, we apply our proprietary algorithms to provide unmatched insights to our customers. Over the last several quarters, we've been busy augmenting our data set with LLM data. And today, we've assembled one of the largest prompt databases in the world. As the world's largest platform for digital visibility and with the largest data set of both traditional and LLM search data, Semrush is uniquely positioned to help our customers generate results. We have a clear opportunity with proven leadership and the capabilities and ambition to lead marketers through this new era. As we saw during Q3, customers are flocking to our products to help them navigate this exciting evolution. One of the top priorities I noted earlier this year was doubling down on AI because we believe we are approaching a time when every marketing team will need to add AI search capabilities on top of their SEO foundation. We saw this play out in the most recent quarter as the traction in our AI products accelerated. Today, more than 10% of Semrush customers are already using at least one AI product, and we see a path for adoption across the majority of our customer base, representing a significant expansion opportunity. Our AI Toolkit launched in March 2025 and Enterprise AI Optimization launched in June of this year, both are among our fastest-growing products in company history, enabling our AI portfolio ARR to more than double from Q2 to Q3. Together, we expect our AI products will approach $30 million in ARR as we exit the year. For existing customers, these products are additive rather than a replacement for their SEO tools. And it's one of the primary reasons we're seeing double-digit increases in average ARR across all segments of our customer base. We expect continued AI momentum in the fourth quarter with further acceleration in 2026 from Semrush One, our newest product that we launched just a week ago. Semrush One offers marketers a way to win in every search, whether in a search engine like Google or on a platform like ChatGPT, Gemini or Perplexity, all in a single tool. Having launched AI Optimization for enterprises earlier this year, Semrush One now makes AI visibility accessible to marketing teams at companies of all sizes. Instead of buying multiple products or switching between different solutions, marketers can have it all in one simple-to-use product with unified workflows. The new launch strengthens our position with an extensive portfolio for all customer segments, and we believe Semrush One will emerge as a new benchmark for the industry. Finally, I'd like to close by highlighting our progress in the quarter from our Enterprise segment. Focusing on this segment was another priority we highlighted earlier this year, and our investments in both the enterprise product portfolio and go-to-market strategy continue to drive strong growth. Our Enterprise SEO product, which was introduced just last year, is the largest driver of revenue growth as we successfully move upmarket and take share away from legacy incumbents in Enterprise search. Our average revenue per user in this segment is now above $10,000 and the number of customers paying over $50,000 per year increased by 72% year-over-year. In Q3, we also began introducing our new Enterprise Site Intelligence product, which along with AI Optimization is our second new product for the Enterprise segment we've launched in the last 6 months. We've been very pleased with the adoption of these new products and now see a path to $100,000-plus average ARR for customers that adopt our Enterprise platform, up from the $60,000 target we mentioned at our Analyst Day just a year ago. In summary, the search landscape is shape shifting before our eyes, and we're giving marketers the power to have a full picture of their visibility, act quickly and improve their position to win. AI search isn't replacing the SEO opportunity, it's compounding it. We've helped define the SEO playbook and as our Q3 results highlight, we're doing it again for AI search. We believe our targeted shift towards enterprise customers and our expanding AI product portfolio will position us well for long-term growth. Our pace of innovation and new product development, along with our comprehensive and expanding data set will allow us to take advantage of the massive market opportunity in front of us. With that, I'll turn the call over to Brian to walk you through the financial results of the quarter and discuss guidance. Brian Mulroy: Thanks, Bill. We delivered a strong quarter with revenue of $112.1 million, non-GAAP operating margin of 12.6% and cash flow from operations of $21.9 million. Annual recurring revenue was up 14% year-over-year and grew $20 million sequentially to $455.4 million. This represents a meaningful step-up in net new ARR generation from the last several quarters, driven by AI adoption and continued momentum in our Enterprise segment. Notably, we more than doubled our ARR from our recently launched AI products and delivered 33% ARR growth from our enterprise customer segment, driven by strong adoption of our new Enterprise portfolio. Our average ARR per paying customer increased to $4,000, representing growth of more than 17% compared to the same quarter last year, which is the highest level of growth we've achieved in 13 quarters. Additionally, we're seeing rapid growth among our largest customers with the number spending over $50,000 annually, increasing 72% year-over-year. As of September 30, 2025, we reported approximately 114,000 paying customers, down from the prior quarter, primarily reflecting our strategic focus on engaging more sophisticated and higher-value customers. Our dollar-based net revenue retention held steady at approximately 105% in the third quarter. Within Enterprise, net revenue retention continued to strengthen, reaching 125%, an improvement of nearly 800 basis points year-over-year. Customers that have adopted at least one of our AI solutions are performing even better with net revenue retention approaching 150%, reinforcing that AI drives incremental use cases and expansion alongside traditional SEO. As our mix continues to shift towards Enterprise and AI, we expect overall net revenue retention to trend higher over time, reflecting deeper product adoption, larger deployments and more multiproduct expansion. We achieved positive non-GAAP operating income of $14.1 million in the third quarter, up 20 basis points year-over-year, resulting in a non-GAAP operating margin of 12.6%, exceeding our guidance. Cash flow from operations was $21.9 million in the third quarter, representing a cash flow from operations margin of 19.5%. Free cash flow was $17 million in the quarter, resulting in a free cash flow margin of 15.2%. As a reminder, we encourage investors to evaluate our cash flow performance on an annual basis given the inherent quarterly variability driven by annual subscription renewal cycles, the timing of tax payments and prepaid expenses. We ended the quarter with cash, cash equivalents and short-term investments of $275.7 million, up $42.8 million from the prior-year period, reflecting the continued strength of our free cash flow generation. Turning now to our guidance. For the fourth quarter of 2025, we expect revenue of $117.5 million to $119.5 million, which at the midpoint would represent growth of approximately 15.5% year-over-year and non-GAAP operating margin at approximately 12.5%. For the full year 2025, we expect revenue in the range of $443.5 million to $445.5 million, representing approximately 18% growth at the midpoint. We are reiterating our previous full year guidance of approximately 12% for both non-GAAP operating margin and free cash flow margin. Our non-GAAP operating margin guidance now absorbs an incremental expense headwind of approximately $10 million resulting from recent exchange rate movements. Our initial guidance assumed a euro to U.S. dollar exchange rate of $1.05. And while we are currently modeling $1.16, rates during the first half reached as high as $1.18. As a reminder, approximately 30% of our expenses are denominated in euros. And since our revenue is almost entirely in U.S. dollars, our margins are effectively unhedged against these currency fluctuations. Absent these exchange rate impacts, our full year operating margin would have reflected meaningful leverage inherent in our model. Said another way, excluding these currency impacts, our margin guidance would have implied a year-over-year expansion of approximately 230 basis points. Similarly, we continue to expect our full year free cash flow margin to be approximately 12%, representing a 260-basis-point improvement compared to 2024. This expansion is driven by improved profitability as well as continued growth in our Enterprise segment, where we typically structure deals with a minimum annual commitment and annual billing, resulting in favorable cash flow dynamics. In closing, our Enterprise and AI products are exhibiting remarkable strength and momentum, exceeding our early expectations. As Bill noted, discoverability is compounding and customers need to win in both traditional search and AI-generated answers. Our data advantage and product velocity are meeting that moment. With $275.7 million in cash and equivalents and growing free cash flow, we are well positioned to capitalize on the opportunity ahead with discipline. Our results reinforce that our strategy, directing investments in resources toward Enterprise and AI growth initiatives is working. The mix is shifting towards higher-value customers, average ARR is accelerating and net revenue retention is improving across our more sophisticated customer base. Looking ahead, I remain optimistic about our ability to drive durable growth, profitability and strong cash flow. We are aligned with where the market is headed and well positioned financially, operationally and strategically with the right data, product portfolio and customer base to deliver long-term shareholder value. With that, we'd be happy to take your questions. Operator, please open the line. Operator: [Operator Instructions] We will now take our first question from Scott Berg from Needham Bank. Scott Berg: Nice quarter here. A couple for me. I guess I wanted to start off with Semrush One. I like the product announcement, but would like to help understand maybe what's different in that platform, if anything, than a customer buying, I don't know, your traditional SEO kind of product set along with AIO. Is Semrush One just really bringing those 2 together into a single offering? Or is there really something may be materially different for us to consider there? William Wagner: Scott, thanks for the question. Yes, Semrush is fundamentally a different product. So while it leverages a lot of the same capabilities that are in our core SEO products, and a product like AI Visibility Toolkit, it's integrated in a way that allows workflows across both of those platforms, so both of those capabilities. So integrated workflow, it still has the same kind of leverages our data, which we think is one of our strengths and differentiators in the market. But it allows -- gives marketers really for the first time, really a holistic view of how AI and classic search work together. Scott Berg: Understood. Helpful there, Bill. And then a nice bounce back in net new ARR in the quarter after the challenges that happened in the second quarter. I guess maybe a little bit of commentary on what you're able to do differently in Q3 versus Q2. Do you see anything different out of some of the Google paid search algorithms, which have been a great customer acquisition channel before? And is maybe what you're seeing in Q3 here, what we should generally expect out of the business going forward versus those challenges you did see in Q2? Brian Mulroy: Yes. Scott, I think that's exactly it. We had a very strong net new ARR quarter, delivering $20 million overall. That's a pretty significant inflection from the last few quarters. And overall, it was driven by strong adoption of our Enterprise and AI products. For our AI products, we were able to more than double the amount of ARR, adding $10 million in annual recurring revenue in the quarter. And then with our Enterprise segment, mostly by the Enterprise products, that segment grew 33% year-over-year and expanded its average ARR to $10,000. So it's a combination of the 2. Our investments are working within AI and Enterprise and generating very strong results, and that's momentum that we actually expect to continue in the future. Operator: We will now take our next question from Elizabeth Porter from Morgan Stanley. Elizabeth Elliott: I wanted to go back to the idea of kind of the inflection point heading into fiscal '26. If I look at the fiscal '25 exit rate, we're looking at about a 15%. And the back half of the year is a bit of a slowdown from the first half. And total ARR, really encouraging on that net new ARR metric. But ARR did kind of overall modestly decelerate. So as we look into this inflection point into fiscal '26, one, kind of qualitatively, how are you stack ranking the drivers to inflection? And then second, what are some of the financial leading indicators that we should be looking towards first to see that turn? Brian Mulroy: Elizabeth, very early. Yes, we'll provide guidance on 2026 in our next earnings call, but to give you some directional trends to support an expectation there. We're very optimistic about our ability to drive durable growth. Remember, the first half, there were 3 fundamental dynamics. The first is we had a few acquisitions in 2024 that we've now lapped. So going into the second half of this year, we have pure organic growth. The second part and probably most significant is we launched a number of new products. So we launched our AI Visibility Toolkit in March that started to build traction. And then we launched AI Optimization in June and now our Enterprise Site Intelligence products. The third part is around our go-to-market. That's something that we started to build in 2024 and, of course, started to get significant capacity and productivity and ramp out of that sales organization. So when you combine the 3 of those factors together, that's what's driving our strong growth in the second half and what we expect to be driving growth into 2026. Elizabeth Elliott: Great. And then just a follow-up on that last point on the capacity and the sales org, how are you feeling about kind of the capacity today? How much incremental is there to go in sort of improving productivity relative to the kind of leading indicators on demand that you're seeing? And any sort of need to kind of free up that upmarket investment given the move? William Wagner: Elizabeth, yes, I think we are still early days in building out our capacity. We've made great strides over the last 12 months. The team has done really, really good work and really building the framework around scaling up an enterprise sales organization. And now I think we have that framework in place. We'll continue to work on it. But really, as we look to next year, we're going to continue to scale out and those efforts are underway, scale out. We think the opportunity is there. As we said, only 10% of our base actually today has our AI products. And if you think across our Enterprise segment, we have 9,000 -- roughly 9,000 enterprise customers, but only a few hundred have our enterprise solution. So that -- think of that from an ARR step-up point, that's what we're seeing prove out. And really, we're just investing behind that momentum. Operator: We will now next take Luke Horton from Northland Capital Markets. Lucas John Horton: Congrats on the quarter. Just wanted to talk about kind of how you're thinking about pricing here with the launch of several new AI and Enterprise-focused products. Are you kind of pricing this on a per customer, per use case basis or kind of flat pricing for each tool or capability or kind of general pricing leverage and how that's sort of evolving with the rollout of these new products? William Wagner: Luke, right now, I would say the pricing of the new product is really like a lot of SaaS companies, it's a hybrid model. So you see -- you do see per seat pricing, but you also see usage pricing. You also see pricing for add-on capabilities, which have proven out for us really well this year, people adding in different toolkits to the pricing. So that -- philosophically, that hasn't changed. Semrush One being our newest product, we -- that has introductory pricing. We think it is frankly, pretty disruptive for the capabilities it brings to the table. So we'll monitor that pricing as we move forward, whether we adjust that up or down. But right now, I think that provides a new entry point to the market for what we believe is the new benchmark, which is bringing together SEO and AI search into a single product. Lucas John Horton: Got it. And then just kind of looking at capital allocation, obviously, significant cash balance over $275 million. Last quarter, you announced the buyback program, obviously, investing into the business here, but how should we think about capital deployment going forward? And then also just kind of the M&A landscape and opportunities from a data or product standpoint. Brian Mulroy: Luke, yes, I can take that. As you mentioned, we do have a very strong balance sheet with $276 million and, of course, a very strong and growing free cash flow generation. That's a trend that we expect to continue, and it puts us in a really good position to be able to invest and allocate capital into a number of different areas. Our first priority, of course, is organic investment in the business. We see a significant opportunity ahead with AI and Enterprise across both product and go-to-market, as Bill mentioned this morning. So we're going to continue to invest in that area and make sure we're positioned ahead of the rest to be able to fully capitalize on that opportunity and drive growth. M&A, of course, continues to remain an attractive opportunity, and we'll continue to selectively assess different opportunities going forward where it makes sense for our strategic priorities going forward. And then the share repurchase, of course, is something we'll continue to focus on. We have -- we're in a fortunate position to have flexibility with that much cash and free cash flow generation, and we'll leverage all forms of capital allocation to make sure that we're optimizing shareholder value. Lucas John Horton: Got it. And were there any repurchases during the quarter? I didn't see anything in the prepared remarks there. Brian Mulroy: We did not this quarter. There was -- it was some litigation that we were subject to this quarter that we're working through. We expect that we'll be able to navigate through that, and we'll update investors as we advance through. Operator: We will now take our next question from Jackson Ader from KeyBanc Capital Markets. Jackson Ader: First one is on the seasonality of the business. Should we expect a bigger -- a larger-than-usual ARR build in the fourth quarter now that the mix of the business continues to shift toward enterprise? Brian Mulroy: Yes, absolutely. So I mean our business, there's 2 fundamental seasonality dynamics. What we've experienced over the years is the seasonality of our PLG business. As we've talked about, our first quarter tends to be the strongest when marketing teams establish their budget and strategy for the upcoming year. And then there's seasonality dynamics in the lower end with SMBs and freelancers around holidays in the summer. With our Enterprise go-to-market and Enterprise portfolio, it's almost the opposite. We start -- we build momentum as we advance through the year. And as you would expect with an enterprise SaaS business model, that would mean that the back half is stronger. That's something that we expect will continue to shift as enterprise product portfolio continues to ramp and build momentum. And of course, we continue to make investments in scale in our Enterprise go-to-market. Jackson Ader: Okay. Great. And then a quick follow-up on the dynamics between AI ARR and the rest of the business. Is it fair to say, okay, each quarter kind of take out the AI ARR added to get a better sense of the core growth rate of the business? Or are those 2 so linked that, that doesn't make any sense? William Wagner: Jackson, this is Bill. I think they're becoming increasingly linked. I mean our belief clearly is that marketers need both. And I think the data would show and not just our data, but experts in the industry are saying more and more, they recognize that you're building AI search on top of SEO principles. And that's really what's fundamentally behind Semrush One, which is one product as opposed to buying multiple products that does it all. So I think it's increasingly going to be difficult to separate it. We'll do the best we can. We're seeing growth in SEO, and we're seeing growth in AI search. But increasingly, I think our products will have components of both. Operator: We will now take our last question from Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I wanted to ask on the competitive landscape in AIO. I think we've all seen some of the headlines around VC funding in the AI Optimization space. So maybe just take a step back and walk us through your right to win, particularly given your historical success has primarily been in the SMB space, but is increasingly happening in the Enterprise space. Any interplay there would be helpful. William Wagner: Sure, Adam. Yes. So I wouldn't say we've seen any change in the competitive landscape in terms of any impact to our business. There are definitely a lot of start-ups in AI visibility or GEO with copycat products. Most don't have any foundation in SEO. They don't have the experience nor the comprehensive data set that we've built over the last decade plus. So I'm sure some companies will emerge from that, but I think most will be absorbed or will fold, frankly. And I think if you believe the experts, SEO is something that is foundational. So we think the 3 things that differentiate us are, first of all, we have that foundation. We're the leader in SEO search. We have more SEO -- more people using our products across more companies than anyone else in the space. So that customer base and that experience and that -- those SEO tools provide us a great foundation. Secondly, the data that we've talked about, our data set is just much richer than anything else that any competitor can bring to the space. That gives a much more holistic view of what's going on, not just in AI search, but across classic search and social media and other tools, so I think that's the second real big differentiator for us. And I think the third, frankly, is the brand recognition that we have. We have -- we are the leader in the space. We're going to continue to leverage that brand. Even in our own customer base, we're still vastly underpenetrated from AI search capabilities. So that's a big opportunity for us. And McKinsey published a study last month that said only 16% of companies are actually monitoring their AI visibility systematically. So it speaks to the market opportunity that's pretty significant we see in front of us. But we feel really good about where we are competitively. Adam Hotchkiss: Okay. Great. That's really helpful. And I think this is sort of an offshoot of that question. But are you seeing any -- I think we've all heard management teams, there being pressure from CEOs and Boards of Directors to spend on AI broadly. And I guess for your nontraditional SEO customer, maybe someone you haven't interacted with previously, are you seeing any new inbound sort of AIO-driven interest based on your launch of that product from someone who maybe wasn't an SEO customer historically. How much of that is really a driver here? Or maybe the opportunity is a little bit more with your existing base? William Wagner: Yes. I think we believe there's strong opportunity in both new customers and existing customers. So I think we started when we launched the products, they were really around existing customers and selling into our base. I think more and more, we're seeing -- as you pointed out, this is in every boardroom is talking about this. So we're starting to see a lot more customers from the outside, even customers who are coming to us for the first time. Maybe they're using other products in the SEO search space, but they're using us now. They're coming to us for AI search, and that's really encouraging. Operator: Thank you. I will now pass the conference back over to the management for any additional remarks. William Wagner: Thank you for joining us today. We reported a solid quarter and our positive momentum in the Enterprise segment and our AI solutions continues to build. We're excited about the future prospects, and we look forward to speaking to you again next quarter. Operator: Thank you. That concludes the Semrush Holdings Third Quarter 2025 Results Conference Call. Thank you for your participation. You may now disconnect from your line.
Operator: Welcome to Lesaka Technologies Results Webcast for the First Quarter of fiscal 2026. As a reminder, this webcast is being recorded. Management will address any questions you have at the end of the presentation. [Operator Instructions] Press release and investor presentation are available on our Investor Relations website at ir.lesakatech.com. During this call, we will be making forward-looking statements. Please note the cautionary language regarding the risks and uncertainties associated with forward-looking statements as contained in our press release, presentation, and Form 10-Q. As a domestic filer in the United States, we report results in U.S. dollars under U.S. GAAP. It is important to note that our operational currency is South African rand, and as such, we analyze our performance in South African rand, which is non-GAAP. This assists investors in understanding the underlying trends in our business. I will now turn the webcast over to Dan. Daniel Smith: Good morning, good afternoon, and welcome to Lesaka's 2026 Quarter 1 Results Presentation. We have slightly changed our results presentation this quarter. I will begin today by addressing the financial performance for the group as well as for merchant, consumer, and enterprise. Lincoln will then take you through the key performance drivers for the divisions in more detail, and we will end with Ali taking you through the progress made against our strategy, unpacking our drivers of revenue and our quarter 2 guidance. Going forward, we intend to follow this format for quarter 1 and quarter 3 results, coupled with a more comprehensive update in quarters 2 and 4. You can find more details in our usual disclosures in our 10-Q submission to the SEC. This is available on our website. I'm pleased to report that we have met our guidance for the 13th consecutive quarter. Net revenue came in at the lower end of the range for Q1 at ZAR 1.53 billion, a 45% increase over last year. Group adjusted EBITDA landed at around the midpoint of the guidance range at ZAR 271 million, representing a 61% year-on-year growth. I'm happy to say that this quarter reflects an improvement in the quality of our earnings with limited accounting anomalies and nonrecurring items. Our adjusted earnings, which we believe is the most appropriate measure of our overall financial performance, has grown by 150% to ZAR 87 million for the quarter. On a per share basis, our adjusted earnings has effectively doubled, up from ZAR 0.54 to ZAR 1.7. Our net debt to adjusted EBITDA is 2.5x, an improvement from 2.6x from this time last year, but meaningfully improved from our previous quarter of 2.9x. As a reminder, we have maintained our medium-term target of 2x or less, which we deem appropriate under the current structure. We expect this to continue to trend down in FY '26. Taking a closer look at our net revenue performance, we delivered ZAR 1.53 billion in the quarter, a 45% increase on Q1 in the previous year. Our Enterprise division underwent a significant restructuring since Q1 FY '25. We closed noncore businesses, invested significantly in our platforms, and completed the Recharge acquisition. The ZAR 222 million net revenue reflects the new base and represents a 19% year-on-year improvement. Given the product offering, enterprise is subject to seasonality in electricity sales and ADP, but we are pleased with the quarter-on-quarter growth given this represents a relatively comparable period. Our Consumer division has continued to grow at a record pace over the past quarters, leading to a 43% year-on-year increase in net revenue. Our Merchant division net revenue is also up 43%, primarily driven by the acquisition of Adumo, which we acquired and consolidated from Q2 last year. Turning to our earnings for the quarter. Group adjusted EBITDA increased 61% year-on-year to ZAR 271 million, approximately achieving the midpoint of our guidance. Merchant segment adjusted EBITDA was ZAR 162 million, an increase of 20% on Q1 FY '25. The majority of the year-on-year increase is due to Adumo, which is not included in the comparative quarter. As we mentioned in our previous earnings call, FY '26 will be a transformative year for Merchant. We are building the foundations for future growth with a focus on 3 aspects in particular: bringing several businesses together, unifying our merchant brand and product offerings to clients, and rationalizing our infrastructure in order to capture efficiencies. The integration of a variety of products and businesses in one go-to-market strategy requires a great degree of planning and disciplined execution. We are confident with the new management team we have in place, led by Kakhisokowale, and are excited to drive growth in a market we believe is ripe for disruption. Consumer again delivered a standout performance with segment-adjusted EBITDA increasing 90% to ZAR 150 million. We expect this trend to continue in the medium term, and Lincoln will discuss our growth in our active consumer base and innovations to our onboarding system continue to yield effective results in ARPU and product penetration. Enterprise delivered ZAR 22 million of segment adjusted EBITDA for the quarter, up 241% year-on-year. We continue to invest in our platform. And although we anticipate some volatility in enterprise quarterly earnings, we do expect an earnings uplift later in the year and into FY '27 as product platforms go live. A quarterly run rate of approximately ZAR 30 million continues to be a near-term target and will lead to Enterprise being a meaningful contributor to EBITDA for the group. Our group costs were ZAR 64 million this quarter, elevated relative to prior quarters. This included some nonrecurring finance and administrative charges. We expect group costs to trend towards a quarterly run rate of ZAR 55 million. Our adjusted earnings per share showed a continued upward trend, almost doubling year-on-year to ZAR 1.07 for the quarter. This demonstrates our ability to ensure accretive growth as part of having both an organic and inorganic strategy. Shifting our focus now to cash flow and our balance sheet health. Cash flows from business operations continue to be healthy, totaling ZAR 341 million for the quarter, closely tracking our quarterly EBITDA evolution. We reinvested ZAR 122 million of that cash flow into growing our lending books and ZAR 106 million to fund our net interest costs. Capital expenditure for the quarter was ZAR 90 million, of which ZAR 51 million was spent investing in growth. This consists primarily of continued expansion of our Smart Safe product, capitalization of software development, and funding additional merchant acquiring devices. We expect our annual capital expenditure to remain below ZAR 400 million, and we remain on track to do so. Through positive increased EBITDA performance and careful cash management, we have seen a reduction in our net debt to adjusted EBITDA ratio from 2.9x last quarter to 2.5x. This is as planned for in the execution of our capital allocation framework, and we expect continued improvement in this ratio as adjusted EBITDA increases with no material increase in debt. We anticipate that Bank Zero will allow us to fund expansionary cash flows from our lending activities with customer deposits, further deleveraging our balance sheet. This will materially increase our cash conversion rate relative to our current funding structure. I will now hand over to Lincoln, who will take you through the revenue drivers and KPIs for merchant, consumer, and enterprise. Lincoln? Lincoln Mali: Thank you, Dan. Good morning, and good afternoon to everyone on the call. We have changed our presentation slightly this quarter. And with Dan having taken you through the financial performance of the divisions, I will focus on the operational KPIs that drove that performance. As Dan mentioned, our Merchant division is undergoing transition, integrating businesses, unifying our brand and offering, streamlining costs and infrastructure, and operating under new leadership. The year-on-year increase in net revenue and segment adjusted EBITDA is largely due to Adumo, which wasn't included in the prior year's figures. Looking at our card acquiring, our TPV has more than doubled, reflecting the scale the Adumo acquisition has contributed to our business. We processed ZAR 9.2 billion this quarter, up from ZAR 4.2 billion last year. The number of our devices has grown from 53,500 to almost 88,000 at the end of the quarter. We are seeing continued success across our multiproduct customers who hold more than one solution. We are still in the early stage of evolving into a one unified merchant offering, but the trajectory of travel is positive. Conversely, we experienced moderately higher churn from small to medium single-product merchants. This is primarily driven by price sensitivity for these merchants. However, we saw no impact to the overall TPV process, reinforcing our strategy to build deeper relationships with our clients and evolve from a single product provider to a multiproduct solution partner. Moving over to cash TPV. We continue to see a declining cash usage trend in the small to medium merchant sector. Cash primacy in the micro merchant sector, however, remains. We have increased our cash vault in the micro merchant sector to 4,600. This partly offsets the reduction in cash experienced in the small to medium sector, resulting in a modest decrease of 4%. As a result of this increased footprint, cash TPV in the micro merchant segment has grown 75% year-on-year and now accounts to 18% of all cash volumes in quarter 1 financial year 2026, up 10% from last year. Cash deposits in this part of the market consists of lower values, but higher frequency. This results in lower stand-alone margins than in the small to medium sector of the market. This provides an important hook for merchants who we can then sell alternative digital products, thus creating an ecosystem. Cash deposits into our vault top-up micro merchants digital wallets, which is then immediately available to purchase prepaid solutions, make supplier payments, or transfer to a bank account for EFTs. This is a vital part of our offering. The result of this cash-led strategy is evident in ADP, where TPV grew 21% year-on-year, while devices grew approximately 9.5% to 97,500. Our supplier payment platform continued its strong growth trend, increasing 37% year-on-year, strengthened by gaining traction from the cash solution. We now have more than 1,900 suppliers on our platform, significantly reducing cash holdings and transaction risk and improving administrative efficiency for our micro merchants and their suppliers. Within prepaid solutions, we saw a 4% increase in TPV, driven by a shift in product mix with some pressure on airtime and data sales during the period, which was offset by growth in electricity purchases. In our merchant lending business, we originated ZAR 201 million for the quarter, a 21% increase on last year. We are spending time and effort to enhance our merchant lending offering as we believe this is a key axis of growth for the division. As mentioned last quarter, we have reduced the turnover threshold for our merchants to qualify for credit, but maintained our credit scoring criteria. Some of the changes include redesigning our onboarding procedures to make it more efficient for merchants to access our lending products. Our overall loan book grew 72% on a year-on-year basis. However, our penetration within the merchant base remains modest. The relatively small number of merchants holding a loan confirms that we are under-indexed in this segment and is an area of strategic importance. In our software or our GAP business, the number of sites was up 3% and our ARPU up 4% to 3,184. ARPU was impacted by lower pricing at some major customers, partially offset by increased adoption of our cloud-based integrated Unity product, which enables greater customer lifetime value, prioritizes long-term growth, and enables rapid product development. We expect the adoption of Unity to deepen market penetration at the cost of lower upfront subscription fees. This ensures we remain the preferred partner for restaurants looking to transform their success. I will now move on to consumer KPIs. I'm pleased to report that the momentum in financial year 2025 has carried into financial 2026, with the division delivering another excellent result for the first quarter. During quarter 1, we continue to expand our share of the grant beneficiary market, ending the quarter with just over 1.9 million active consumers, which is inclusive of approximately 220,000 nonpermanent grant beneficiaries. This represents a 24% increase compared to last year. Net new additions for the quarter were 49,000 compared to 24,000 in quarter 1 2025. This indicates not only the effectiveness of our sales channel, but the quality of our product value proposition that drives engagement. Our market share for the permanent grant beneficiary base is 14.1% compared to 11.4% a year ago. Most of this growth has come at the expense of the Postbank as its customers shift towards better value propositions. More than 20% of the Postbank migration chose Lesaka, which is disproportionate to our market share. There have been 3 core drivers to our disproportionate growth. First, innovative go-to-market tools. Our agents are able to sign up clients both in our branches and in the field using proprietary digital-first onboarding system, [ Bongwe ]. Clients can sign up with their fingerprints and have a card in under 5 minutes. Two, expanding our low-cost branch network from 223 in quarter 1 financial year 2025 to 238 in quarter 1 financial year '26, and a plan of an additional 15 during this financial year. We also plan to have over 50 servicing points that will connect us to rural communities like never before. Three, Lesaka has invested in staff training and a remuneration structure that incentivize onboarding and engage clients. Our ARPU has increased 13% year-on-year to ZAR 89 in quarter 1. The rise in ARPU has been driven by the success of cross-selling of our lending and insurance products, aided by the rollout of Bongwe, as mentioned earlier. This results in increasing engagement in our consumer base. Those consumers using all 3 of our products has grown to 18% of the base compared to 15% at this point last year. Our lending product has been a key driver of the Consumer division's success over the past 2 years. This product is tailored to the needs and financial resources of permanent grant beneficiaries, including immediate access to funds, and has been very well received by our customers. Our readvance rate on loans is high, exceeding 75%. Originations for quarter 1 amounted to ZAR 820 million compared to ZAR 462 million last year, and our closing book almost doubled to ZAR 1.1 billion from ZAR 564 million a year ago. We've seen excellent growth over the past year, driven by innovations in both product and distribution. The launch of a new ZAR 4,000 loan value with a 9-month term has been positively received in the market. This allows us to gain more data and continually refine our offerings. Existing clients can also originate loans digitally through our new USSD in under 5 minutes and get immediate access to funds, saving consumers' time while engaging through low-cost digital channels. Encouragingly, our credit loss ratio remains stable and is relatively consistent to what we've experienced over the past few years. Our new lending product with larger values and longer repayment terms has thus far not had a significant impact on our credit loss ratio. As the lending product mix scales to the larger and longer tenor loan product, we expect a modest but non-material increase in the credit loss ratio. We actively manage this to ensure we remain within our risk appetite. Our insurance product has been equally successful, with gross written premiums increasing 38% year-on-year to ZAR 120 million for the quarter, with a number of in-force policies rising 27% to approximately 589,000 policies. Similar to lending, our insurance products are customized and priced specifically for the grant beneficiary market. We offer a traditional funeral plan and a pension plan. Our customers value these insurance policies highly, and we are demonstrating continued operating leverage with collection ratios maintaining around 97%. This is exceptional for this segment of the market. With the success of our funeral plans, in quarter 2, we begin to offer policies to non-Easy Pay Everywhere account holders. It has been another very successful quarter for our Consumer division. Looking at the Enterprise division now. As Naim noted during our full-year results presentation in September, the Enterprise division went through a transformative year in financial year 2025, and it was only in quarter 4 that our results were a proper representation of its potential and a clear outline of its strategy. I'm pleased to report that Enterprise had a successful first quarter and is making good progress against its strategy. Enterprise is becoming an increasingly important contributor to the group, not only in terms of profitability, but also as a technology provider to the merchant and consumer divisions. Our alternative digital products business provides the integration technology to enable any customer in South Africa to purchase a prepaid solution, for example, airtime, electricity, or facilitating a bill payment through channels such as retail distribution networks and online banking apps. We are one of the largest aggregators in South Africa. The ATB ecosystem consists of collectors and receivers. Our collectors are enterprises that act as sales and payment channels, enabling consumers, merchants, and businesses to access our platform. We are integrated with major retailers, banks, and numerous fintechs. On the receiver side, partners include all the mobile network operators, electricity providers, insurers, gaming and money transfer service companies. Our bill payment platform enables businesses and consumers to settle accounts with over 620 billers, including municipalities, DSTV, telcos, and retailers. The extensive integration with our billing partners is a source of competitive advantage for Lesaka, as replicating this is very challenging. Bill payments represent over 75% of the ADP volumes and was a key driver of the 13% year-on-year growth in ADP TPV to ZAR 11.9 billion. As a reminder, we earn a fixed fee for bill payment, while other payment earnings are based on the value of the transaction. Lesaka Utilities is a recharger business we acquired last year. We sell prepaid electricity meters and prepaid electricity vouchers. Utilities TPV increased by 21% year-on-year to ZAR 396 million for quarter 1. Approximately 8% reflects a pass-through of the electricity price increase in August, with the remainder representing organic growth. Recurring revenue is generated through the vending of vouchers for these meters purchased through the Lesaka Utilities platform. The electricity meters are mainly sold through large retailers such as Builders Warehouse, Leroy Merlin, and [ Buko ]. Currently, we have 500,000 registered meters and 270,000 active meters, of which are up 16% year-on-year. As a reminder, we measure active units as meters where there has been a top-up in the last month. We've made substantial progress in the integration of the recharge business into our utilities vertical, both from a product and a people's perspective. We are beginning to realize synergies from owning more of the value chain as part of this transaction and expect to see increased incremental margin as a result from financial year 2026 quarter 2. Thank you. That concludes the segment operational overview for quarter 1. I will hand over to Ali now to take you through the key updates and our quarterly guidance. Ali Zaynalabidin Mazanderani: Good morning and good afternoon to all of those joining us. Our progression towards -- on Lesaka is not merely about brand. It is a critical step of strategic initiatives designed to simplify and organize the business to unlock bottom-line growth, as well as helping facilitate the drivers of top-line growth, which I will touch on in a minute. From a cultural and brand perspective, bringing our divisions together toward a unified Lesaka is the next necessary step of this journey. We will refresh our corporate identity to staff in November, greatly improving not just the visual representation, but also the clear articulation of what Lesaka represents. We look forward to celebrating who we are and consolidating our marketing spend to maximize the impact. Having a single unified brand and culture will help facilitate our stated objective of building relationships with our customers rather than selling products, as well as aligning this with the representation we have to the market and to our employees. This effort extends to our physical footprint. On the office consolidation front, we have identified a new Johannesburg office. Our expectation is to have all divisions housed under one building by the fourth quarter of fiscal '26. We will also be consolidating our hubs in Cape Town and Durbin and reducing our overall lease footprint from over 40 locations to approximately 20 over the coming calendar year. Over time, this will reduce our occupancy cost, but more importantly, it will create a more efficient and integrated cross-functional organization. On our strategic initiatives, the Bank Zero acquisition continues to progress well with positive momentum. While we remain subject to the regulatory process, we are on track to close the acquisition as planned. We have no change to our expected timeline of completion by the end of FY 2026. We are also continuing to simplify our business and balance sheet. This includes simplifying our corporate structure by selling or exiting subscale non-core business lines and closing legal entities. In addition, we have reached an agreement with TPC, a subsidiary of Blue Label Telecoms, the reference shareholder of Cell C, to monetize our equity position with an underpin of ZAR 50 million should the business list in the near term, while retaining optionality on the upside of a potential IPO. This stake is currently valued at 0 on our balance sheet. This streamlining will allow management to focus time and capital on our core mission. As we continue to build the Lesaka platform, we are also simplifying representation to focus on the structural drivers of our revenue. Lesaka is structured into 3 distinct and complementary divisions: Consumer, Merchant, and Enterprise. This deliberate segmentation ensures each division operates with a clear strategy, targeting specific growth levers, providing Lesaka with a diversified and resilient revenue base. Our primary financial measures are aligned with this strategy. At the next investor presentation, we will reference the KPIs provided as the core drivers of our net revenue and the building blocks of our equity story. In the same way as we have been providing the number of customers and the ARPU in the consumer business, we will be providing the equivalency in the merchant and enterprise business. Our hope is that this will help simplify the explanation of how we make our money. The ARPU for each customer is a function of the individual revenue drivers for each product and amplified by the level of cross-sell achieved for that customer within that division. For merchant ARPU, our cash card and AGP products are a function of volumes and take rates. Our lending product is a function of origination volumes and yield, and software is a function of hardware and software fees. For consumer, we will continue to disclose ARPU in terms of transaction fees and volume for our transaction banking product, lending originations, and yield for loans and premiums, and collection rates for insurance. Enterprise ARPU is based on 3 products: ADP and utilities, which are a function of TPV and take rates; and payments, which is a function of the number of transactions and transaction fee. On the expected completion of the Bank Zero acquisition, we will have additional customers and product offerings, which will augment the existing base of consumers, merchant, and enterprise clients and augment our product offerings across all 3 business lines. Having evolved our team and products over the course of the last year, the focus for FY '26 is on maintaining discipline, focus, and execution. We are pleased to reaffirm our FY '26 annual guidance on net revenue, group adjusted EBITDA, net income profitability and our adjusted EPS measure. Looking forward to the second quarter, on a net revenue basis, we are providing a guidance range of ZAR 1.575 billion to ZAR 1.725 billion, the midpoint of which implies a year-on-year growth of circa 20%. We are also providing a group-adjusted EBITDA range of ZAR 280 million to ZAR 320 million, the midpoint of which implies a year-on-year growth of circa 42%. Note that the Q2 FY 2025 comparable actuals incorporates the Adumo acquisition. We are excited for the year ahead and looking forward to continuing to deliver on our strategy and commitments. I will now turn the call over for any questions. Unknown Executive: Thank you, Dan and Lincoln. [Operator Instructions]. Operator, please, could you open for Ross Ker from Investec Securities? Ross Krige: So I've got 4 questions all on the Merchant segment. Maybe I'll just ask them one by one, if that's easier. Just on the sequential performance of the revenue line. So it looks like that declined quarter-on-quarter. So I'm just keen to unpack is there some seasonality in that? Is there a mix effect? Any color you could give would be useful. Daniel Smith: All right. There is some seasonality in that. There is also some non-core business lines that we are closing out and exiting. So yes, there's both of those. Ross Krige: And then maybe if I can extend that to the margin as well. I mean, I suppose there's probably a similar answer, but any comments on the change in margin -- sequential change in margin? Daniel Smith: Yes. That has an additional component, which is we did have some nonrecurring costs within the merchant business. And we made the election that we were not going to exclude these from the group adjusted EBITDA. We want to minimize any exclusions that we're providing. I think a closer representation of the run rate can be inferred from the guidance that we're providing for the next quarter. So if you -- the Adumo transaction clearly is incorporated, as I said in the presentation in the Q2 2025 numbers, and we're guiding the market to at the midpoint of the range, group adjusted EBITDA of north of 40% year-on-year. So you can get a better idea of underlying growth through that. Ross Krige: Then maybe I'll just ask these 2 questions in one. So firstly, just on the rationalization of infrastructure that you talked about. I mean, it might be too early to ask, but I don't know if you thought about what the impact on the cost base will be from any of those activities? And secondly, I guess, somewhat related, but in terms of the cross-sell, so clearly, there's a consolidation going on in terms of all the acquisitions done, including most recently at Adumo. So the first question is more on the cost side of that and where you end up. And secondly, then on the actual sort of cross-sell part of that, where I think you've talked in the past about being able to do that. It's still early days, but just curious if there's any milestones you think you've reached, if there's any data points that we should know about there? Ali Zaynalabidin Mazanderani: Thanks. I'll start with the cross-sell question. I'll ask Dan to talk a little bit about the infrastructure rationalization. So on the cross-sell, as we sort of alluded to in the presentation, we're going to, from the next quarter, be providing the attachment rates 1, 2, 3, 4, 5 products for the merchant business as we've been doing in the consumer business, so that you can track the quarter-on-quarter evolution of that cross-sell. However, where we are today is that the vast majority of our merchants do have an attachment rate of more than one product. The largest 2 contributors of products to our EBITDA in the merchant business is merchant acquiring and ADP. And there is a high attachment rate for customers who have merchant acquiring to a second product already, the biggest one being ADP, but software is also a relevant attachment product. From next quarter, we'll be able to talk to the specificity of those numbers, but we do expect to materially increase that cross-sell over time. In terms of the rationalization, I mean, we have already spoken about the fact that we believe that there's quite a material operating leverage associated with our business as we scale, but I'll let Dan augment. Daniel Smith: Thanks, Ali. Ross, just around the overall costs, I mean, in effect, we're bringing together 4 businesses under the umbrella of our overall merchant division. There's a whole bunch of duplication of functions on the one hand. And there's a misalignment as the individual businesses go to market with the customer propositions. So that's the unification we speak about of our merchant business. Within those operations, there will be some reengineering of platforms as we bring them together. As I said, there will also be the removal of a whole bunch of duplications of various functions touched on a simple example around our office rationalization in our Johannesburg region, we look to be in the second half of financial year, all under one roof. And later in the year, both in our Durban and our Cape Town areas as well. That will effectively enable us to move from 40-odd offices to roughly 20 as a group as a whole. So use that as a simple example within that rationalization, of course, there's an opportunity for significant cost savings. It's probably a little bit too early to give you some specific data points as to how much, but we do expect significant savings to emerge over the next -- over the short to medium term. And also, if I may just come back to the margin question on the merchant side. Ross, I will guide you -- we disclosed margin quarter-by-quarter. There is some seasonality, of course, and there's some mix effects around that. If one just looks through the overall margin trend within the merchant business, it oscillates anywhere from 19% to 25% across different quarters. So within each quarter, there are some different mix effects. But I do encourage you to look at it at a blended or smooth rolling basis rather than individual quarter-by-quarter. Unknown Executive: Thank you, Dan. Ross, any additional questions? Okay. I think that means that we have answered all of Ross's questions. The next question I have is on the webcast. There are 2 questions that are similar from Prashendran at 361 and Jon at all Weather. Please can you take us through the Cell C potential IPO? Happy -- are you happy for it to list and get out? And what was the rationale to put the option in place that you have? Ali Zaynalabidin Mazanderani: I'll start and then hand over to Dan as well on that. I mean, yes, I mean, I think we wish the company all the best, and we are very supportive of the planned IPO. The rationale to get out is the fact that as a business, we say we are simplifying our operations is not a core part of the Lesaka strategy. And so we'd much rather allocate that capital towards our core purpose. In terms of the specificity on the structure, Dan? Daniel Smith: Yes. Thanks,. The only thing I'd add to that is we currently have a 5% stake in an existing Cell C business. As part of preparing it for its IPO, there's a variety of restructuring steps, both including injecting assets, airtime, and restructuring of debt, which will culminate ultimately in the conversion of a lot of that into equity to give Cell C a sustainable balance sheet. That restructuring will result in the dilution of our equity percentage stake. And so the business being listed is very different to the one currently constituted in which we have a 5% holding. To echo Ali's sentiment, we are absolutely delighted with a successful Cell C listing, and we have aligned our economics very much around that. The market will adjudicate what the appropriate fair value for Cell C is, and therefore, our implied stake. And we've got some optionality around that where we've secured a minimum value of ZAR 50 million for our stake should Cell C list this year, of course, with upside if our effective holding ends up being worth more than that. Unknown Executive: Thank you, Dan. Thank you, Ali. The next caller on the conference line is Theo O'Neill from LHR Research. Theodore O'Neill: I want to follow up on your first question about the merchant business margins. I believe you said that they range from 19% to 25%. And I'm wondering, when you think about margins for the merchant business, do you think about the overall number? Or do you think about the individual product margins, trying to stay within that range? Daniel Smith: So it's -- thanks for the question, Theo. I mean the whole evolution of the business is around trying to build relationships with customers and having multiple products associated with those customers. So I very much think about it as a collective rather than the individual margins per product, partly because the way that a customer may be paying may not be the entirety of what they're buying. And there's different aspects of that. There's an ecosystem component to our merchant business. The way that I would think about the margins in that business, I think we have, in the past, given the reference that we believe that this business is a business in an aggregate, we should be able to trend the EBITDA margin to certainly north of 30%. And I think we are through the integration process on the way towards that evolution. Theodore O'Neill: I have one more question here. On the consumer side, you've successfully grown share over the years despite increased competition. And I'm wondering how long is the runway for that? Lincoln Mali: I think that we've indicated before that we still see some runway in growing our business, taking more share from the Post Bank. As we mentioned earlier, our share is 14%, yet we're taking 20% of the customers coming out of the Post Bank. And we think that with the remaining customers, as they move, a larger percentage will come to us. Secondly, if you look at our penetization rates, it gives you an indication that there's still room for us to grow in that space, both in our lending and in our insurance. Thirdly, we've indicated that on the insurance side, we have room to sell our product to non-EPE customers. That's another opportunity to grow. But if you think of the optionality that comes with the Bank Zero acquisition, when that has been approved and consummated, it gives us an opportunity to see customers that are beyond the ground space. So when we think of our consumer business, we think of our consumer business in terms of that future that includes Bank Zero. So there's much more optionality for this business going forward. Daniel Smith: And just to add to Lincoln's comment, part of the rationale, obviously, of the transaction is we believe that there's material complementarity between our distribution and the Bank Zero platform in being able to provide a very competitive offering in the open market. So we certainly don't feel like we're out of run rate. In fact, we feel like we're expanding that run rate. Unknown Executive: We also have James Stark from RMB Morgan Stanley on the line. While we wait for James, let's move to the next call on the webcast Q&A. This one is from Jon at All Weather. Could you provide a comment on the recent ramp-up in fintech interest in South Africa, for example, Ekoka Optasia, and by other large traditional financial players? Ali Zaynalabidin Mazanderani: I mean I think it's representative and endorsing of the strategy that we're engaging with. I think that while there has been an increase in the interest, I'd still say that the interest and the scale of the fintech ecosystem in the country is massively underweight relative to other geographies. So I certainly consider this to be the beginning of the evolution rather than in a particular spike. I believe that it benefits both us and it benefits the society for there to be greater innovation in the country. And frankly, I'm delighted to see successful businesses emerging in the ecosystem. Unknown Executive: Thank you, Ali. James, do you want to try and ask your question again? Operator, could you please try and unmute James? He says that he's struggling to unmute. Okay. That's fine. Let's go on to the next question on the webcast Q&A. This one is from Sven Thorson at Anchor Securities. Combining the midpoint of your Q2 guidance and reported Q1 adjusted EBITDA equates to about ZAR 570 million, leaving ZAR 780 million to be realized in the last 2 quarters to achieve the midpoint of your full year guidance. This implies ZAR 390 million per quarter, which is a considerable leap on Q2, which is a busy period for the group. Please elaborate on how this will be achieved. Does the base still include significant restructuring costs? Ali Zaynalabidin Mazanderani: I mean, so I think your maths are right. I would also say that as a business, this is the 13th consecutive quarter of achieving our EBITDA guidance, and we are reiterating our full-year EBITDA guidance. So we have a lot of conviction associated with the growth evolution of our EBITDA. I think we did mention that there were some nonrecurring costs that are embedded. Our run rate EBITDA at this juncture is closer to ZAR 300 million if you excluded those nonrecurring costs. And from that base, we are expecting to grow organically through the strategies that we've outlined in both the consumer, merchant, and enterprise business. And we're excited that effectively, we have the engine room that can achieve those growth rates. Unknown Executive: Okay. Thank you, Ali. Those are all the questions we have for today. James, apologies that we couldn't get your question, but we'll contact you afterwards. If there are any other questions, please reach out to me. Thank you for attending our webcast today. Thank you, Ali. Thank you, Lincoln. Thank you, Dan.
Operator: Good morning, and welcome to the Manitowoc Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ion Warner, Senior Vice President of Marketing and Investor Relations. Please go ahead. Ion Warner: Good morning, everyone, and welcome to our earnings call to review the company's third quarter 2025 financial performance and business update as outlined in last evening's press release. Joining me this morning with prepared remarks are Aaron Ravenscroft, our President and Chief Executive Officer; and Brian Regan, our Executive Vice President and Chief Financial Officer. Earlier this morning, we posted our slide presentation on the Investor Relations section of our website, manitowoc.com, which you can use to follow along with our prepared remarks. Please turn to Slide 2. Before we start, please note our safe harbor statement in the material provided for this call. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied or actual projections due to one or more of the factors, among others, described in the company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statement, whether the result of new information, future events or other circumstances. And with that, I'll turn the call over to Aaron. Aaron Ravenscroft: Thank you, Ion, and good morning, everyone. Please turn to Slide 3. To start, I'd like to thank the Manitowoc team for their hard work and persistence through a very complicated period. The great trade reset continues to unfold, presenting new challenges every day. Nevertheless, our team continues to fight to the process, service our customers and execute our CRANES+50 strategy to grow our aftermarket. Overall, I was pleased with the quarter, especially considering the tariff headwinds. Sequentially, the third quarter is usually much softer than the second quarter, but we were able to recover some lost ground. And compared to last year, the numbers look good, too. During the third quarter, we generated $553 million in revenue and adjusted EBITDA of $34 million, which was up 30% year-over-year. Orders were $491 million versus $425 million last year, and backlog ended the period at $667 million. Our non-new machine sales were $177 million, up 5% versus last year, reaching a record $667 million on a trailing 12-month basis. Please turn to Slide 4. Moving to the Manitowoc Way. I recently visited our Zhangjiagang factory in China, where we produce tower cranes for the Belt and Road markets. As we've mentioned on previous calls, we recently developed several new large capacity cranes and upgraded the factory to support their production. While it was great to see the value stream running in full swing, the biggest surprise to me was the improvements in the smaller crane value stream. The team has done an amazing job with kitting and point-of-use materials, significantly improving our flow and throughput in roughly half the space. Overall, the team increased its earned hours by 30% compared to last year with flat headcount, a great increase in productivity. A huge thanks to [indiscernible] Gary Wong and the rest of the team for a job well done. Next, on safety, I want to recognize our team's ongoing efforts to improve our work environment. In the third quarter, we achieved a recordable injury rate or RIR of 0.83, which is a 36% drop from the same period last year. October was safety month here at Manitowoc, and we went all in. Adding to our already strong safety culture, it's an initiative we kicked off last year focused on preventing unsafe practices and encouraging the kind of positive safety behaviors that really make a difference. While 0 injuries remains the ultimate goal, I'm proud of the momentum we continue to build toward it. Please move to Slide 5 for my market update. Starting with Europe, I'm cautiously optimistic. Overall, I feel better about the macroeconomic environment. While the French government's woes continue, both Germany and France shows positive signs. Housing permits in both countries are up compared to last year, which is good news for our tower crane business. Additionally, the big 3 French construction companies have a good backlog heading into 2026. In Southern Europe, we see a lot of activity in Italy. And believe it or not, Spain is now dealing with a housing shortage, something few would have imagined 15 years ago. I'd like to add more color on Germany, where we see promising developments. The country has enacted an accelerated depreciation program, formed a EUR 500 billion infrastructure fund and most recently passed the bio turbo law aimed at significantly reducing building regulations and fast-tracking construction approvals. There are plenty of needs to invest in the local infrastructure. The once famously precise Deutsche Bahn railway system has turned infamous for delays and need serious investments. There are 4,000 bridges in need of replacement or repair, serious housing shortages persist and electrical power remains an ongoing challenge. Turning to our products, tower crane orders for new machines grew 34% year-over-year, marking the fifth consecutive quarter. Sentiment is definitely improving and dealer inventory for self-erecting cranes is at all-time lows in Germany. We see a recovery underway. On mobiles, I would say that all of the above applies and it was reflected in our orders this quarter, increasing 28% versus last year. Turning to the Middle East. The market remains strong. Although Saudi Arabia has eased off a bit from its previous breakneck pace, the UAE has definitely picked up steam. The country has already started Phase 2 of the massive data center outside of Abu Dhabi, requiring another 20 big cranes, and we are hearing that the next major announcement could be the new Dubai Airport, which will require 150 tower cranes. And we're proud to share that the construction machinery Middle East publication recently honored Manitowoc with 2 awards. the best new tower crane Award for the Potain MCT 2205, which is operating on the big data center project and the best new altering crane for the Grove GMK6450-1. Turning to Asia. I recently visited China and South Korea. In China, the market is still pretty quiet. However, in South Korea, there is growing optimism. And as mentioned on the last call, Vietnam and Australia are also showing signs of a turnaround. In addition, we recently received some solid orders in Singapore and Hong Kong. Lastly, the T50 Summit Asian Forum recently named the new Potain MCT 220, one of the top 5 new products for the year. These recent awards underscore the value of the Manitowoc Way and the power of listening to the voice of the customer. A big congratulations to our engineering team in China. Finally, in North America, total orders were up 20% during the third quarter, but the volatility surrounding the great trade rate that is continuing to create a lot of uncertainty. On top of the price elasticity impact of the tariffs, we faced 2 other major tariff-related obstacles. First, the Supreme Court is expected to decide on the reciprocal tariffs by the end of the year. If the court moves against the Trump administration, everyone expects a new tariff strategy will be implemented, but what that looks like is anybody's guess. The second issue involves the impact of steel derivative tariffs on specific products. In August, HTS codes covering all-terrain cranes, tower cranes and truck-mounted cranes were added to the initial list of products subject to the 50% tariff on steel components. Submissions for another round of HTS codes were made in September, and there will be another round of submissions next year. Although the situation is creating plenty of noise in the industry, we continue to push forward. Deal inventory is a bit mixed. It's definitely trending on the low end for rough terrain and all-terrain cranes, while boom trucks and crawlers are slightly elevated. Looking to the fourth quarter, given that most crane rental houses have had a good year, I expect that some customers will take advantage of the new accelerated depreciation scheme and do a little last-minute Christmas shopping. Lastly, our antidumping claim in the U.S. against Japanese crawler crane manufacturers continues. However, we expect it to be delayed due to the government shutdown. The bottom line is that we believe in fair trade and will strongly defend it. With that, I'll pass it on to Brian to walk you through the financials before I close with our strategy update. Brian Regan: Thanks, Aaron, and good morning, everyone. Please move to Slide 6. During the quarter, we had orders of $491 million, an increase of 16% compared to a year ago. The year-over-year increase was largely attributable to higher orders in the Americas and European tower crane businesses, where comps were fairly easy. In the U.S., the prior year was significantly impacted by uncertainty from the election and Europe was experiencing a downturn. As Aaron mentioned, our European tower crane business continues to show signs of improvement with a 34% increase in new machine orders compared to last year, the fifth consecutive quarter of year-over-year improvement. As it relates to backlog, we ended the quarter at $667 million and expect approximately 60% of it to ship by the end of the year. Net sales in the third quarter were $553 million, up 5% versus the prior year. Non-new and new machine sales at both our European tower crane business and MGX drove the year-over-year revenue improvement. From a trailing 12-month perspective, non-new machine sales reached $667 million, reflecting another great quarter by the team in progressing our CRANES+50 strategy and another record. On an adjusted basis, SG&A expenses as a percentage of sales were flat year-over-year. Our adjusted EBITDA for the quarter was $34 million, an increase of 30% year-over-year. Adjusted EBITDA margin was 6%, an increase of 120 basis points over the prior year, reflecting a better mix of revenue. Please move to Slide 7. Net working capital ended the quarter at $622 million. The majority of our net working capital increase from the prior year was driven by inventory, which was impacted by unfavorable foreign currency exchange rates, tariffs as well as a few missed units we had planned to ship during the quarter. Similar to last year, we expect our inventory to decrease substantially as our build plans continue to rightsize and we execute on Q4. With that said, we expect working capital to only modestly decrease by the end of the year with AR increasing and AP decreasing, offsetting the inventory change. Moving to cash flows. We used $14 million of cash from operating activities in the quarter. Capital expenditures were $8 million, of which $3 million was for the rental fleet. At September 30, our cash balance was $40 million and total liquidity was $213 million. Our net leverage ratio was 3.9x. Touching on tariffs, additional HTS codes were added in August to the steel derivatives listing. This is a 50% tariff on the steel components of imported product. Our truck-mounted cranes are manufactured domestically. Therefore, there is no impact from these new steel derivative tariffs. Similar to our competitors, we import all-terrain and tower cranes. As such, this tariff doesn't necessarily change the competitive landscape for these products. However, overall demand for the product is expected to decline. As the only U.S. crane manufacturer, any additional steel derivative tariffs on other crane products imported into the U.S. could be beneficial to our domestic business. From an overall perspective, we continue to assess direct tariff impacts. Based on current demand levels and tariffs, we're estimating 2025 gross tariff cost of approximately $44 million of which we expect to mitigate 80% to 90%. Year-to-date, tariffs had a $2 million unfavorable impact to our results. Given our relatively strong performance in the third quarter, we expect full-year results to come in at the low end of our adjusted EBITDA guidance. As mentioned earlier, we don't expect our working capital to improve significantly during the quarter, which is delaying cash generation. We would need approximately $100 million of free cash flow to hit the low end of our guidance, which will be a tall task given the timing of shipments and the collecting of those receivables. With that, I will turn the call back to Aaron. Aaron Ravenscroft: Thank you, Brian. Please turn to Slide 8. To close, I'd like to focus on our CRANES+50 strategy, which provides higher margins and more consistent revenue streams. Over the last 12 months, our non-new machine sales grew 8% to $667 million. Given that this revenue generates roughly 35% in gross margins, every sale is crucial to offsetting the softness in the U.S. OE market. I'd like to share a few highlights from my recent visits to our service branches in Denver, Langenfeld, Germany and Meru, France. Starting with Denver, we opened this greenfield location in 2023 to replace a low-performing dealer. Today, we have 13 team members and the branch has almost doubled sales into the territory by focusing on the customer. In addition to selling Manitowoc equipment, the team has done a great job of also selling extreme telehandlers in this region. These machines are perfect for managing a crane yard, and this is a great example of the entrepreneurial spirit within MGX. One of the coolest things that I saw at the branch was that the local service manager used his personal 3D printer to manufacture a homemade tool to help technicians perform wheel alignments. It's a significant safety improvement and saves 4 hours of work on the job. In Langenfeld, Germany, we expanded our legacy aftermarket location to start our tower crane rental fleet initiative. I'm pleased to say that 67 cranes of our 75-unit rental fleet were in service during my visit, while the remaining 8 units were reserved for upcoming projects. Back to my earlier comments on the German tower crane market, this is a great indicator of the improving market. With the mobile business, Langenfeld also plays a critical role in our trade-ins and used sales. This is where we homologate used cranes that are headed for the U.S. among other locations. Using The Manitowoc Way, the team recently freed up an entire bay for repair work, which is excellent news considering the facility was full during my visit. Lastly, Meru, France, is one of our newest facilities opened in 2024. Historically, we had a tiny warehouse location in the region with a couple of offices, but we never really had a true service shop to support the Parisian market. The team impressed me with their creative service ideas. For example, we provide both mobile and tower services for a local construction company in the area. During my visit, the team was repairing the same customer's genset unit. It's a classic example of our broad skill set and our team's focus on servicing customers. In addition, the Meru team is trialing a battery system and a flywheel power generation unit to help manage electricity at job sites. Typically, it takes months to connect to the French grid. But with these solutions, customers can be up and running in just a day. Both are promising concepts for helping our tower crane customers manage on-site power efficiently, and I look forward to seeing how this project unfolds. On Slide 9, you can see a variety of different products our aftermarket team in France has started to sell. The crane industry is a niche business, and our customers have a tough job. We want to provide as many solutions as possible to help make their work a little easier. Thanks to all 3 aftermarket teams for their time, passion and commitment to Manitowoc. It was an absolute pleasure to spend time with them. In closing, we are managing the things we can control. The tower crane teams in Europe and Asia have done a fantastic job developing new products during the downturn, which are now paying great dividends. Likewise, among other new products we plan to introduce in 2026, we are on track and excited to launch our new Grove 8-axle all-terrain crane at CONEXPO in March. It has the potential to be a $100 million product line when it goes into serial production in 2027. And while we are managing the tariff situation in the United States in every corner of the company, the Manitowoc team is continuing to find ways to better serve our customers and grow our non-new machine sales. With that, we'll open up for questions. Operator: [Operator Instructions] There are no questions in the queue. I'd like to hand the call over back to Ion Warner -- we have a question from Tyler Russell from Barclays. Tyler Russell: So great quarter. Margins were up year-on-year, quarter-on-quarter. So you mentioned positive mix, but yes, I wanted to ask about the drivers of the margin improvement. Brian Regan: Yes, it was really -- you saw the growth in our non-new machine sales, and we talked about the tower crane business as well. So those 2 businesses are really -- starting to operate a lot better, in particular, the tower crane business and both have good margins. Tyler Russell: Got it. Got it. So the non-new machine sales have been consistent, but yes, I noticed that the total sales were up more, 5.4% versus 4.9%. Is that mainly driven by the tower cranes up 34% as well? Aaron Ravenscroft: Sorry, Tyler, I think the phone cut out... Ion Warner: Can you repeat your question, please? Tyler Russell: Sorry. Yes, I just was mentioning the non-new machine sales have been consistent, but the total sales were up more, 5.4% versus the 4.9%. So was that driven by the tower cranes as well? Or where are you seeing the improvement? Ion Warner: Some of that was the misses that we had in the second quarter that would have pulled in the third. Operator: There are no more questions in the queue. I would like to turn the conference back over to Ion Warner for any closing remarks. Ion Warner: Thank you. Please note that a replay of our third quarter 2025 earnings call will be available later this morning by accessing the Investor Relations section of our website at manitowoc.com. Thank you, everyone, for joining us today and your continued interest in -- the Manitowoc Company. We look forward to speaking with you again next quarter. Operator: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to DuPont's Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ann Giancristoforo. Please go ahead. Ann Giancristoforo: Good morning, and thank you for joining us for DuPont's Third Quarter 2025 Financial Results Conference Call. Joining me today are Lori Koch, Chief Executive Officer; and Antonella Franzen, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has been posted to DuPont's Investor Relations website. As a quick reminder on the basis of presentation for our third quarter financial results, our total company net sales, operating EBITDA and adjusted EPS include segment results for ElectronicsCo and IndustrialsCo, excluding results for the previously announced divestiture of the Aramids business, which is now reported as discontinued operations. I'll now turn the call over to Lori, who will begin on Slide 3. Lori Koch: Good morning, and thanks, everyone, for joining our third quarter call. Earlier today, we reported another solid quarter ahead of our previously communicated guidance. Third quarter sales of $3.1 billion grew 6% on an organic basis. Operating EBITDA of $840 million increased 6% year-over-year, resulting in an operating EBITDA margin of 27.3%. As a result of our strong third quarter financial performance and our expected operational improvement, we are raising our full year earnings guidance for the new DuPont. Antonella will provide further details shortly. Third quarter saw organic growth across all businesses with continued strong volume growth in healthcare and water coupled with strength in electronics driven by AI technology demand in both interconnect solutions and semi. Today, we also announced capital allocation updates for the new DuPont both in the form of a quarterly dividend and a new share repurchase authorization. We declared our initial quarterly dividend under new DuPont in the amount of $0.20 per share in line with our targeted 35% to 45% payout ratio. The Board of Directors also approved a $2 billion share repurchase authorization under which we expect to quickly launch an ASR in the amount of $500 million. Both of these actions underpin our commitment to a disciplined capital allocation model and are a testament to our financial strength and dedication to delivering value. Earlier this week, we announced the successful completion of the Qnity separation. As a premier pure-play technology solutions partner to the semiconductor value chain, Qnity is well positioned to deliver growth and value creation for its shareholders. Turning to Slide 4. As part of Investor Day, I outlined a clear strategy for the new DuPont to drive value creation for all our stakeholders. Our strategy is focused around driving above-market organic growth, building a robust business system, deploying a balanced capital allocation model and consistently delivering results. We are already seeing progress against these value creation drivers. We have successfully repositioned ourselves and have a streamlined portfolio of leading businesses, the majority of which are aligned to secular end markets, which will enable strong organic growth. We saw nice growth in the third quarter, and we continue to expect 2% organic growth for the full year. Our innovation engine continues to deliver. We announced the launch of our latest technology in Tyvek Garment branded Tyvek APX. This latest technology for PPE provides enhanced readability while maintaining the same level of protection and durability. The launch clearly demonstrates how we collaborate with customers and deploy our application development expertise to meet their needs. As I noted at Investor Day, we are driving towards building a robust business system starting from a strong jump-off point with a full suite of tools that are being actively deployed. This quarter, we introduced a core set of enhanced KPIs that are focused on driving improvement for our shareholders, customers and employees. These KPIs were embedded in a refreshed set of management standards, which has added more visibility, rigor and structure to ensure we achieve our business objectives. On commercial excellence, we have advanced the framework across commercial enablement, sales effectiveness and strategic marketing. A key priority was focused on pipeline discipline. We have designed a more transparent, data-driven process, which links demand generation, opportunity qualification and conversion metrics to deliver against our growth target. Specifically, within our water business, we have taken a regional approach to the rollout and have improved pipeline rigor in North America and Europe, leading to sizable improvement in our opportunity funnel. We plan to launch in Asia later this quarter. We also continue to drive enhancements in operational excellence. During the quarter, we rolled out an updated set of KPIs aligned with our focus on safety, quality, delivery and cost. We also refreshed our toolkit around OEE and reliability which is driving reductions in unplanned downtime and improving our maintenance spend and rent time. On capital allocation, I highlighted earlier the dividend and share repurchase authorization that was approved by our Board. In addition, we also announced in late September that we signed an agreement to acquire manufacturing capacity to expand our reverse osmosis footprint in China. This aligns with our local-for-local strategy and increases our capacity to meet growing demand for industrial water purification and reuse in the region. With this backdrop, I remain confident in delivering the medium-term targets for '26 through '28 that we outlined for you at Investor Day. 3% to 4% organic growth 150 to 200 basis points of margin expansion, 8% to 10% EPS growth and generating strong free cash flow conversion at greater than 90%. With that, I'll now turn the call over to Antonella to cover the financials and outlook. Antonella Franzen: Thanks, Lori, and good morning, everyone. We delivered another quarter of year-over-year growth in organic sales and operating EBITDA on volume strength across many key end markets. Operational focus by our teams drove solid financial performance in the quarter, including strong cash conversion beginning with third quarter financial highlights on Slide 5. Net sales of $3.1 billion increased 7% versus the year ago period on 6% organic sales growth and a 1% benefit from currency. Organic sales growth consisted of a 7% increase in volume, partially offset by a 1% decline in price. Organic sales included a $70 million benefit from order timing shifts into the third quarter from the fourth quarter due to system cutover activities in advance of the separation. Excluding this, organic sales growth would have been 4% in the quarter. From a segment view, both segments saw organic sales growth with IndustrialsCo and ElectronicsCo, up 4% and 10%, respectively. All businesses had organic growth during the quarter, led by low teens growth in Interconnect Solutions, high single-digit growth in both Healthcare and Water Technologies in semi and low single-digit growth in Diversified Industrial. We saw organic growth across all regions with North America and Asia Pacific, up 7% and Europe up 6% year-over-year. Third quarter operating EBITDA of $840 million increased 6% versus the year ago period as organic growth and productivity benefits were partially offset by growth investments and unfavorable mix. Operating EBITDA margin during the quarter of 27.3% was down approximately 30 basis points year-over-year due to unfavorable mix in ElectronicsCo. Turning to cash flow. We delivered transaction-adjusted free cash flow of $576 million and related conversion of 126%. This was in line with our expected acceleration this quarter. Turning to Slide 6. Adjusted EPS for the quarter of $1.09 per share was flat with the year ago period. Higher segment earnings of $0.09 was primarily offset by a headwind from a higher tax rate year-over-year. Our base tax rate during the quarter was 24.6%. The prior year base tax rate, which included discrete benefits was 19.5%. Turning to Slide 7. IndustrialsCo third quarter net sales of $1.8 billion were up 5% versus the year ago period on 4% organic growth and a 1% benefit from currency. Organic growth included a benefit of approximately $30 million in order timing shift. Excluding this benefit, organic sales growth was 2% in the quarter, in line with our expectations. For the third quarter, healthcare and water sales were up high single digits on an organic basis versus the year ago period. Organic growth was led by continued strength in medical packaging, biopharma, reverse osmosis and ion exchange. Diversified Industrial sales were up low single digits on an organic basis as growth in Industrial Technologies was partially offset by continued softness in construction markets. Operating EBITDA for IndustrialsCo during the quarter of $465 million was up 4% versus the year ago period on organic growth and productivity gains, partially offset by growth investments. Operating EBITDA margin during the quarter was 25.9% flat with the prior year, absorbing a margin headwind from currency. Sequentially, operating EBITDA margin improved 30 basis points. Turning to ElectronicsCo on Slide 8. Third quarter net sales of $1.3 billion increased 11% versus the year ago period on 10% organic growth and a 1% benefit from currency. Organic growth included a benefit of approximately $40 million in order timing shifts. Excluding this benefit, organic sales growth was 7% in the quarter. At the line of business level, organic sales for semiconductor technologies were up high single digits on continued strong end market demand driven by advanced nodes and AI technology applications. Interconnect Solutions also posted another strong quarter with organic sales up low teens, reflecting continued demand from AI-driven technology ramps and benefits from content and share gains across advanced packaging and thermal management solutions. Operating EBITDA for ElectronicsCo of $403 million was up 6% versus the year ago period as organic growth was partially offset by growth investments to support advanced node transitions and AI technology ramps. Operating EBITDA margin during the quarter was 31.6%, down 140 basis points versus the year ago period primarily due to unfavorable mix and currency headwinds. As a reminder, Qnity management will host a call later today to provide a business update. Earlier this week, we announced the successful completion of the Qnity separation. In connection with this transaction, we received approximately $4.2 billion of cash in the form of a midnight dividend from Qnity, which will be used to reduce DuPont's debt and achieve the targeted capital structure that we outlined at Investor Day. Turning to Slide 9, which outlines our latest view on 2025 financial guidance. As a reminder, we provided an updated view of our full year 2025 expectations, reflecting the separation of Qnity and the presentation of the Aramids business as discontinued operations as part of our Investor Day in mid-September. Also in the fourth quarter, we will be reporting under a new segment structure of Healthcare and Water Technologies and Diversified Industrials. In the appendix to the slide deck, we have included preliminary recasted quarterly segment information for your reference. From a top line perspective, our expectation of organic sales growth for the full year remains in line with the guidance we provided at Investor Day. We expect organic sales to be up 2% year-over-year on strong demand in healthcare and water partially offset by ongoing weakness in construction end markets. Our current full year sales guidance of $6.84 billion reflects slightly lower currency benefits from our prior expectations. We are raising our full year operating EBITDA guidance to $1.6 billion, driven by our stronger third quarter performance, underlying operational improvements across the businesses and lower corporate costs. We expect full year adjusted EPS to be $1.66 per share, an increase of about 16% year-over-year. Our full year base tax rate is expected to be about 28%, including about 200 basis points of headwind related to total company interest expense that cannot be reflected as discontinued operations. We continue to expect that our go-forward tax rate will be in the 25% to 26% range consistent with the guidance provided at Investor Day. For the fourth quarter, we estimate net sales of about $1.685 billion, operating EBITDA of about $385 million and adjusted EPS of $0.43 per share. Our fourth quarter guidance assumes about 1% organic growth when normalizing for the third quarter timing shift. On a reported basis, we expect a fourth quarter organic sales decline of about 1% versus prior year. As you will recall, we provided full year 2025 pro forma estimates as part of our Investor Day to serve as a baseline for our medium-term targets. Our stronger underlying performance translates into revised full year 2025 pro forma estimates for operating EBITDA of $1.63 billion and adjusted EPS of $2.02 per share compared to the $1.62 billion and $2 per share. Our lower corporate costs are accelerating our run rate towards our expected $95 million public company corporate cost structure. I want to thank our employees for remaining focused on delivering these results and for driving the successful completion of the Qnity separation. With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Jeff Sprague of Vertical Research Partners. Jeffrey Sprague: Just I want to kind of focus more on just sort of the end market trends and there's some color on Page 12 that helps. But first, this timing benefit, is this something you did or kind of pushed on behalf of your customers, so they wouldn't somehow be disrupted? Maybe just give us a little sense of like what was behind that, if you don't mind. Antonella Franzen: Yes. So Jeff, kind of the way to think about it is as you would expect, the separation that we did really touched every legal entity within the organization. So in essence, we had like repipe everything in all of our financial systems to do that. So our customers were notified that we would be in a blackout period in early October as we did this after quarter end. And therefore, we had some orders that were originally set to go out in the October time frame that our customers accelerated into the third quarter given we were going to be in a blackout period. So it was completely customer driven. Again, no changes related to our expectations of what we expected from an organic growth perspective in the second half, but it clearly created a higher organic growth in the third quarter and a lower organic growth in the fourth quarter. Jeffrey Sprague: Yes. And then I think you probably intentionally didn't say anything about 2026 today. But -- maybe give us some initial thoughts on sort of these exit rates that we're looking at here in Q4, again outlined on Page 12, what might be sort of the pluses and minuses as we shift into next year, particularly interested in what you're seeing in the healthcare and water businesses, especially. Lori Koch: So we're exiting the second half at about 2% organic growth in line with where we are for the full year. So from an end market perspective, we would expect healthcare and water to be right in line with what we gave in our medium-term targets, which is about 5% organic growth on average. And then on the diversified side, in the 2% that we'll report for the second half, Shelter is still down. So it's going to be down about 1% in the second half, but full year, it's about 4%. So given that, that's about 25% of our revenues, if that were just even to normalize to flat, that would be a nice lift as we head into 2026. So no material changes. We put the targets out just 6 weeks ago. We mentioned that in order to be able to deliver against expectations, we can't start in a hole. So we would expect our medium-term targets to be something that we would consistently deliver. We'll obviously be paying close attention to the construction market, though, and see how they play out. Operator: Your next question comes from the line of Scott Davis of Melius Research. Scott Davis: I'll echo what Jeff said. Congrats. You guys have done a lot of wood chop in the last few years, particularly last few months. There's kind of a lot of moving parts and my head spinning a little bit. But if we could just start with a little bit of minutia. What's your plan with the balance sheet? I think you're something like 0.8x pro forma leverage, I know you still have some liability issues you got to manage. But what is kind of the plan and target there? And will there be -- I saw the buyback announcement, but will there be other deals like spectrum, things like that, that you guys would be potentially looking at in '26? Antonella Franzen: Yes. So let me start with from a balance sheet perspective. So we would expect our pro forma debt to be around $3.25 billion, and we would expect to have $1 billion of cash on the balance sheet. So our starting point net debt-to-EBITDA leverage is around 1.7x. Our target is to stay below 2x from that perspective in terms of where we expect to be on the balance sheet. As you saw this morning, we did announce the $2 billion share repurchase authorization, and we expect to, I would say, imminently start an ASR in the size of about $500 million that we will do. And then clearly, as we progress during the year, as we mentioned at Investor Day, we would have a balanced approach. We would continue to look at share buybacks. We will continue to look at M&A activity. But we're clearly in a very good spot from a balance sheet perspective, quite honestly, Scott, to be able to do both. We have a really strong balance sheet going in. We have the Aramids proceeds that will be coming in, in the first quarter as well. And as we talked about at the Investor Day, over the next 3 years, even accounting for dividend payments and share creep, we would have about another $500 million a year that is deployable in free cash flow. Lori Koch: Yes. And on the opportunities you had mentioned spectrum. So we did actually complete a small tuck-in acquisition in the water space recently. So we bought RO capacity in China that really helps with our footprint there and enabling us to be local for local given that China is the largest RO footprint for us. So we'll continue to be opportunistic. We're looking in all spaces in the healthcare with respect to not only additional spectrum like assets in the CDMO space but also potentially in Med packaging and other areas that have nice secular growth. And then we'll also be opportunistic as we can in additional water opportunity. So we've got a really rich pipeline. And as Antonella mentioned, the strong balance sheet to be able to be proactive with it. And we'll be prudent. So we'll have a profile on a return that we want to deliver. So we would get to ROIC greater than WACC by year 5 and a nice path line to a net synergy number that is in line with our affordability range. Scott Davis: Okay. That's helpful. And then at Investor Day, you talked a little bit about a renewed focus on lean and operational excellence. I think you made hire in that regard on chief operation, I think, title, whatever you call it. But can you just talk about what you're trying to achieve on that front? I don't have a great sense of where you are today and as it relates to lean in your current portfolio? Just talk a little bit about the opportunity and what you're planning for here. Lori Koch: Yes. So we picked up David Cook from Danaher. So he was the ops leader for Paul, and we're fortunate to get him into our organization, and he's made an impact already in just the couple of months that he's been here. So we started down the path a few years ago on an OpEx framework that deployed lean tools as well as some six-sigma tools and with a continuous improvement mindset. So we're going to take that baseline that we have and kind of put it on steroids and make sure that it influences truly the way that we work. And so we've rolled out enhanced management standards, which really will dictate how we monitor the performance in our business and solve problems in our businesses to make sure that we have a continuous improvement mindset. So we've identified 8 core KPIs 4 of them are shareholder or financial related, 2 of them are customer-related and 2 of them are employee related, and they will form the basis of our monthly business reviews and allow us to be able to understand performance and understand improvement opportunity. So it's really a cultural change around a continuous improvement mindset, looking for net productivity opportunities year in, year out. Scott Davis: Sounds interesting. Congrats on hiring, David. We've heard good things. Operator: Your next question comes from the line of Steve Tusa of JPMorgan. Jeffrey Zekauskas: This is Jeffrey Zekauskas on for Steve. Just following up on the 80/20 initiatives that you talked about at Investor Day on the flip side, there's probably some opportunity to prune the portfolio on the edges, but if you can talk about any opportunities you're seeing there would be great. Lori Koch: Yes. Thanks. So we had mentioned at Investor Day, to as part of the team refresh we brought in Beth Ferreira, who had a background at ITW who was well versed within the 80/20 framework. And so she's actively deploying that toolkit across the diversified industrials businesses to see opportunities for us to improve margins across that side of the portfolio. I think as far as pruning, we had mentioned that we have a goal to be able to continue to work the portfolio towards more secular based end markets. And so today, we're about 50-50 with respect to healthcare and water in the diversified businesses and ideally we would be more like 2/3, 1/3. So I don't really want to comment on what businesses those would entail, but the goal is to continue to get more into the secular base, mid-single-digit growth. Operator: Your next question comes from the line of John McNulty with BMO Capital Markets. John McNulty: Maybe just a quick 1 on the pro forma EBITDA forecast, inched up a little bit, not a huge amount, but it's a pretty brief amount of time. And I think you attributed it to stronger underlying business performance. I guess where is the area that you're being surprised on? And is it on the volume front? Or is it more on the cost and efficiency side, would you say? Lori Koch: I would say it's more on the margin side. So what you see us kind of putting through in the pro formas is really how we exceeded or how we raised our guidance this year related to the segment performance that we had. So you see that kind of flowing through the pro forma. So it's from the margin perspective and better operational performance that we had. John McNulty: Got it. Okay. And then with regard to M&A, I mean, you made the reverse osmosis asset acquisition. So clearly, some things out there on your radar that you're opportunistically going after. I guess can you give us a little bit more color as to what you see in the pipeline, if there are a lot of targets out there at this point, if it's a little bit scarce, I guess, how you're thinking about that? Lori Koch: Yes. So we have a robust pipeline. I would say it is deeper on the healthcare side than it is on the water side, just given the fragmentation that exists in healthcare and the consolidation that exists in water. So water there still opportunities probably to go beyond the water filtration assets that we have today and potentially other areas within the water value chain. And on the healthcare side, it is pretty deep, just given, as I had mentioned, the fragmentation that exists on the CDMO side. So there's lots of players the majority of them on both sides actually are owned by private equity. So that gives us the opportunity to be able to transact at some point versus having to try to take something loose from a strategic. And so it's deep and we're actively pursuing opportunities and reviewing opportunities with our strategy in M&A team. Operator: Your next question comes from the line of Chris Parkinson of Wolfe Research. Christopher Parkinson: Great. So when you take a step back as an independent company and you look at your strategy and margins and market performance, whether it's this quarter or what you are forecasting on a preliminary basis for '26. What do you think the Street is missing the most about the independent company's outlook? And what are you the most enthusiastic about now that you have full independence. Lori Koch: Well, I think if I speak in that today and now I think the Street is confused on our number, just given where the free market trading is. So there was a lot of noise, obviously, around the numbers with Aramids coming out as a disc ops and maybe consensus not getting fully reset. But we had a beat and raise. We beat our Q3 numbers and new DuPont raised our side of the numbers as well. So I think that's one kind of short-term confusion. I think longer-term, it's just a view on who we are. And so I think there's still a view that potentially we're a chemical company versus we have significantly transformed the portfolio to a multi-industrial. And we've got the financial performance that is right in line with the multi-industrial. And so we would expect that we would continue to re-rate up towards more of that multi-industrial multiple. So I think that's one of the biggest confusing points is that we have a much more streamlined, simplified portfolio and a refresh team to be able to continue to deliver. Christopher Parkinson: Got it. And just very quickly as a follow-up. On the water portfolio, you have a pretty well-rounded enhanced lineup of everything from Ultra to RO and everything else within the filtration side. Do you have the willingness or desire to get further into metering or anything else kind of as a tangential kind of growth theme in terms of how that market is evolving over the next 3, 5, 10 years. Just I'd love to hear about your strategy broader than it's been over the last, let's say, 5 or so. Lori Koch: Yes. We do have a strategy to go beyond just the water filtration. We're obviously the largest player in all the key technologies. So to get larger there via acquisition could be tricky from a regulatory perspective. I would say metering is not one that we're actively looking at just given the valuation are quite high. But we are looking at opportunities more potentially here in systems plays or potentially other areas of filtration beyond just generally water. So we do have, within our ion exchange resins business, some water filtration around food and beverage and microelectronics and dairy. So potentially, there are some opportunities there that kind of take us beyond traditional industrial wastewater purification and desalination. Operator: Your next question comes from the line of Josh Spector of UBS. Joshua Spector: First, I just wanted to try to ask on the cash and the balance sheet comments. I think some of our math was that your upcoming cash might be closer to $1.5 billion to $2 billion before buybacks just given where cash sits today in fourth quarter free cash flow. I don't know if that's wrong from the math or if the $1 billion in cash is a target. So just curious, can you help bridge us for the moving pieces between 3Q and year-end, please? Antonella Franzen: Yes. So you have to keep in mind a couple of things. So one, the cash on the balance sheet at the end of Q3 is the cash position for both the new DuPont as well as Qnity. So there is some cash that will go over to Qnity as part of the separation. So again, on a pro forma basis, we expect to be at around $1 billion is what the new DuPont will have as a cash position, which, quite honestly, is a pretty healthy spot to be in as we move forward given the size of the organization. Joshua Spector: And is that before or after the ASR. Antonella Franzen: That would be before the ASR. That is our pro forma cash that we expect to keep. The other thing to keep in mind is as we get towards the end of the year between the timing of when certain separation costs would be paid. We obviously said we're going to move pretty imminently on the ASR. So clearly, that's before we get to year-end in terms of doing that. So there will be some cash out the door related to that we'll have before year-end. There's also timing of separation costs. So there is the potential that by end of year, we may have a little bit of commercial paper that's on hand. But clearly, as we mentioned before, we do have a nice amount of proceeds coming in the door in Q1 of '26 related to the Aramids divestiture. Joshua Spector: And if I could just follow up quickly on margins. I mean, you reiterated your improvement plan over the next few years. I guess, assuming that the macro demand is a bit softer next year, do you see a bigger opportunity to pull forward some productivity and get more margin expansion? Or Is that more of a volume-dependent type profile where you need to get a stronger macro to achieve that? Antonella Franzen: I mean as we did our walk that we talked about on Investor Day, we did have a portion of the margin expansion that would be coming from our revenue growth. And as Lori mentioned earlier, I would keep in mind that when you look at our healthcare and water business, as we exit this year and go into next year, we are still in a very good position to be able to grow at mid-single-digit growth. And you really only need a little bit of growth, I would say, on the diversified industrial side of the house to kind of get to, I would call it, the low end of our organic revenue growth CAGR as we move forward. So that was a piece of it. So we feel really good that we're positioned to do that. In addition, we had about 40 basis points of margin expansion over the 3-year period coming from the removal of our stranded costs. Clearly, that's 100% in our control. And as I mentioned at the Investor Day, the plan would be to get that out by the end of year 2. So you'd have that margin improvement in the first 2 years of the plan. And then you heard Lori talk a little bit earlier about our lean initiatives and how we're operating as a new company going forward. So we do have another additional up to 50 basis points coming from productivity, greater than inflation. And I would say the teams are doing a really good job relative to that. We even saw underlying margin improvement this quarter, and we would expect to continue to see that as we go forward. Operator: Your next question comes from the line of John Roberts of Mizuho. John Ezekiel Roberts: Where are we on the discussions with MSCI on reclassification? And Will we get a pro forma balance sheet at some point? Or just wait until we get the year-end balance sheet for new DuPont. Antonella Franzen: Yes. So a couple of things. Let me take the good old Dicks question first because it's one of my favorite topics. So I would say we are continuing to make progress towards an industry classification change. As I'm sure you've seen, Qnity got their semiconductor classification, which we obviously positioned for. So that has worked out well. I would say the way that S&P and the MSCI work, they do kind of wait for your publicly filed information. So I think they'll see clearly the new DuPont as we get to this upcoming 10-K filing. But we will continue to push on that. I would say the one thing that I would always recall is that the fact that really our valuation is really going to dependent more so on our consistent performance more than any classification, but I would tell you that I'm on a personal mission related to our GICS code to ultimately as that appropriately reflects the DuPont portfolio that we have today. In terms of pro forma, on Monday, this past Monday, we did file an 8-K that did show pro forma information. So some of that is actually already out today and already out as of now. And then clearly, as we get to the end of the year, all of our financials will clearly show both Electronics and Aramids as discontinued operations. So you'll have a nice 10-K with historical periods, all recasted for the new DuPont as we go forward. Operator: Your next question comes from the line of Aleksey Yefremov of KeyBanc Capital Markets. Ryan Weis: This is Ryan on for Aleksey. I just want to echo some of the earlier comments, my congratulations in getting everything done. The earlier part of the call kind of focused a lot on maybe where you could go with the portfolio, but I was hoping to kind of focus on what you currently have and especially in the healthcare business, there's a lot of talk in the slide deck about medical packaging and biopharma this year. But maybe we could get some additional color kind of on what's going on in medical device space. Lori Koch: Yes. So we're really excited about all aspects of the portfolio, but the healthcare and water with the mid-single-digit growth are areas that we'll continue to differentially invest. And so we saw nice growth across the broader healthcare business. And so we kind of said mid- to high single-digit growth on a full year basis for healthcare and water combined. The healthcare business would be north of that average. And so it was really a combination of nice performance across Liveo, which is our biopharma business. And so I think as you've seen across many of the peers that have exposure in biopharma, this was a nice year with like kind of completion of the destock and a return to a really nice growth. We saw really nice growth in the Med packaging and then to your question specifically on healthcare and the med device space, we're seeing nice growth, too, as we exit the year. And so we actually just announced that we are bringing in a new leader for the Healthcare business to lead the spectrum and Liveo businesses. He joined us from a long history of running other types of CDMO. So he starts Monday, and we're really excited to have him join the portfolio as well. So we look for nice growth from that business and then ideally being able to be opportunistic and add to it as we go forward. Ryan Weis: Great. That's helpful. And then just on the construction market, you and a number of players in the space have just kind of been talking about softer market conditions. So just kind of wondering what your outlook is? I know it's still early kind of getting into '26, but just maybe if you can give some high-level commentary about how you're thinking about it. Antonella Franzen: Yes. So a little bit of reminders of kind of where we've been related to our Shelter business that is what's tied to the construction market. So when we look actually at 2024, I would say we were in a relatively good position. We actually held flat with the market. And as you know, I would say, over the last at least 4 years, we've all been in that second half of the year recovery and then it kind of gets pumped into the next year. And those were the early thoughts, I would tell you, as you start to read different reports that are out there related to the construction market that the second half of next year would start to get better. As Lori mentioned earlier, we do expect the Shelter business to be down around 4% organically this year. So we do feel we're at a relatively low level at this point. So we really aren't going to be expecting a significant amount of growth next year. But quite honestly, even getting to flat actually has a nice impact on our overall organic growth. So we do expect a little bit of growth in Shelter next year, again, though off of a pretty low bottom here. Operator: Your next question comes from the line of Matthew DeYoe of Bank of America. Matthew DeYoe: Congrats on the formal separations, but it's been a long road. I think if we look under the surface at new pro forma IndustrialsCo. I think the comment was industrial -- organic sales were plus 4% ex and then 2% ex the pull forward. Can you just parse that out a little bit on a segment basis? Just trying to get a sense for like volume and price in healthcare and water versus diversified IndustrialsCo. Just trying to get a little bit more granularity on what the pro forma business is doing here. Antonella Franzen: Yes. So on a reported basis, healthcare and water were up high single digits. I would say if you kind of adjusted that for the full forward impact, we were at mid-single digits. And diversified industrials was up on a reported basis organically in the low single digits. And I would say, if you adjust for the pull forward, it would have been pretty relatively flat. Matthew DeYoe: All right. And then you had said Shelter was minus 4% on the year. As we just look at like 3Q into 4Q, I can't -- I'm not sure if you said it or not, but like where is -- where is that construction business comping? Is it like minus 2%, minus 3% in this quarter in 3Q? Or maybe a little bit more help there. Lori Koch: Yes. I would say in the third quarter, relative to the pull forward we had, it was like down around 2%. We do expect as we get into the fourth quarter, we're down more in that 3% to 4% range. But I would say when you look at the overall 4% for the year, we were down more in the first half of the year than we are in the second half of the year. Operator: Your next question comes from the line of Vincent Andrews of Morgan Stanley. Turner Hinrichs: Congrats. This is Turner Hinrichs on for Vincent. I was just wondering if you could provide some color on your confidence in the 3% to 4% top line algorithm for 2026. Lori Koch: Yes. So as we had mentioned, we don't expect to start in the hole to be able to achieve our medium-term targets of 3% to 4% over the '26 to '28 time frame. So if we look at our performance in the second half of 2025, which can be an indicator of what you might be looking into beginning 2026, our Healthcare and Water business is performing in line with our medium-term targets. So with that being around the 5%, about half our company, you get 2.5% organic growth straight from that. And as we had mentioned, the Shelter business which is about 25% of portfolio in the second half is down about 2.5%. We don't expect it to continue to be down next year, but we're not really expecting any material growth, but just the absence of a negative brings an opportunity incrementally from the second half. And as we look at the rest of the industrial tech portfolio, which makes up about 30%, we would expect to see sort of -- at minimum low single-digit growth, we had mentioned the whole portfolio should be at average 2% for the Industrial Technologies side. So if you take that piece, you can generally roundly get to your medium-term targets at the midpoint range with really just the big inflection point being cooperation of the Shelter market and no longer being a drag on the total organic growth. Turner Hinrichs: Great. Great. Appreciate the color. And I wanted to circle back as well on the building and construction discussion, specifically on P&C margins. How are they -- how much are they holding the segment margin back at this point given the weakened demand environment? And how much lift could there be if conditions begin to improve? And would this be in addition to the 150 to 200 basis point improvement that you all are targeting for 2028 overall? Antonella Franzen: Yes. I would actually say, I believe you mentioned the construction markets of the Shelter business. I would say, overall, actually, the business has actually been doing pretty well from a margin perspective. So I would do a nice shout out and kudos to the team that despite the fact that volume has been down, they have been significantly driving productivity, watching costs, making sure that we are positioned for the current market environment that we're in. So that should set us up nicely for when we get back to being in growth mode in the construction. Operator: Your next question comes from the line of Patrick Cunningham of Citigroup. Unknown Analyst: This is Rachel Lee on for Patrick. Can you expand more on the strategic rationale for the RO acquisition in China. Understand it enables you to be more local for local, but can you touch more on the technology value add perspective? And specifically what you're seeing in terms of water market growth in China. Lori Koch: Yes. So the acquisition was more one of a capacity add. So on the ion exchange side, we've got different 5 plants across the globe, so we're able to be local for local. On the RO side, prior to this acquisition, we really had membrane capacity really only at one spot for the most part in the U.S. and nothing outside the U.S. of any materiality. And we have started to build fabrication capabilities outside the U.S. through contract manufacturers, and we had established capabilities within the Asia Pacific region. But it was really important that we also get membrane capacity in Asia just given that it's about 1/3 of our sales and there's growing local for local preferences in the region. So it really doesn't give us any additional technology. We've got the leading technologies that we'll continue to protect here in the U.S. operations. It just gives us more local production capabilities for membrane within the China region. Unknown Analyst: Got it. That's very helpful. And then going to diversified industrial side, it seems like organic sales grew better than expectations due to Industrial Technologies. Can you touch more on maybe how auto, aerospace or other businesses performed better than prior expectations? Lori Koch: Yes. So on the diversified side, we had a little bit better performance than we had expected. A lot of that was related to the timing shift though. So from a full year perspective on an organic basis, we continue to expect to be at 2% and it really hasn't materially changed across any of the lines of business or reporting units. But to your question, we did see nice improvement on the kind of general next-gen mobility space, which would include both the automotive and the aerospace side. So we had mentioned at Investor Day, I believe that we are starting to feel a little bit of momentum building in the auto space, and we saw that play out in Q3. And so the revisions that have been happening in the last few months have been improving with respect to auto builds. And so we're cautiously optimistic that we keep on pace there. And the improvement that we've been seeing more importantly has been in the U.S. and North America markets, which is where we're outsized exposure is versus China. So we'll remain optimistic on the automotive piece and then the EV piece that we've talked about, too, continue to perform really well. So we've got share gains realized and more opportunities coming in the pipeline with one opportunities with the EV battery space. Operator: Your next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: Just curious, I think the case to change the GICS code is pretty straightforward. But if it doesn't change it stays in chemicals, why do you think that is? And then if you are stuck with us, who do you think would be good comps relative to your performance for investors to look at? Is it like an Ecolab, Linde or Sherwin just curious if that sort of scenario unfolds. Antonella Franzen: Yes. So I would say it's not a straightforward process. One might think that it should be, but it's clearly not in terms of having the classification change. So as I mentioned earlier, we will continue down that path. At the end of the day, our performance will drive our valuation, and that's what we're focused on. So as an organization, nothing will change in terms of our strategy, how we're expected to perform and what we would do relative to peers, quite honestly, none of the chemical peers would be our peers that we should be compared to. I mean we just had very different portfolios. So there is no comparison to the others that are listed within specialty chemicals. We will continue to say for no matter who's following us and reporting on us. And at the end of the day, you really got to look at the multi-industrial peers to kind of compare our performance. Operator: Your last question comes from the line of Arun Viswanathan of RBC Capital Markets. Arun Viswanathan: You commented on maybe some details on your healthcare portfolio. Could you also comment on the water side you guys recently completed that acquisition in China. What else are you guys looking at? And I guess, how are you prioritizing capital allocation towards this business? Lori Koch: Yes. So on the water space, we'll look to see if we can be opportunistic to add to our water filtration capabilities. But as I mentioned, they might be a little bit more minimal because of the consolidation that exists in the space as well as our market leadership we have across the core technology. So we'll look more broadly into potentially systems plays or some services plays. I had mentioned that steering probably would be off the table just given the high valuations that come along with those assets, and we'll continue to be prudent to ensure that we can get a return that's in line with our expectations. But I think that the pipeline is rich on both sides, the healthcare and water will differentially invest in those businesses, both from an R&D and a capital perspective to ensure that we're getting outsized returns and we'll bias our M&A activity towards those businesses as well. Operator: There are no further questions at this time. And with that, I will turn the call back to Ann Giancristoforo for closing remarks. Please go ahead. Ann Giancristoforo: Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes today's call. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Good morning. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the MariMed Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Howard Schacter, Chief Communications Officer, to begin the conference. Anna Massanari: Hello, and good morning, everyone. My name is Anna Massanari, Associate Director of Trade and Field Marketing at MariMed. I'm very proud of the contributions my team has made in supporting sales, market share expansion and strengthening industry relationships for the company. We literally hit the ground running every day visiting wholesale accounts to educate budtenders about our products, engaging with consumers at hundreds of brand pop-ups and representing the company at important trade events. I'm honored to kick off today's 2025 third quarter earnings call. Joining the call today are Jon Levine, our Chief Executive Officer; Ryan Crandall, our Chief Commercial Officer; and Mario Pinho, our Chief Financial Officer. This call will be archived on our Investor Relations website and contains forward-looking statements. Actual events or results may differ materially from these forward-looking statements and are subject to various risks and uncertainties. A discussion of some of these risks is in our Risk Factors sections of our 10-K and 10-Q available on our website. Any forward-looking statements reflect management's expectations as of today. We assume no obligations to update them unless required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled in our earnings release. I will now turn the call over to Jon for his third quarter overview. Jon Levine: Thank you, Anna. Good morning, everyone. Thank you for joining us for today's third quarter 2025 earnings call. Last night, we reported earnings reflecting sequential growth in both wholesale and retail revenue. We also achieved a sequential increase in EBITDA and positive cash flow from operations. We continue to grow the business and maintain a healthy balance sheet despite the ongoing challenges of our industry has been dealing with. These include price pressure, retail oversaturation and continued lack of clarity on rescheduling. Additionally, our brands maintained significant share across our core markets during the quarter. At the same time, we're leveraging a number of catalysts to fuel future growth and brand expansion. In short, our plan to own top-selling national CPG cannabis brands is on track. We had a particularly strong quarter of wholesale sales with Illinois and Massachusetts leading the way. In Illinois, we increased sales sequentially by 23% despite sales being down statewide 1.5% according to Hoodie. In Massachusetts, we increased sales 5% sequentially despite a 2% decline for state according to Hoodie. Those results speak to the strength and consistency of our brands, particularly in Illinois, where they only hit the market early last year. Delaware was another strong performer for us. We spent months preparing for adult-use sales starting on August 1, and it paid off. As the largest producer in the state, we expect to continue growing wholesale revenue in Delaware as more dispensaries open their doors over the next year. Our 2 stores in the market also performed well, delivering on Thrive's promise of exceptional customer service to both our new adult customers and our long-time loyal patients. Turning to retail. As you know, cannabis sales in the largest MSO markets were roughly flat quarter-over-quarter despite market and industry trends. We still managed to record a slight increase in retail revenue. We see the market forces that impacted the retail consumer in Q3 continuing through Q4. Fortunately, early last year, we saw the trend coming that would impact cannabis retail. That's when we shifted our strategic plan and placed an increased focus on expanding our brand distribution. Missouri is another example where we put our agility and financial discipline to work. On last quarter's call, we shared that the market changed after we went and entered it. We decided to leave the market and invest our time and money in more profitable opportunities. We're also continuing to improve profitability through a company-wide effort to ensure we operate as efficiently as possible. As a result, OpEx was flat sequentially and down 4% year-over-year. I'm proud of our team's ability to reduce costs without sacrificing product quality or delivering an exceptional customer experience at our stores. Looking ahead, our strategic plan will continue to focus heavily on expanding the brand strategy. As a reminder, our goal is to own top-selling national brands by 2030. There are 2 primary pillars to the plan. First is to continue growing our wholesale business in existing states. That means opening new accounts as well as going deeper in existing accounts. I'm very pleased with our success with this pillar so far. Second, we must get our brands into new high-growth states. The plan there is underway and involves a mix of licensing partnerships and M&A. I'm also excited about our entry into hemp, which we announced earlier this week and how it fits into our expand the brand strategy. During the third quarter, we commenced management of TILT's cultivation and processing facility in Pennsylvania. We expect to unlock the true value of our deal with TILT when our licensing agreement allows us to introduce our products throughout the state next year. With adult use a matter of when, not if, we expect Pennsylvania to be a major part of a very strong brand distribution footprint throughout the Northeast. That footprint will now also include New York. We announced a new licensing partnership a few weeks ago that will bring our products to a state that's reported to have a $6 billion total addressable market. Additionally, on the licensing front, earlier in the quarter, we announced an agreement with a new main partner for distribution of Betty’s Eddies to both adult use and medical customers in one of the largest tourism markets in the U.S. The partnership is progressing well with our products available to consumers beginning last month. That brings me to hemp. We've decided the time is right to seize the opportunity that hemp THC provides us to expand the distribution of our brands and increase household penetration. We've been closely monitoring the space and the 2018 Farm Bill continues to present an opportunity. It's our belief that even if the bill is amended in the future, there's a strong likelihood there will be carve-outs for products like beverages. Target, Circle K and Total Wine generally appear to feel the same way based on their entrance into the space. According to BDSA, hemp beverages alone generated $3.3 billion in 2024 and is projected to nearly double by 2029. This week, we announced several partnerships that established a strong supply chain that we believe positions us to succeed in hemp. The partners we've chosen represent leaders in their respective disciplines. Our manufacturing partner, dehydrate (Sic) [DehyraTECH], owns some of the best technology for rapid onset and shelf stability in the industry. Our marketing partner, Countermeasures, is known for his efforts to launch brands, including Poppy and Kendall Jenner's 818 Tequila. Our first commercial product will be a hemp-based THC version of Vibations that will launch in Rhode Island by early in the first quarter of 2026. Rhode Island made sense because it's right in our backyard and is a manageable state to test in before we go wider with distribution. At the same time, we're working on additional distribution contracts for other markets that we expect to announce soon. In summary, we've got a focused go-forward plan that we are actively implementing to expand distribution of our brands to the masses and fuel long-term growth. With that, let me hand it to Ryan. Ryan Crandall: Thanks, Jon, and good morning, everyone. Let me add color to some of the revenue highlights that Jon shared with you. We're pleased with the continued growth of wholesale, where sales increased by 5% quarter-over-quarter. Wholesale now accounts for 44% of our product revenue, up from 43% last quarter. That's an important metric for us because it confirms that our expand the brand strategy is working. Part of expand the brand is to continue to shift our product revenue mix to wholesale. And we're doing it at a time when wholesale price pressure has never been more challenging. Many operators are racing to the bottom, flashing their pricing in an effort to stay competitive. Generally speaking, we've been able to maintain premium level pricing on most of our products while continuing to open new accounts and grow our existing business. At the close of the quarter, we had achieved 75% penetration across all of our markets, excluding Missouri, so there's still plenty of opportunity to continue growing wholesale. I've said on previous calls that a key KPI we look at with respect to brand strength is market share. In the third quarter, our brands continued to grow or maintain their high market share in all our core markets. Betty's Eddies continues to be among the top-selling edibles across Massachusetts, Maryland, Delaware and Illinois. Vibations and Nature's Heritage remained in the top 10 among beverages and pre-rolls across all those states, respectively. Helping drive our wholesale performance is the close collaboration of our sales, brand marketing and trade marketing teams every day. I was thrilled Anna joined our call earlier. Brookfield marketing team's contribution to our success can't be emphasized enough. During the third quarter, our brand ambassadors implemented close to 3,000 consumer and trade activations and directly engaged with approximately 18,000 consumers. The number of activations reflect an increase of 23% quarter-on-quarter and 86% year-over-year. Most important, we're able to see the direct connection between our one-to-one engagement and new sales generated as a result. We believe our field team helped contribute nearly $2 million in sales at third-party stores in the quarter, representing a 68% increase quarter-on-quarter and 140% increase year-on-year. Before turning to our retail channel, I want to share an important update on our relationship with TILT's team in Pennsylvania. I'm pleased to say it's off to a solid start. As Jon said, the real value of that relationship will be unlocked when we start distributing our brands in Pennsylvania. Until then, we're doing everything we can to support TILT's sales team. So far, our strong relationships with MSOs and other markets have enabled us to both strengthen and open wholesale accounts for TILT during the quarter. As for retail, Jon painted the picture of what's happening across the industry. We're continuing to implement a variety of pricing, marketing and operation strategies to defend our turf against new stores that have opened in our core markets. Transactions across our 13 stores were up quarter-over-quarter by 6%. That includes every one of our dispensaries in Massachusetts, Maryland, Ohio and Delaware. Our Thrive Perks loyalty program continues to be critical to that effort and is working to keep consumers coming back to our stores. Last quarter, we grew active membership by 7% across all our markets. Looking ahead, wholesale revenue growth remains a significant opportunity for us in terms of organic growth. Consumers love our brands, and we are laser-focused on expanding their availability by opening new accounts and expanding existing accounts. Additionally, I'm excited about our strategic cannabis partnerships and entering the hemp space. These initiatives will further open more doors and expand our brands while, of course, driving revenue and helping to diversify our revenue streams. I'll now turn the call over to Mario to review our financial results. Mario Pinho: Thank you, Ryan, and good morning, everyone. Last night, we reported third quarter consolidated revenue of $40.8 million, representing an increase of 3% sequentially and higher year-over-year by 400 basis points. The quarter-over-quarter growth was primarily driven by a gain at wholesale and a marginal increase at retail, even as the broader industry continues to navigate pricing pressure and increased competition. Starting with wholesale. Wholesale revenue grew 5% sequentially and 11% compared to the same period last year. Ryan mentioned the shift in our revenue mix, whereby our wholesale revenue now represents approximately 44% of our aggregate product revenue. This shift in revenue mix demonstrates the effectiveness of our expand the brand strategy. As we continue to scale branded product sales through deeper wholesale penetration and strong account growth, we expect wholesale to become an even larger portion of our overall revenue mix. While wholesale margins are lower than retail margins, this shift is margin stabilizing in the current environment where retail is experiencing increased pricing pressure and margin compression. As a result, the growing contribution of wholesale provides a more predictable and scalable platform for long-term growth and profitability. Now turning to our retail revenue. Our retail revenue increased 1.1% sequentially and declined 3% year-on-year. Across our retail markets, we continue to outperform local average order value benchmarks despite industry-wide pricing pressures, reflecting strong brand affinity and a loyal customer base. While Illinois saw pressure on both traffic and AOV, we're actively implementing strategies to defend share and improve basket composition. With 2 full quarters of Delaware operations behind us, we are very pleased with the performance we are seeing in the state. Retail revenue grew almost 48% sequentially. This strong performance was driven by increased adult-use traffic, broader product availability and successful brand activation in the market. That said, the overall growth in Delaware was partially offset by continued headwinds in our Metropolis dispensary in Illinois, where 2 new stores opened up close in proximity to ours. Metropolis remains our largest store, but the competitive dynamic has impacted both traffic and AOV. The year-over-year retail revenue decline was largely attributable to reduced performance at our Metropolis dispensary. Excluding the impact of Metropolis, retail revenue increased approximately 18% year-on-year due to the continued scaling of our Quincy dispensary, our new Tiffin and Upper [ Marl Grove ] dispensaries, along with contributions from our 2 new Delaware dispensaries. Non-GAAP adjusted gross margin for the third quarter was 41.4%, down 400 basis points quarter-on-quarter and down 1.2% year-on-year. The sequential increase in wholesale revenue as a share of total revenue contributed to this decline. On a GAAP basis, the company generated a net loss of $2.9 million during the quarter. This compares to a net loss of $1.4 million that we reported last quarter and a net loss of $1 million in the same period last year. The increase in the loss sequentially was due to higher income tax compared to the last quarter, where we had a benefit of reversing a reserve on prior year's tax returns. The increase year-on-year is due to higher 280E nondeductible expenses in the current quarter. Total operating expenses for the third quarter were $14.8 million or 36% of revenue compared to $14.9 million or 38% of revenue in the previous quarter. Total operating expenses were $15.4 million or 38% of revenue in the same period last year. The sequential and annual decreases reflect the impact of our continued cost discipline. Adjusted EBITDA in the third quarter was $5.1 million, an increase of $459,000 year-on-year and an increase of $352,000 sequentially. The improvement was primarily driven by scaling operations in Delaware and continued cost discipline across the business. Turning to the balance sheet and cash flow. We maintained a strong balance sheet in the third quarter, ending with $6.6 million in cash and cash equivalents, up from $6.1 million as at the end of the last quarter. And our operating working capital was $38.2 million at the end of September. We had no significant capital expenditures during the quarter and don't expect major cash outlays for the balance of the year. We generated $2.7 million in cash flow from operations, consistent with the same period last year and a significant increase from $297,000 in the second quarter. This improvement was primarily driven by working capital contributions from Delaware, where inventory that was built up ahead of the adult-use launch in Q2 was successfully converted into sales in Q3. That concludes our financial review. I will now turn the call over to Jon for his concluding remarks. Jon Levine: Thank you, Mario. Before I open the line to questions, I want to thank our investors for their continued support and our team for their hard work and dedication. They are the crème de la crème and I am very fortunate to call them my teammates. Operator, you can now open the line. Operator: [Operator Instructions] Your first question comes from the line of Andrew Semple from Ventum Financial. Andrew Semple: First question, given the increased focus on licensing deals and using that to get the brand into new markets, would you be able to share kind of the economics we'd be expecting to see on those licensing deals, how those work and how that flows back to MariMed? Any color you can give on that would be appreciated. Jon Levine: Andrew, thank you for joining us this morning and very good question. Our licensing deals are a percentage of the revenue that the deals are making. We are mixing them up with some other ones where we're getting closer to the top line, but there's a lot of them that are percentages of the revenue that they sell on the wholesale basis. The big item is really to get our brand recognition and name out into as many markets as possible. And with those percentages, there is no cost associated on our side. So it's really a better margin for us, kind of like the management fees. So we see growth through those licensing deals to make the value of our brands even larger as we move forward. Andrew Semple: That's great. And maybe I'll pick up on that margin a bit there. A bit surprised to see margins down a bit Q-on-Q, just given the uptick we -- the slight uptick we saw, I guess, this quarter in kind of those management revenues, which are higher margin, but more substantially from the investments made in the cultivation and production side of things should have given MariMed some opportunity for some margin improvement this quarter as you drive vertically integrated sales in key states. Maybe you could just like touch on the margins, what you saw this quarter, what impacted margins. I suspect pricing pressures were an issue. But if there's anything else besides that, that could have weighed on margins and perhaps your outlook for margins next year? Mario Pinho: Yes. Andrew, it's Mario here. Yes, you're exactly right. We did see some compression in our margins, mostly because we were aggressive on discounting in order to protect share. We also did change the accounting for our loyalty program, and that resulted in some deferral of revenue in the quarter that we haven't done in the past. That will be a timing difference. So we'll see that come in, in future quarters as those points are redeemed. So we believe that's a onetime marginal hit to our margins this quarter. And looking forward, we anticipate margins to stay stable in Q4, and we'll see some slight expansion into the new year as some of the efficiencies that we've implemented and is already delivering some margin improvements will really -- we'll be able to leverage those in the new year. Andrew Semple: That's great. That's helpful. And maybe one more, if I may. Just the decision on exiting the Missouri market. Maybe just looking for some additional color behind that. And also if there's any liabilities associated with exiting that market. Jon Levine: Andrew, Jon Levine again. Thank you very much. Yes, as I said last quarter, we were planning on taking a hard look at Missouri, and we have determined that it was easier to leave the market as we weren't getting to the cash flow that we were looking for quickly, and we want to focus our time and effort on markets that we can get better cash flow and results at a quicker pace. So there will be a onetime offset, but all those expenses that have already been pretty much on our books, so we may have to just do a minor accounting in Q4, but I don't see it being a very large number. Mario? Mario Pinho: Yes. Just to add on that, as Jon says, we will be booking a loss. We're in the process of determining that. We don't expect any further liabilities related to this closure that are not already recorded in our financial statements. And it's -- the loss will be a noncash loss, and we'll also see improvement on our cash going forward to the tune of about $120 million a month. Operator: Your next question comes from the line of Joe Gomes from NOBLE Capital Markets. Joseph Gomes: I wanted to follow up on some of the licensing deals and the economics. And I think you mentioned it's a great way to get out into as many markets as possible, and most of them are right now as a percentage of revenue sold. Any concerns about kind of losing control, so to speak, of the product, the end product, whether it be quality or other ways given these licensing deals? Ryan Crandall: Joe, this is Ryan. Thank you for the question. Yes, I mean, it sounds like you're talking out of my own head. We're very -- we look at our partners. We really make sure that we have the right partner, and we go through a robust process on the kind of end of landing any one of these license agreements. This isn't our first rodeo. We've been in the space for a while. Early on, we had a lot of partnerships that weren't necessarily the best. I think the partnerships that we're forging today are very well qualified. We know what we're looking for in people. I think they know what they're looking for as well. And I think we've really -- we do a great job of obfuscating some of our IP and really making sure that our partners are committed to protecting our IP, both with their own employees and really kind of further on in the future. Joseph Gomes: Okay. And then, Jon, this is more kind of big picture question here, the kind of 2 related ones here. I'm sure you guys know, there's the recall efforts in Massachusetts. I'd like to hear your views on that and whether that type of effort could possibly gain momentum in other states. And then the second one of that is, if we look at the business itself, and you mentioned it in your remarks in the pricing pressure, the retail oversaturation, the lack of clarity at the federal level. I mean, this has now been going on multiple years. What is going to happen to change that, that firms in this business can start seeing strong top line growth, strong margins and not always be looking at having to run programs in order to maintain market share. So just kind of looking for your thoughts on those 2 topics. Jon Levine: Thank you, Joe. Some very interesting questions you brought up there. First of all, the Massachusetts recall, I don't see that really going anywhere. The whole group that we talk to and the politicians we're talking to. It just doesn't really make a lot of sense. I know that there's a lot of conversation about the hemp Bills in all the states and Massachusetts does have hemp laws, which, again, I'd say, are not fully washed over. And the fact is I don't see them really making a change to the cannabis at this time. Going to the other side of the business pressures and the Feds, I've said forever, I know the Feds are always looking at talking about the reclassification, and I never really felt that it was much there. I did feel and I still do feel that the federal government right now is working on some type of reclassification. But with all the other messes that typically happen in the Fed, you don't think that, that's going to happen anytime soon. They have to get the government shutdown taken care of first and then they can go back to looking at other business. But the longer this shutdown takes, the more that, that's going to get delayed because other items are going to be pushed forward. As far as our business growth, we have for the last 1.5 years, 2 years, that we were refocusing our business to expand the brands. That's part of the reason that we're looking at going into the hemp beverage business. We feel that, that is something that we can be very successful at. We've been doing our beverage in the cannabis section, and it's very well accepted. And this is just another way to get our brands and make better money in -- for the revenue side on the growth of our business is expanding the brands and concentrating on wholesale. Yes, the retail, we're not nearly as big as a lot of our counterparts in terms of retail. We don't hate the retail. We just understand that it's a totally different business and the margins are going to come continually down with the pricing pressure, but we're focusing a lot on wholesale, growing the brands, getting into more states -- we're still looking at M&A for additional retail and processing in other states. And we're going to continue to look to put our brands, and we're going to pay attention to what happens with hemp, but we feel right now the beverage is one section of hemp that we can continue our growth. Joseph Gomes: Okay. And one more, if I may. I mean just you mentioned getting into more states. And obviously, we've seen the recent Pennsylvania, Maine, New York. If you're looking big picture, if you don't want to name states, maybe even areas of where you would look to next. Jon Levine: We're looking at growth states. And when it comes to licensing and acquisitions or mergers, we're looking to get to states that we can bring our brands into that states that don't restrict or have limited restriction on what is allowed. Pennsylvania is a restricted state, but we're very hopeful that with adult use, that will change. But we will look in the rest of the Northeast, we'll start going down the East Coast and moving towards the Illinois area as the states come on the market. In terms of the hemp, we are going to really wait for our partners to tell us which states they recommend as the next growth state for that market. Operator: Your next question comes from the line of Pablo Zuanic from Zuanic & Associates. Pablo Zuanic: Look, just focusing on Delaware. I know people think of Delaware as a small state, but obviously, it's a very important contributor to your business, and you are the market leader there. So the first question, I think you had guided that you expected that market to grow about 1.5% from the medical base. But you said that retail sales were up about 48% sequentially and sales began on the 1st of August, right? So if I try to count it as a full quarter, that would be like almost 80% growth. So that's well ahead of your expectations. So the first part of your question is, am I right and things are going well ahead of your expectations in Delaware. And I know you don't give guidance, but the second question would be what -- how should we think about Delaware performance at the retail level in the December quarter? I know it's not the summer, but it seems the momentum seems to be pretty good. Ryan Crandall: Pablo, thank you for the question. I think Delaware is performing in line with our expectations. Retail is potentially outperforming a bit, but I wouldn't say a tremendous amount. We're continuing to see growth. So I mean, one of the things that we were -- had in our projections was that some things by the beach may slow down a little bit. We haven't seen as much of a slowdown as we anticipated. And our wholesale growth has been consistent. So month-over-month, we continually increase. So we're ramping production on the heels of it. We're taking a look category by category and making sure that we have leadership positions in each one of the key categories. And I think we're well on our path to success there. Pablo Zuanic: Right. I know we know how many licenses have been issued, but do you have line of sight in terms of how many stores will be opened by December and, say, by June next year? Because obviously, that will expand your wholesale market. But do you have a sense of that? Ryan Crandall: Pablo, it's still a little foggy in terms of opening dates for some of these stores. What I can tell you is that we are actively engaged with all of the license holders in a preopen position and supporting those folks with education around our brands, any type of support they may need as we've been a long-standing license holder in the state. So we're trying to become advocates for these businesses as they open, but we don't have true line of sight to any of that. Pablo Zuanic: Okay. Look, on the last question, I understand the business model in New York and Pennsylvania are different. But I'm trying to understand, in the case of New York, how involved are you going to be on the marketing side? I mean, are you just going to collect the licensing fee? Or are you going to be involved in helping on the sales effort in any way? In the case of Pennsylvania, I think there's still a bit of a ramp-up there on the cultivation side of things. But right now, when you're helping the sales team there, are you already licensing your brands and introducing your brands or not because you haven't started production yet and you're helping them sell their brands? If you can just clarify that, please? Ryan Crandall: Pablo, thank you for the question. So from a New York perspective, we're taking an incredibly active role in the entire process from manufacturing through inventory through selling and distributing the product and ultimately marketing it to pull it through. So we're actively owning that process and very excited by the opportunity in New York. PA related to the brand questions that you had, we are underway with the state of Pennsylvania for getting all of our brands approved, the brands that will be applicable for that market. So that approval process, I do believe, takes a little bit of time with the state. So we're actively underway with that. In the meantime, there are active list of brands and SKUs represented by TILT in that state. And so we are actively assisting them with our relationships, improving their own relationships, identifying some pricing opportunities and some different bundle opportunities. So we're very active with their team. They've got a great sales team there, and we're literally just improving their business. Pablo Zuanic: And Mario, I'm going to ask one last one here, if I may. Trulieve in their 10-Q yesterday. And obviously, they were the pioneers on this strategy on 280E and certain tax provisions. And of course, I'm a neutral impartial observer, but obviously, I support the industry's stance on this unfair tax policy against the industry, of course, right? The industry, of course, should be paying taxes as any normal corporation, why they be paying this very onerous tax rate. All that said, in the case of Trulieve, according to their 10-Q filing yesterday, the IRS is imposing penalties on some of their -- on their policy, and it seems that it's a partial penalty that could be more. They disclosed about $38 million in penalties on some of their subsidiaries that reducing this uncertain tax benefit liability policy. Are you encountering that? I haven't seen your 10-Q that, but is that something you can comment on? Mario Pinho: We're not seeing that, Pablo. Obviously, there's a difference between how we file our tax returns and then how we then record our provision for accounting purposes. Our tax returns historically have been audited, and we've been successfully closing those audits without any adjustments. So we have not experienced any penalties that the other -- some of our peers are experienced because they're being a lot more aggressive in their actual tax filings. Operator: There are no further questions for question-and-answer session. I'd like to turn the call back over to the moderators for closing remarks. Jon Levine: Thank you, everybody, for joining us this morning. I hope you all have a good day. Operator: This concludes today's conference call. Thank you for connecting. You may disconnect.
Operator: Good morning. We would like to welcome everyone to Canadian Natural's 2025 Third Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please note that this call is being recorded today, November 6, 2025, at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Lance Casson, Manager of Investor Relations. Please go ahead. Lance Casson: Thank you, operator. Good morning. Thanks for joining Canadian Natural's 2025 Third Quarter Earnings Conference Call. As always, I'd like to remind you of our forward-looking statements, and it should be noted that in our reporting disclosures, everything is in Canadian dollars, unless otherwise stated, and we report our reserves and production before royalties. Also, I would suggest to review the advisory section in our financial statements that includes comments on non-GAAP disclosure. Speaking on today's call will be Scott Stauth, our President; and Victor Darel, our Chief Financial Officer. Additionally in the room with us this morning are Robin Zabek, COO of E&P; and Jay Froc, COO of Oil Sands. Scott will begin by running through our strong operational performance that includes numerous production records in the quarter and our leading operating costs. Victor will then summarize our strong financial results and our significant return to shareholders so far this year. To close, Scott will summarize prior to open the line for questions. With that, over to you, Scott. Scott Stauth: Thank you, Lance, and good morning, everyone. Canadian Natural achieved record quarterly corporate production during the quarter, both in liquids and natural gas production. This is the second time this year where we have achieved quarterly production records on strong performance by our teams as we executed both organic growth and accretive acquisitions. Our production totaled approximately 1.62 million BOEs per day, which, as mentioned, includes records for both liquids and natural gas at approximately 1.18 million barrels per day and approximately 2.7 Bcf per day, respectively. The increase in production from Q3 2024 levels is very significant, totaling approximately 257,000 BOEs per day or up 19%. Our world-class oil sands mining and upgrading assets continue to achieve strong operational performance as Q3 2025 production averaged approximately 581,000 barrels of SCO with strong utilization of 104% and industry-leading operating costs of approximately $21 per barrel. On November 1, we closed the AOSP swap with Shell Canada Limited. Canadian Natural now owns and operates 100% of the Albian oil sands mines and associated reserves and retains a non-operated 80% working interest in the Scotford Upgrader and Quest facilities. This transaction adds approximately 31,000 barrels per day of annual zero-decline bitumen production to our portfolio, providing additional cash flow, driving long-term value creation for our shareholders. This swap also enhances our ability to integrate equipment and services across our mining operations, unlocking additional value through continuous improvement initiatives. Subsequent to the close of the swap transaction, we increased our 2025 corporate production guidance range to 1,560,000 BOEs per day (sic) [ 1,560 million BOEs per day ] to 1,580 million barrels per day, while our operating capital forecast remain unchanged at approximately $5.9 billion despite executing on additional activity on our larger asset base, reflecting acquisitions this year. I will now run through our third quarter area operating results, starting with oil sands mining and upgrading. During the quarter, our world-class oil sands mining and upgrading production was strong, averaging 581,136 barrels per day of SCO, an increase of approximately 83,500 barrels per day or 17% from Q3 2024 levels, reflecting the additional interest in the AOSP acquired in December 2024, combined with our effective and efficient operations, which drove stronger utilization of approximately 104% in the quarter. Additionally, Canadian Natural's oil sands mining and upgrading operating costs continue to be industry-leading, averaging $21.29 per barrel of SCO in Q3 of 2025. In our thermal in situ operations, we achieved strong thermal production in the quarter, averaging 274,752 barrels per day in Q3, up slightly from Q3 2024 levels. Thermal in situ operating costs remained strong, averaging $10.35 per barrel in Q3, a decrease of 2% from the same quarter last year. We continue to progress our pad development plans across our thermal assets. At Primrose, we began drilling a CSS pad in Q3 of '25 with production targeted to come on in the second half of '26. At Jackfish, we brought a SAGD pad on production in July '25 as planned. At Kirby, we brought on a 5 well-pair SAGD on production in late October as planned. And lastly, at Pike, the company tied in the 2 recently drilled SAGD pads into the Jackfish facilities. These 2 SAGD pads targeted to keep the Jackfish facilities at full capacity with the first pad targeted to come on production in January 2026, the second pad in Q2 of '26. At the commercial scale solvent SAGD pad in Kirby North, current SOR reductions and solvent recoveries are meeting expectations following recent workovers and optimization. On the conventional side of the business, Canadian Natural's highly successful multilateral heavy crude oil drilling program continues to unlock opportunities on our approximately 3 million net acres of high-quality land throughout our primary heavy oil crude -- crude oil assets. Primary heavy crude oil production averaged 87,705 barrels during the quarter, an increase of 14% from Q3 2024 levels, reflecting strong drilling results on our multilateral wells. Operating costs in our primary heavy oil crude oil operations averaged $16.46 per barrel in Q3, a decrease of 12% from Q3 of 2024, primarily reflecting higher production volumes and the increasing proportion of lower operating costs for multilateral production. Pelican Lake production averaged approximately 42,100 barrels per day, a decrease of 7% from Q3 of '24, reflecting planned maintenance that took place in Q3 of '25 and the low nature of field declines from this long-life, low-decline asset. While operating costs at Pelican averaged $9 per barrel in the quarter. North American light crude oil and natural gas production averaged 180,100 barrels per day during the quarter, an increase of 69% or approximately 74,000 barrels per day from Q3 of '24, primarily reflecting production volumes from the acquisition of the liquid-rich Duvernay assets in December of '24 and light crude oil from the Palliser Block assets in Q2 of this year as well as liquid-rich Montney assets in the Grande Prairie area during the third quarter. Operating cost of the company's North American light crude oil and NGLs operations averaged $12.91 per barrel. a decrease of 6% from Q3 '24, primarily reflecting higher production volumes. On the natural gas side, North American production averaged approximately 2.66 Bcf for the quarter, an increase of 30% from Q3 2024 levels, primarily reflecting the Duvernay and Montney acquisitions and strong drilling results in our liquids-rich natural gas assets. North American natural gas operating costs averaged $1.14 per Mcf in Q3, a decrease of 7% from Q3 of '24 levels of $1.23 per Mcf, reflecting higher production volumes and cost efficiencies. Our unique and diverse asset base provides us with a competitive advantage. We allocate capital to the highest return projects without being reliant on any one commodity. Our consistent and top-tier results are driven by safe and reliable operations. Our commitment to continuous improvement is supported by a strong team culture in all areas of our company that focus on improving our cost, driving execution of growth opportunities and increasing value to shareholders. Now I will turn it over to Victor for our third quarter financial review. Victor Darel: Thanks, Scott, and good morning, everyone. In the third quarter of 2025, we achieved several production records as a result of strong operational performance and the accretive acquisition over the past year, contributing to the strong results this quarter. Our teams demonstrated excellent execution, evidenced through our strong operating cost performance in the [indiscernible] Our results, including strategic acquisitions completed in the last 12 months supported strong quarterly adjusted funds flow of approximately $3.9 billion and adjusted net earnings of $1.8 billion. Returns to shareholders in the quarter were $1.5 billion, including $1.2 billion of dividends and $300 million of share repurchase. Dividend payments and share repurchases in 2025 up to and including November 5, bring total year-to-date shareholder returns to approximately $6.2 billion and contributing significant production growth per share in 2025, targeted at 16% compared to 2024, demonstrating very significant value creation this year. As a reminder, Canadian Natural has increased its dividend for 25 consecutive years with a CAGR of 21%, a truly impressive track record that is unique amongst our peer group. Subsequent to quarter end, the Board has approved a quarterly dividend of $0.5875 per common share, payable on January 6, 2026, to shareholders of record at the close of business on December 12, 2025. Our balance sheet remains strong with quarter end debt-to-EBITDA of 0.9x and debt to book capital coming in at 29.8%. Quarter end liquidity was also strong at over $4.3 billion, reflecting undrawn revolving bank facilities and cash on hand at period end. Additionally, during Q3, the company repaid USD 600 million of U.S. dollar debt securities and received a new long-term investment-grade credit rating of BBB+ from Fitch Ratings. Our third quarter results reflect the impact of accretive acquisitions, which have immediately contributed to incremental production and additional free cash flow generation. Our robust quarterly funds flow and strong balance sheet demonstrates our industry-leading cost structure, large reserve base of high-quality, long-life, low-decline assets and our commitment to continuous improvement and reliable execution. These factors, along with the company's track record of delivering strong shareholder returns, support significant long-term value creation for Canadian Natural and our shareholders. With that, I'll turn it back to you, Scott. Scott Stauth: Thanks, Victor. In summary, here at Canadian Natural, our culture of continuous improvement and ownership alignment with shareholders drives our teams to create significant value across all of the areas of the company. Once again, we achieved record production levels, strong financial results through our effective and efficient operations, driving strong returns on capital and value creation for our shareholders. Lastly, just a reminder that we will be hosting our Open House tomorrow morning started at 8:30 Eastern Standard Time, where we will go over our strategy, unparalleled dependent, provide details on our assets and value creation opportunities. You're also invited to listen to the management presentation and view the presentation slides via webcast. You can look to our website for further details. With that, I'll turn it over for questions. Operator: [Operator Instructions] Your first question comes from Dennis Fong of CIBC World Markets. Dennis Fong: The first one is related to your recent closing of the asset swap for the Albian mine. Now that you control 2 mining assets in very close proximity to each other, can you talk to some of the potential upside or opportunities that exist? I know you've already addressed consolidating inventory and lowering kind of spare parts required in kind of various store rooms. But can you talk towards maybe operational benefits beyond that, again, given the proximity of the 2 assets? Scott Stauth: Yes. Thanks, Dennis. And in addition to what you had mentioned, there's also the utilization of equipment. So that would include the large haul trucks and the support equipment such as dozers, graders and other assets that -- of that nature. But Dennis, I would suggest that it would be worthwhile for listening for more details tomorrow to run an open house, and we can get into some more detail in terms of the cost savings that we are working on and working to achieve there. So I think that's probably the best way to explain it is to be a part of our open house tomorrow. Dennis Fong: Perfect. I'll have to wait and see, I guess, on that basis. I suspect the second question may have a similar answer. But I mean, given the continued development and the tie-in of the wells at Pike, I was just kind of looking through and it seems like Grouse in close proximity to your Kirby assets has a similar, I guess, opportunity there. Can you maybe outline maybe some of the efficiencies that you could see via developing kind of proximal resource to your 2 other central processing facilities? Scott Stauth: Yes. For sure, Dennis. And I think you were banging on me to suggest that it's probably going to be a similar answer. For sure, we'll walk you through tomorrow the assets that are adjacent to the -- adjacent Jackfish and Kirby assets. So we'll be able to give you a good rundown tomorrow of how we would look at development plans given the opportunities that are presented in those areas. So looking forward to that discussion tomorrow. Operator: Your next question comes from Manav Gupta of UBS. Manav Gupta: Congrats on a very strong quarter again. I wanted to ask you about an announcement yesterday from Energy Transfer that they are looking to FID the South Illinois Connector Pipeline, getting -- looking to get more Canadian crude into Illinois and to Gulf Coast. And I just wanted to understand, would you be open to participating in any such project or any other major projects out there, which give you more incremental egress capacity towards the Mid-Con or the Gulf Coast refiners where your crude is highly valued? Scott Stauth: Yes. Thanks for the question. And certainly, we review those opportunities for egress when tabled. And I can just tell you that there are a number of opportunities, whether it be Enbridge, TMX or others, we're certainly going to look at those and to see if we would participate in volumes commitments on those or otherwise. But the good news is for the basin and the egress opportunities that companies have been talking about bode very well for strong differentials. And ultimately, that's the most important part of the aspect, whether your barrels are locked up or whether they're sold in the Hardisty Edmonton area, it's a positive for Canadian crude. So looking forward to those opportunities as they come about, and we'll see where that goes. Operator: Your next question comes from Doug Leggate of Wolfe Research. Carlos Andres E. Escalante: This is Carlos actually on for Doug, who, by the way, is on his way to your Analyst Day. So he sends his apologies. But just to be real quick with this in respectful of my peers' time. Number one, I wonder what your perception is today of the need to further consolidate West Canada gas in the context of weak AECO pricing and despite the ramp in LNG, perhaps similar to how your U.S. peers have been doing in the recent past. Scott Stauth: Yes, it's a good question. You don't have to apologize for Doug. That's good to see that he'll show up tomorrow. We're looking forward to those discussions. In terms of consolidation, certainly, we're seeing some of that evolve. I think the most important thing to the basin is maybe a certain degree of consolidation. But the most important thing is egress opportunities. So the more gas that we can move out of the basin, the better the LNG projects that are online now, LNG Canada and others that are coming on in the future are very much needed for the basin to fully unlock the potential. So in spite of whatever M&A activity that may be going on in the basin, we look forward to more egress because ultimately, that's what the basin requires. Carlos Andres E. Escalante: Appreciate that. And just a real quick housekeeping item. It looks like your Palliser and Duvernay might have contributed to your sequential oil production growth. Just wonder if you could share if that is the case? And if so, how does it set you up for your growth outlook into first half of '26? Scott Stauth: Yes. Certainly, both of those areas will be part of our budgeting activities for next year. We've got strong production growth in the Duvernay and having taken over the assets earlier this year in the Palliser Block, we continue the capital allocation towards going light oil wells in that area, and it will be a part of our program for next year as well. Operator: Your next question comes from Greg Pardy of RBC Capital Markets. Greg Pardy: And Scott, I'll apologize because I won't be here in person tomorrow, which is probably the first time in 20-something years. But in any event, I'll have a go at you maybe ahead of tomorrow. What's your thinking now? I mean, we've had a new federal government in place for a little bit of time now. There's been a lot more dialogue with the industry. Just curious, any broad strokes on progress on things like pathways, how much easier is it maybe now to work with the federal government? Is this sort of a cautious approach? Just interested in any broad strokes there that you might have. Scott Stauth: Well, we'll miss you tomorrow there, Greg, but I do appreciate your question there today. And certainly, we're seeing more positive signs than we've seen in the past under previous leadership. So we like the discussions that are going on, Greg. But as always, there's lots of details to work through in terms of carbon competitiveness. That's going to be key to understand the impacts that may come out of that level of discussion. The details at this point are not well understood, and we'll certainly be very anxious to work with the government and the government of Alberta to make sure that we've got a collaborative way to move forward to address the needs for pathways and certainly for future growth opportunities to, again, unlock additional value out of the basin, whether it be oil sands or conventional, more egress is needed on both gas and oil. And so the more that we can do collectively working together with the government to help promote that growth, increase the jobs in Canada, increase, of course, taxes and royalties. Certainly, everyone is aware on this call, the importance of the industry for the GDP of Canada. So I think it's really important to continue on these discussions. Good to see what we have seen so far, but we want to get into the detailed discussions, Greg, and make sure we truly understand what carbon competitive actually means. And until we get those details, it's a little bit early to say exactly how things will unfold, but we are encouraged by the engagement. Greg Pardy: Okay. Okay. Terrific. No, I think that's probably as much as you can say right now. And as you say, there's a lot more water that needs to flow into the bridge. Maybe I'll pivot just on a specific question that came in from one investor, which was just around the potential acceleration of the T-Block decommissioning. So if we look at your financing cost in 3Q, significantly lower. I know some of that had to do with PRT and so forth. The abandonment expenditures tend to be a fairly large number. I'm just trying to get, even though you may not want to talk too much about '26 CapEx and so forth, maybe I just want to get a sense maybe from Victor as to what the implications there could be and to the extent you can quantify it, that would -- or even roughly quantify it, that would be super helpful. Victor Darel: Just in terms of the impacts on the '26 capital budget, is that the question effectively, Greg? Greg Pardy: Yes. I mean -- so Victor, like if I look at what, '25, I think it was like, what, $756 million, a good chunk of that, I know, is North Sea and then there's PRT in there and you get cash recoveries. But I'm just trying to understand, should we be directionally thinking about a bigger number than, say, $750 million next year if you decide to accelerate? Or would this all kind of come out in the wash? Victor Darel: Yes. The way I would look at it, Greg, is that 2025 coming into 2026, the expenditure levels do go up modestly in '26 overall. That would be the target. But we're working through that still and we're trying to plan for our 2026 budget. Overall, when you look at the next 5-year period, you do have to remember that the tax recoveries on that expenditure, they're actually weighted to the first 5 years. So the net increase after tax recovery is fairly modest. We'll see about a 75% tax recovery on next 5 years expenditure. Operator: Your next question comes from Menno Hulshof of TD Cowen. Menno Hulshof: I'll just put -- I'm just going to put a very short-term lens on things. And for my first question, now that we're halfway through the fourth quarter, give or take, how would you describe the operational setup into the end of the year? And are there any assets that you would flag as having outperformed or underperformed quarter-to-date? Scott Stauth: Yes, it's a good question. at this point in the quarter, all assets are performing as expected. Optimization utilization looks very strong and continuance from what we've seen over the past couple of quarters here from that perspective of utilization. So nothing really to highlight there. Just the assets are performing as we would expect them to perform. Menno Hulshof: Terrific. And then you may or may not want to answer this one because it might cannibalize tomorrow a little bit. But second question is on maintenance. Maybe you could just remind us of which assets are scheduled for turnaround in 2026. Presumably, Horizon is one of them, but what are the others? And how large are these turnarounds expected to be? Scott Stauth: Yes. Horizon would certainly be the most significant likely in the third quarter of next year. So outside of that, it would be our normal routine ones that we'd see every one facility, once like every 5 years, our thermal facilities go in for a turnaround. So there'll be one next year as well. So nothing too significant and nothing stands out. The only real difference from '25 to '26 would be Horizon. Menno Hulshof: Terrific. I appreciate the confirmation. Operator: Your next question comes from Alexa Petrick of Goldman Sachs. Alexa Petrick: Following the close of several accretive acquisitions, we were curious, what are your updated thoughts on M&A? And then can you provide any broader commentary around your capital allocation strategy, balancing dividend growth with share repurchases and potential for further M&A? Scott Stauth: Yes. Not a lot to comment, Alexa, on the M&A activity. Certainly, you made a reference to some recent acquisitions that were opportunistic for us. As you probably are aware, we do look at a lot of opportunities of M&A. We execute on very few, but we certainly look at the ones that seem to be most accretive to our operations and generally in close proximity to our core areas. So I think that in terms of our allocation, no significant changes there. It's -- the allocation policy is pretty straightforward. We don't have any plans to change that relative to M&A activity or not. Alexa Petrick: Okay. That's helpful. And then maybe just as a follow-up, if we could dig a little more into kind of your macro outlook, how are you thinking about light heavy differentials from here, particularly as we see OPEC add barrels into the market? And then any views on mid-cycle differentials and some of the assumptions embedded in that? Scott Stauth: I think we expect to see, Alexa, the differentials to be -- stay in that range of the $10 to $13 a barrel, and then it will go up and down depending on Turner activities in the refineries in the United States. So I don't really see any of that changes changing in the near term. And as long as we have strong egress out of Western Canada, those differentials will remain in that range. And so there's still some spot capacity on the TMX system, which is very supportive for pricing. We're seeing a strong demand out of Asia for Canadian heavy crude. That's also very supportive. And we like what we've seen. Essentially, TMX has stabilized the entire Western market here. So that's how I would summarize it up for you. Operator: There are no further questions at this time. I would hand over the call to Lance Casson for closing remarks. Please go ahead. Lance Casson: Thank you, operator. Thanks, everyone, for joining our call this morning. We look forward to seeing you all tomorrow at our Investor Open House or on the webcast. If you have any questions, please do call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome, everyone, to BT Group's results presentation for the half year ended 30th of September 2025. Presenting today is Allison Kirkby, BT Group's Chief Executive; and Simon Lowth, BT Group's CFO. Following the presentation, we'll be having a Q&A session. I would like to make everyone aware that this event is being recorded for replay purposes. Before we start, I'd like to draw your attention to the usual forward-looking statements in our press release and our latest annual report for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. Both the press release and the annual report can be found on our website. With that, I'll now hand over to Allison. Allison Kirkby: Hi. Good morning, everyone, and welcome, and thank you for joining us for our half year results. In terms of the presentation this morning, I'm going to start by setting out the progress we've made against our strategic priorities so far this year. Simon will update on the financials, and then we very much look forward to taking your questions after a quick recap from myself. So in summary, it's been another period of solid delivery despite the competitive markets we operate in, with very clear progress in the U.K., while we've also worked hard to manage headwinds from our accelerated migration away from legacy voice products and in our international markets. Let me begin with some highlights. Our leadership in fiber, 5G and secure networking has strengthened further since the start of the year. Openreach achieved another set of records on full fiber build and again on take-up with even better efficiency. Consumer gained customers in all its key segments, broadband, mobile and TV and grew its number of converged households. Business is showing a stabilizing financial performance for the first time in many years, and we continue to press ahead with our GBP 3 billion transformation program, offsetting some of the cost headwinds we are facing, including the higher labor-related costs incurred since the beginning of this tax year. In addition, we have agreed or completed 4 targeted disposals outside of the U.K. and having carved that out with dedicated leadership, we are accelerating the reshaping of our international business. As a result, we are today reconfirming all of our guidance metrics for the year and beyond, including our target of GBP 2 billion in normalized free cash flow for next year and GBP 3 billion in fiscal year '30, and our interim dividend is rising 2%. As you will recall and as I set out in May, our ambition is to become the U.K.'s most trusted connector of people, business and society, guided by our purpose to connect for good. Our strategy focuses on 3 things: building the best, most trusted digital networks, connecting customers so that they thrive as we grow in a digital world and accelerating our modernization to restore leadership in everything we do. By the end of the decade, this strategy will have delivered for all of us, including meeting our financial commitments of service revenue growth, EBITDA growth ahead of revenue and a doubling of this year's normalized free cash flow. So how are we doing so far this year? Well, I'm pleased that we continue to deliver on the key levers that will realize our short, medium and long-term ambitions, specifically a focus on the U.K., building the U.K.'s only nationwide digital backbone, a growing customer base as a result of a much improved customer and product experience, all enabled by a radically simpler and better BT. On build, our nationwide reach expanded further. The Openreach team hit a new record of 2.2 million homes passed. On mobile, we won best network with RootMetrics for the 12th year in a row, and we lifted our 5G+ coverage by 23 percentage points to reach 66% of the U.K.'s population. And today, we're announcing a new landmark agreement with Starlink so we can offer the best broadband connectivity in the hardest places to reach in our country. On Connect, we connected a record 1.1 million Openreach customers to full fiber, and we've again lifted our market-leading take-up rate, which is now at 38%. Our consumer customer base grew again with customer growth in broadband for a third quarter in a row and further growth in both mobile and TV. Our decision to adopt a multi-brand strategy is clearly paying off, allowing us to reach more market segments without diluting our premium position. Customer satisfaction also rose again with growth in converged homes too, building customer loyalty and over time, lifetime value. And our sales orders in business grew with clear demand coming from British businesses for more secure and more resilient networking solutions. And finally, on Accelerate, our cost transformation is allowing us to offset margin pressures as they arise and still grow our EBITDA, and there is much more to come. We've achieved GBP 1.2 billion in annualized cost savings in the first 18 months of our 5-year program with particularly solid progress in our networks and digital units during this first half of this year. We have exited businesses outside the U.K. that do not fit with International's mission to serve only multinational companies. And in international, now that it is carved out, we have clearer and more accelerated plans to simplify our product portfolio and reshape our office footprint. Finally, we are continuing to carefully migrate customers off the PSTN ahead of closure in January '27, investing to support the elderly and the vulnerable in particular, and we're leading in safety with the launch of our Safer SIMs product for children as we build the best, most trusted networks for families. On the next slide, it's worth stepping back to look at the longer-term achievement of our Openreach and our networks teams. We are the only operator building fiber at scale with nationwide reach. And we are well on track to achieve our target build of 25 million premises passed by December '26, so just over a year from now, with an ambition to reach 30 million by fiscal year '30, assuming a stable and pro-investment environment. And we remain on course, therefore, to earn good returns for our shareholders and to create one of Europe's most attractive fiber infrastructure assets, whether in a competitive market or one regulated under Ofcom's fair bet. Why is that? Well, returns in network businesses depend on building at the right price and quality with the best take-up and a reasonable cost of capital. We compare very well on all 4 of those metrics, and we continue to build within the cost ranges we aimed for at the beginning despite the inflation we saw during the period with excellent quality and resilience. On mobile, we have a growing 5G connected base with now 89% population coverage, 66% 5G+, which is our name for 5G stand-alone coverage, and we're well on track to reach 99% 5G+ coverage by fiscal year '30, almost 4 years ahead of the other networks. We are clearly super proud of the network credentials we've built over the last 12 years and before that. But I can assure you, we are not resting on our laurels and are always working on ways to improve customer experience, including now the deployment of the millimeter wave spectrum we purchased in mid-October for high-density locations and in reapplying what we learned from uniquely running the emergency services network into building the most trusted and resilient network experience for everyone. Moving on to each of our customer-facing units. And in turn, let's start with Openreach. As I've said, we continue to build full fiber at pace and now pass over 20 million premises, of which we had already connected 7.9 million at the end of last week. Broadband line losses were 242,000 in the quarter, similar to Q4 last year and in line with what we expected. Within that, we estimate that the broadband market remains either flat to slightly down as new homebuilding is still running around 100,000 a year below what the government's target was. Meanwhile, competitor losses for Openreach are a little changed half-on-half, but with a tilt towards wholesale operators rather than retail where we're seeing some declines. Quarter-to-quarter, there's always going to be some natural variability based on competitor build and promotions and the orders that we have coming into the quarter. But the guidance we gave in May of last year's second half run rate continuing for the full year remains unchanged. But I do want to point out, and it's worth saying that October has progressed well. After quarter end, we launched new offers to stimulate fiber migration, which our CPs have welcomed, and we made good progress to be ready to launch XGS-PON next year. In our operations, our repair volumes decreased 13% year-on-year due to the shift to full fiber, and we reduced our headcount by 11% year-on-year as we upgrade our network and transform our operations and as we ensure we've got the right resourcing for when the fiber build steps down during next year. Thanks to the strong demand for our fiber and the impressive build and connect progress made by our Openreach team, we're maintaining steady revenues with ARPU growth of 4%, offsetting line losses and good growth still in Ethernet revenues of 5%, and we're delivering continued EBITDA growth. Moving to Consumer. Our strategy is clear. Having invested in and built the U.K.'s only nationwide networks, we intend to get back to sustainable service revenue growth. This starts with having a growing customer base by leveraging convergence, our breadth of household relationships and all 3 brands to ensure we compete carefully on value, not just price. So it's good to report that our consumer business is continuing to win customers in the first half of this year despite the competitive pressures. Convergence, multi-SIM household tariffs and leveraging all 3 of our iconic retail brands has helped us grow the broadband base for a third consecutive quarter, our mobile base for a second consecutive quarter and our TV base for the fifth quarter in a row. We are achieving excellent levels of fiber take-up with almost half of our broadband base now on full fiber. Broadband continues to grow in our mobile base, and so our converged customers have grown to almost 26% of all broadband and mobile customers, which is up almost 3 points in the last year. And we're seeing a steep increase in customers moving on to EE One, our main convergence offer. All of this, plus our renewed focus on customer experience has helped improve customer satisfaction, which was flat or up in all 3 brands in the last 6 months, resulting in stable churn rates at relatively low levels across mobile and broadband. While the customer base grew, service revenue was basically stable, excluding a 1% drag from legacy voice. Admittedly, there has been some ARPU pressure, but this is mainly a result of coming off the high price rises over the last few years into a more competitive market. As inflation stabilizes and we move towards pounds and pence, this sawtooth effect should dissipate. And the equipment sales market has been slower, too, as consumers now keep their handsets for 48 months, hence, why total revenue was also down in the period. But we're now seeing excellent performance by EE on recent new device launches. At EBITDA, we were able to offset almost all the lower revenue and the higher input costs from Openreach with disciplined cost control. Additional headwinds from the rise in national insurance and national living wage, combined with the ongoing transition to digital voice accounted for over 2/3 of our EBITDA decline. But with the progress made in the first half and the run rate we're now seeing, we remain confident that Consumer will, as it did last year, return to year-on-year service revenue and EBITDA growth in the second half as a result of the levers I just mentioned, customer experience, convergence and our multi-brand strategy. Moving to business now on Slide 10. As you well know, since the start of the fiscal year, we've focused business now on the U.K., improving our ability to develop and deliver the best products and services for U.K.-based companies across the private and public sectors. The levers to growth and transformation remain the same, simplifying our product portfolio, migrating customers off legacy systems and products and radically improving customer journeys and satisfaction on the back of digitalization of our processes and our journeys and through secure and resilient by design products. Our delivery in corporate and public sector improved with sales orders up 16% year-on-year, including new business in the industrial sector. In broadband, we increased our fiber connections by over 40% and our 5G connections by over 30%. Net NPS also improved. Our modernization agenda continued with another 10 products retired in the half year, taking us below 200 products, down by 1/3 in just 2 years and units on legacy networks fell by almost 40%, a nearly GBP 0.5 million reduction. Clearly, it's still early days for John and the team in business, but I am pleased that in the half, the financial performance was more stable, especially considering the drag from legacy voice is still sizable. We have a robust pipeline in corporate and public sector and have launched new offers for smaller businesses, reinforcing our most trusted status including last week's Cyber Defense exclusive with CrowdStrike and our announcement just yesterday to place business experts in all of our high-street stores. I'm confident that BT Business is at the start of its long-awaited turnaround. Moving on to transformation on Slide 11. We're making solid progress against our transformation agenda. This includes GBP 247 million of run rate savings delivered in the past 6 months, taking us to GBP 1.2 billion achieved in the first 18 months of our 5-year program. We continue to drive most of the cost savings from four key programs: shutting down legacy networks, simplifying our products, scaling the use of fewer shared platforms and deepening our data and AI capabilities. With respect to what happened in H1, while we migrated over 1 million customers away from legacy networks, we reduced our energy consumption by 54 gigawatt hours or 5% year-on-year. We cut the number of applications we use by nearly 20%. And as a result of all of these initiatives, our total labor resource dropped by 5,000 in the half across all divisions. Now with the arrival of our new Chief Digital Officer, Peter Leukert, on the 1st of September, I know that we will build further on this progress. No pressure, Peter. But part of this will be to ensure we take full advantage of the capabilities of AI, where we see significant potential, particularly in better and more efficient customer care, higher, more personalized marketing velocity and greater efficiency across all areas of our corporate functions, including the Investor Relations function. Now turning to the transformation of international. We have successfully agreed or completed our targeted disposals. This is the end of a loan process that began back in 2019, but which had paused in recent years. From 1st of July, international has been carved out, giving it much greater strategic focus and clarity to become the global leader in secure multi-cloud connectivity anchored by next-generation platforms, Global Fabric and Global Voice. There is naturally a transition period between moving from the existing MPLS-based services, to the new Global Fabric network. But having carved the unit out, we're now accelerating our plans to reshape it, including a reduction in the number of office locations and in radically simplifying the product and service set. This will help deliver EBITDA growth from next year and ensure that in the midterm, international is no longer a drag on group cash flow, allowing for clearer optionality for future partnerships, which we still believe are possible. With that, let me now hand you over to Simon, who will talk you through the financials in some greater detail. Over to you, Simon. Simon Lowth: Allison, thank you very much indeed. So I will take you through our group level results before then explaining the performance of our customer-facing units in more detail. First half U.K. service revenues was GBP 7.7 billion. That's down 1%. Now this was driven principally by a reduction in legacy voice revenues of about GBP 100 million. Price pressure in retail fixed and mobile was largely offset by growth in our retail connectivity bases and Openreach revenue. First half total adjusted revenue fell by 3% to GBP 9.8 billion, in addition to the lower U.K. service revenue, this was driven by lower sales of U.K. equipment, particularly mobile handsets and by lower international revenues. We reduced our operating costs by 3% and due to the strong progress of our cost transformation programs, supported by tight expenditure controls. And as a result, adjusted EBITDA in the period was flat at GBP 4.1 billion. Adjusted EBITDA in our U.K. businesses, excluding the international unit, that increased by 0.5%. Reported CapEx increased by 8% or GBP 171 million to GBP 2.4 billion. That was driven by a higher FTTP build and provision in Openreach as we ramp up our build to 5 million premises this year and then drive take-up of our fast-expanding FTTP footprint. Openreach has continued to drive efficiencies in its unit cost to build and provision through engineering innovation and dynamic management of the supply chain. Our build and provision costs have consistently been within the ranges we've set despite the significant inflation over recent years. Cash CapEx was slightly higher than reported CapEx due to the timing of capital creditor payments and about GBP 60 million worth of grant funding gain share. Normalized free cash flow was in line with our plan at GBP 408 million. This was GBP 300 million lower than last year due in largely equal measure to higher cash CapEx, the prior year tax refund and reduced working capital funding due to lower handset volumes. We remain confident of our outlook for GBP 1.5 billion normalized cash flow in the full year. As Allison just announced, our interim dividend is up 2% year-on-year to 2.45p per share, in line with our policy of paying 30% of the prior year's full year dividend. The IAS 19 pension deficit fell to GBP 3.8 billion from GBP 4.1 billion at the FY '25 year-end. Scheduled contributions of just under GBP 800 million were offset by a decrease in credit spreads. The IAS 19 deficit does not drive our cash contributions. These are determined by the actuarial valuation, which will be determined at the triennial review next year. Moving now to performance of the customer-facing units. Openreach revenue was flat year-on-year at GBP 3.1 billion, inflation-linked price rises and the increasing FTTP mix in broadband were offset by the lower broadband customer base. Openreach EBITDA again grew ahead of revenue, up 4% to GBP 2.1 billion. We continue to reduce our operating costs through a combination of labor efficiencies and lower repair and energy volumes as we transition to FTTP, offset by inflation in pay and noncommodity energy costs. Consumer service revenue was down 1%, and that's the same as last year to GBP 3.9 billion. ARPU declined, reflecting the higher prior year comparator and competitive markets, combined with reduced legacy voice revenues as we migrate off the PSTN were only partially offset by the stabilizing broadband base, growing mobile base and increased FTTP mix within broadband. That's now up to 45% of the base. We will continue to compete to defend and where we see value, grow our customer base, and we will protect and grow our margins through cost transformation. Consumer total revenue declined by 3% to GBP 4.7 billion due to the service revenue and reduced sales volumes in the mobile handset market as customers retain their devices for longer and with many of our own customers already on 3-year Flex Pay contracts. Consumer EBITDA fell by 4% to GBP 1.3 billion. Our transformation programs and our tight cost controls successfully mitigated most of the gross margin pressure from reduced revenues and the higher Openreach input costs. However, as Allison said, we were impacted by the significant increases in national insurance and the national living wage and by some additional costs incurred in the accelerated migrations to digital voice. These headwinds will be progressively offset with cost reduction. And in the case of the digital voice migration, will end with the closure of the PSTN as we move into FY '28. Business service revenue was GBP 2.4 billion. That's down 1% driven principally by lower voice revenues as we migrate off legacy voice to voice over IP. Service revenues in connectivity, secure networking and Managed Services were broadly flat with some growth in SMB and wholesale, offsetting a decline in CPS. Business total revenue fell by 2% to GBP 2.6 billion with lower equipment sales adding to the service revenue decline. Business EBITDA was down 1% to GBP 647 million, with the impact of lower revenues, partially offset by cost transformation and the benefits of cost phasing, which reversed in the second half of this year. International revenues were GBP 1.1 billion. Revenue declines in businesses whose sales either been agreed or completed accounted for about 4 percentage points of the 9% fall and adverse foreign exchange accounted for a further 1 percentage point. The remainder was driven by legacy product declines on the renewal of several managed services contracts. International EBITDA declined 27% to GBP 66 million due to the lower revenues, cost inflation and the increased investment in Global Fabric, all offset partially by transformation programs and tight cost control. As Allison has said, we're accelerating our restructuring and our cost transformation programs in international to ensure that the business moves rapidly to generate positive cash flow. We expect to complete all of the announced divestments within International before the end of this financial year. We don't anticipate these divestments will have a major impact on EBITDA and normalized cash flow in either FY '26 or FY '27. While the divestments will have some impact on total revenues in FY '27 and beyond, which we will share when all disposals are complete, there will clearly be no impact on our U.K. service revenue. And with that, I'll hand back to Allison to conclude. Allison Kirkby: Thank you, Simon. So as I said earlier, we're reconfirming the fiscal year '26 outlook, which we gave in May of revenue around GBP 20 billion, U.K. service revenue of between GBP 15.3 billion to GBP 15.6 billion, adjusted EBITDA between GBP 8.2 billion and GBP 8.3 billion, CapEx at GBP 5 billion and normalized free cash flow of around GBP 1.5 billion. And we expect, as last year, that revenues in the second half of this financial year will be slightly stronger than the first half. Our outlook beyond fiscal year '26 remains unchanged for all metrics and in all years, and we're confidently progressing towards our BBB+ credit rating target. So to conclude, our ambition to create the U.K.'s most trusted connector of people, business and society is on track. The pace in Openreach is exceptional. We are winning customers and consumer across all key segments. Business is showing greater stability in the U.K. as we reshape our international operations, and we are diligently addressing our cost base quarter-on-quarter, year-on-year. Of course, there's still a huge amount to do to accelerate our transformation, keep differentiating our brands and propositions and to improve our delivery for all our customers, but we have the team and we have the plan to succeed and to create a better BT for all. So thanks for listening. We'll now move to Q&A, which will be audio only, and please we only have just over 30 minutes if you can try to keep it to 1 question each, that will leave time for everyone. First question, please. Operator: [Operator Instructions] Our first question comes from the line of David Wright from BofA. David Wright: So my question is just around consumer. Just trying to understand how you are managing to grow that customer base without obvious excessive, let's say, ARPU pressure in what is a very competitive and increasingly competitive environment with, I think it's fair to predict building macro pressures? And underlying that, you have flagged this new drag from voice transition, which is weighing on the EBITDA of consumer, which was definitely a little bit light of our expectation. It looks like that's a trend through calendar '26. Are you able to give us any idea of the voice revenues in absolute terms that we can kick around here, like you used to do with the business, B2B back in the day? That would be super useful. Allison Kirkby: Okay. Thanks, David. I'll kick off and then I'll pass to Simon for some of the final parts of that question. Listen, how are we managing to grow our base and get back to sustainable revenue growth. This is -- our strategy has always been to get back to sustainable service revenue growth. That starts with a growing customer base, which, quite frankly, was in decline for far too long because we weren't properly leveraging all of the tools at hand. So how are we doing it? In a thoughtful, value-focused way is we're leveraging all three of our brands. We weren't doing that before. And that limited our potential, particularly with the Plusnet brand to address the value segment but protect our premium brands of BT and EE. So leveraging all three brands is the first lever that's having an impact. The second lever is convergence. Convergence gives great value for money and locks in customer loyalty and customer lifetime value. And EE is doing a fantastic job at convergence and driving multi-SIM tariffs into the household, which is helping us defend our mobile base against the growing value segment without it being overly all dilutive. And then we are always just improving our customer experience all of the time. So -- but of course, it is a price-competitive market, but we are in markets that customers need. Our markets are flat. We offer great value for money. It's becoming better all of the time because of the migration to fiber, the migration to 5G and us offering better converged services, whether it be a great new flexible TV product or multi-SIM tariffs on the back of the EE proposition, and that's how we're managing all of it. From an ARPU point of view, if you strip out the voice that was bundled into some of our broadband packages, we're actually seeing underlying broadband ARPU going up slightly. And mobile, as I said, some of it is because of coming off of the high price rises of a couple of years ago, but a slight shift into SIM-only and those multi-SIM tariffs in the household puts a little bit of pressure on ARPU, but we're holding up well. But as I said, our strategy has always been to get back to sustainable service revenue growth, and that starts with our customers. In terms of the drag from voice, I called it out as 1%. We've really started ramping up our migrations now. And we're actually investing in that to do it in a thoughtful way, particularly for vulnerable and elderly customers. That's why you see a little bit in the OpEx line in the period. But that goes away as of January '27. So it's a short-term headwind. I don't know whether we've not put any numbers on it, Simon, but do you want to comment? Simon Lowth: No. I mean I think David, what I described was about GBP 100 million total impact of legacy voice to our revenues in the first half of the year, and that comes from consumer sort of Solus voice customers and voice plans on top of broadband. It comes from the traditional voice and business. And also, of course, there is some external Solus voice lines in Openreach. That's the GBP 100 million. And I think as we close down the PSTN, you can see that we're going to face that sort of drag over the next 18 months as we move through to closure of the PSTN. In terms of the consumer share of it, I mean, you can, I think, figure that out for yourself when you look at the number of Solus WLR lines in Openreach, you can derive that, and you'll know that consumer accounts for much of that. Allison Kirkby: And one of the things I just want to call out, David, is consumer are doing a fantastic job of migrating our broadband customer base to fiber. Almost half of our customer base now is on fiber. So kind of record take-up, and that's just making those customers even more loyal. And we're giving them great value for money because it's a great product. Operator: Our next question comes from James Ratzer from New Street Research. James Ratzer: So hard to keep it to one question, but I will try. So Allison, in your remarks talking about kind of Openreach line losses, you were calling out to kind of change in the balance you're seeing between retail alt-net losses may be improving a little bit, but at the same time, now wholesale migration increasing a little bit. And so there's always the chance that could get a little bit worse if the alt-net sector finally can consolidate at some point. So I suppose really where I'm going with this is, do you think FY '26 marks peak line losses for Openreach? Or do you think actually things could get slightly worse in FY '27? Allison Kirkby: So listen, James, we are doing 4 things, and then there's a fixed lever that we fundamentally believe will defend our base and reduce the line loss pressure over time. The first thing is we are the only real builder at scale and pace in the country now. We're the only one building nationwide. And what -- based on the estimates that we see, we reckon alt-net build is down by at least 40% year-on-year. And we are accelerating our build every quarter, every half on the way to 25 million by the end of next year. And when we've got to that 25 million, that basically means we have overbuilt all of our original VDSL network by full fiber. Take-up, just as we are building at pace, we're provisioning at pace. We've now built a provisioning machine that can provision up to 60,000 homes and premises a week. And that is why despite us building at pace, we're also ramping up our take-up rate to market-leading rates every period. The next lever we're pulling is quality. We are building at the highest quality, and we are the most resilient. In storms, we see that we recover faster than others. And the quality of our fiber network is encouraging our CPs to encourage further take-up and there's clearly demand for it, having now converted almost half of BT Retail's consumer business and what we're seeing from our CPs. The fourth lever we then have is how -- since there is demand, the country, the government want take-up. We've put some new migration offers in the market because the demand is there and our CPs want it. And we're encouraging faster migration onto our fiber products. So those 4 levers, we believe, will, in time, reduce the impact that we've had from heightened line losses. And then the fifth lever is the market is going to return to growth at some point. Housebuilding is now as low as it was during COVID. The government has an ambition to grow houses. The country needs it, and that will stimulate growth again. On your comment on the tilt from retail to wholesale, as I mentioned, build is down. The wholesale competition was not unexpected that we've built it into our plans. That's why we're very much sticking to our guidance for the year. That wholesale footprint at the moment doesn't seem to be in growth. It's certainly not growing at the rate we are. A lot of that wholesale footprint is also in very competitive areas where we are competing. And so we also expect that since we are the one building at pace, and we are provisioning at pace, and we've got the highest quality, most resilient product out there that will all benefit us in time. Operator: Our next question comes from the line of Andrew Lee from Goldman Sachs. Andrew Lee: I just had a question on costs and cost efficiencies. I think you called out that you've done a good job in reducing capitalized labor costs. And you've also -- as you laid out, you've done almost half of your 5-year cost plan in 18 months. So I just wanted to ask, is this you picking off low-hanging fruit and a pull forward or phasing thing? Or are you finding new areas of efficiencies versus what you saw when you set out on this cost-cutting program. Just kind of a bit more of an insight in terms of is this just an acceleration and pull forward? Or are you finding greater opportunities to cut costs? And I think you laid out in quite a lot of detail on the call exactly where this is coming from. But if you could maybe pick out some of the incremental areas where you're finding efficiencies, that would be great. Allison Kirkby: Yes. I'll let Simon give you more detail, Andrew. It's not a pull forward. We're just doing an outstanding job, particularly in Openreach and in networks. And there is definitely more upside to come from AI, but maybe you want to take a more fluid answer to that question, Simon? Simon Lowth: No. I mean, I think, Allison, you captured it in that we set out a cost transformation program. We're delivering that cost transformation program to our plan. We're moving, Andrew, possibly a little bit faster. The areas that we're able to drive some acceleration, firstly, I think that in Openreach and in the networks business, we're performing very strongly in terms of driving our build unit productivity. We've done a lot of good work on the supply chain and procurement. And so that's giving us a little bit more upside than we'd anticipated. I'd also say that the structural cost efficiencies, we keep working at that. And each year, we find further opportunities to improve some process efficiencies within our various processes. I think the opportunity that we're still beginning to build into the process and the transformation does come from AI. The sort of tools and capabilities that, that brings is something that we do think over time, brings us further opportunity, and we'll develop that over the coming year or two. Operator: Our next question today comes from Karen Egan from Enders Analysis. Karen Egan: So my question is about the alt-net sector. So given the press reports that a number of alt-nets are for sale and quite a few others appear to be under quite considerable financial distress. Would BT be willing to be the buyer of last resort to prevent assets from being stranded if other buyers can't be found? Allison Kirkby: Okay. Well, our strategy is clearly to build organically our own nationwide networks and make them the most trusted, the most resilient and the highest quality. And that's what our capital allocation is very much focused on, Karen. Of course, when smaller assets become available for sale, we are approached, we take a look. But at this point in time, we're very much focused on delivering on what we promised for our owners when we embarked on this journey so that we give them a good return on investment on the 25 million build that we've already committed to. And -- but as opportunities arise, we'll always take a look if we believe it is an economically good and sensible decision relative to other capital allocation choices. Operator: Our next question comes from Joshua Mills from BNP Paribas. Joshua Mills: I was going to come back to some of the comments you made about the Openreach line losses in the broadband market. And you gave a very clear explanation of the 4 levers you have to pull. I guess the one that's not within your own control is housebuilding, which has been significantly lower than expected. It's below government targets, but governments often missed targets. So my question is, when we look at the overall growth in the U.K. broadband market, which you said was flat to slightly negative, how much lower is that relative to your expectations when you provided midterm guidance last year? And given how much linkage there is between Openreach line losses and overall growth in the U.K. broadband market, is there a point in time when you need to see the U.K. broadband market return to growth in order to hit your financial targets for 2027 and 2030? Or do you believe that those numbers are still achievable even if we see flat to slightly negative growth in U.K. broadband overall? Allison Kirkby: Yes. Great question, Joshua. No, listen, the broadband market is developing in exactly the way we expected it to as we predicted this time last year. We have not banked on a growth in housebuilding into our plans for the next few years. So if there was a sudden surge in housebuilding, that will bring upside to the guidance and the plans that we are investing behind. We're very much -- when we update our plans, we are cautious about assuming for growth, but it will come. The U.K. relative to other European markets still has relatively low fiber take-up penetration based on how we're seeing take-up demand, government support for that, when the housebuilding returns, that will be upside to our current plans. If you go way back in time, we clearly had planned for more housebuilding, but we've offset that with other levers, but it certainly wasn't assumed in the guidance that we gave in May. And Simon, maybe you want to build. Simon Lowth: No, I was going to say that absolutely, when we've set out the financial guidance for the midterm, that was based upon a view of the broadband market that we see before us today. But I think Allison, you're absolutely right, back in sort of the early 2020, '21 when we set out the FTTP investment case, as many of the people on the call recall, we did expect higher growth in the broadband market. However, we have more than offset that through -- in terms of the returns on the business case through lower cost to build and provision, the lower service cost because of the faster take-up and a somewhat higher ARPU mix in terms of speed tiering. The other point I would make is that one of the drivers of the weaker broadband market has obviously been not just we talked a lot about alt-net churn, but also customers who are experiencing today relatively low broadband speeds where we still got copper. And we're taking active steps to address that. You saw the Starlink partnership today. But in addition to that, as we roll out FTTP, we provide faster, more reliable broadband in these communities where we will also, I think, see some abatement in terms of the reduction in the broadband market. So I think that's another positive driver for us. Operator: Our next question comes from Max Findlay from Rothschild & Co. Max Findlay: I just have a couple of questions on consumer. So firstly, and following on from David's earlier question about your net adds performance. I was wondering if you could add more color about front book pricing generally in the market. Have you noticed any change in promotional intensity and front book pricing generally over the past quarter? And do you expect incremental pricing deterioration in broadband given what appears to be the weaker performance of the retail? And secondly, a recent FT article suggested you might reenter the budget mobile market by reintroducing your own budget mobile brand or purchasing an MVNO. Would you be interested in reentering the budget segment so soon after sunsetting Plusnet Mobile? And if so, what has changed for you to consider this strategy switch? Allison Kirkby: Thanks, Max. On your front book pricing question, what you are seeing is competitive pricing on higher speed broadband levels. And we are competing very well with those. So what you're -- as Simon was just talking about, there is real demand for upgrading speeds to households. And so the front book pressure is a little bit more on higher speeds rather than the lower speeds, which is actually positive for market development over time because a higher speed broadband customer, particularly on fiber is going to be less likely to churn over time as well. So that heightened a little bit over the summer, but it's not got any worse in recent periods. And it's that heightened demand for higher speeds and migration to fiber that has meant our CPs, the Openreach CPs are very much welcomed that migration initiative that we put into the market during October. In terms of the alt-nets, some of them that when they originally launched did not put in pricing, inflationary pricing into their contracts. That now exists in a lot of the alt-nets as they try to recover some of the cost pressure that they're under and the revenue pressure that they're under. So I'm not seeing any heightened impact by weaker alt-nets at the moment. And in fact, as I mentioned, what you're seeing in Openreach is this tilt away from retail alt-net line losses to more wholesale. On budget mobile, that was a pure speculative article. EE is doing a fantastic job with convergence and offering the best network in the country for 12 years in a row. And particularly those multi-SIM tariff propositions that are linked to EE One and a solid household relationship is allowing us to compete and defend our base against the value segment because those second, third SIMs in the household were sometimes given to smaller, more value, no-frills types of brands and now EE is picking those up. So our multi-brand strategy and particularly focusing on Plusnet again, was recognizing that the broadband market has a clear value segment that we were not fully exploiting considering the great brand that we have in Plusnet. But we're doing it. We're managing that in a very thoughtful way so that we don't dilute our overall value propositions in the market, but playing to that value segment in broadband. Operator: Our next question comes from Maurice Patrick from Barclays. Maurice Patrick: Yes, a question, please, on taxation and investments, if I can, please. I mean you've been pretty vocal around the sort of taxation and rising costs that BT is facing. You called out around national insurance and minimum wage on the call. You talked about overall taxation impacts on BT in previous conferences. Given the sort of noise around the upcoming budgets and possible tax increases, curious to understand your sort of thinking about how you're thinking about the impact of that could be on your business? And just linked to it, I mean, I think if you've done 2.2 million homes passed in the first half, that's well below the run rate for your 5 million full year. I see the comments from Clive about possibly rolling back on the 30 million target. What's the -- I guess, your excitement level around accelerating fiber rollout whilst you have those uncertainties? Allison Kirkby: Well, I remain excited because our investment into the country's fiber infrastructure and digital backbone is the FTSE's single biggest capital investment over recent years and what I believe is going to be one of the U.K.'s rare infrastructure investment success stories. We have a very constructive and open dialogue with the government on this. They see the value from an economic point of view and a skills point of view of the investment that we're putting into the country. We all recognize the challenges the government are under, but they do and seem to be still very focused on growth, very focused on a pro-investment fiscal and regulatory environment, and our infrastructure investment is a sweet spot for that. I was also delighted to see this morning that they are looking at other international comparisons in other sectors. I think the financial services banking sector was referenced this morning. And that's why with my experience in Scandinavia, I was very keen to call out the scale of government-related costs, whether it be business rates or others that we incur here in the U.K. versus our peers elsewhere to ensure that they have a total view of our position and the risk to their ongoing investment and growth strategy if businesses were again disproportionately impacted by any conclusions coming out of the budget. So -- and that's why we have a great constructive dialogue with the treasury. Simon has a constructive dialogue with the valuation office on business rates, and let's see what happens next. In terms of your other questions, we ramp up the build over the year, and that is still the plan. We are still planning to build up to 5 million homes passed for this fiscal year. There's just phasing by quarter. And we only gave Clive the extra capital towards the end of last fiscal year. And so he's in the process of ramping up. In terms of some of the media coverage this week, as you know, the telecoms access review has not been finalized yet. We have always been clear on what was needed from a competition and an investment and a return point of view to deliver on the first 25 million homes passed, which we'll have reached by the end of next year. In the dialogue and the consultation that we're now having with Ofcom, we are keen that we -- that they retain a pro investment predictable from a regulatory and fiscal policy point of view as they look into the second half of this decade. And until the words are written on the page, clearly, we won't put a commitment to that next 5 million until we understand, will we be able to get a return on that investment similar to what we are getting for this 25 million. So that's why you're seeing that coverage. On that next 5 million, that is really filling out. It's also dependent on further government funding from BDUK because you're getting into some areas of the country that it doesn't make economic sense. Hence, why we got ahead with the Starlink announcement so that we're able to bridge with satellite if we're not able to offer high-speed fiber to some of those homes as well. But it's still our ambition to build to GBP 30 million. We still need to see what Ofcom is going to finalize in the telecoms access review, and we have good constructive dialogue with both Ofcom and with the government on anything that might be coming out in the coming weeks. Operator: Our next question comes from the line of Carl Murdock-Smith from Citi. Carl Murdock-Smith: My question is on intragroup eliminations and consumer. So intragroup eliminations grew by about GBP 30 million in H1, following on from growth last year, too. That's largely due to internal revenue growth in Openreach while external Openreach revenues are shrinking. But looking at consensus, it forecasts revenue eliminations declining next year by about GBP 20 million. Why would that happen? Basically, I'm asking whether consensus is wrong, and therefore, consensus revenue forecasts need to reduce due to larger eliminations. And as a follow-up to that, on the impact of those growing internal revenues in Openreach to downstream financials. I'm asking in the context of consumer EBITDA consensus having decreased every quarter for 6 quarters in a row, and you've missed the consumer EBITDA again today. So my question is, are you consciously prioritizing Openreach financials at the expense of consumer because that's certainly what it looks like. Allison Kirkby: Okay. It is with great pleasure that I will pass the intragroup eliminations questions to Simon, Carl. But let me just before that, just touch on your final question on are we consciously prioritizing. We -- as I said earlier, we have 4 levers for creating value at BT in the coming years. U.K. focus, building the U.K.'s only nationwide network, restoring our retail businesses to growth in a sustainable way with new modern day products and technologies and radically simplifying our business. Consumer has been particularly impacted by the sudden increase in national living wage and national insurance contributions. It's also in the midst of ramping up the migration from PSTN. And those 2 elements we were not able to offset in the first half of this year. But with transformation, which is now ramping up, particularly on the back of AI and other elements, those will dissipate over time. And of course, because I -- we want to get our retail business back to growth, we want to give our customers the best we can in products and services and fiber is one of those, their margin is clearly impacted by the fact that as they migrate to more fiber customers faster than anybody else in the market into a competitive market from a pricing point of view, they have short-term margin pressure from that as well. But it's all a balanced strategy, building the best network and then getting back to growth in our retail businesses. But over time, transformation will offset some of those short-term headwinds and will have EBITDA growing faster than revenue. But now the intra-group eliminations question, Simon. Do you want to build on that as well. Simon Lowth: Well, I think Carl sort of answered your own question, actually, Carl. I mean the -- quite rightly, you identified that the eliminations are predominantly the sales of Openreach access products, broadband and Ethernet into our downstream units, consumer and business. We have seen strong performance on the consumer base, broadband base as we've stabilized. Our business activities have also performed well. So when you've got a strongly performing BT downstream in consumer and business as a percent of Openreach's revenues, the eliminations will typically grow, and that is what you've seen. I don't think I can add more than that at this point. Allison Kirkby: Thanks, Carl. Operator: Our next question comes from the line of Andrew Beale from Arete Research. Andrew Beale: I'm just wondering where you think you can stabilize international post disposals and structural drags from MPLS and voice. I'm guessing it will be a bit below GBP 2 billion in revenue and maybe, I don't know, GBP 100 million annual EBITDA. And if that's in the sort of right ballpark, are you thinking that the next steps of cost rationalization and growing Global Fabric can get you back consistently into double-digit EBITDA margins? And then you can buy your time a bit to do a JV or disposal. Is that the way to think about it? Allison Kirkby: Yes. No, that's a very good way to think about it. We are -- now that we have -- so international is not the same as what was formerly known as global. because there were large aspects of global that were related to U.K. multinationals or the U.K. public sector. And so that's all been carved out. So what you now see for this first time is just the international multinational segment without some of these unique businesses, Italy, Ireland, radiance that we've been selling along the way. Now that we've carved out, we can actually properly see the cost base incurred to support that GBP 2 billion of revenue. And it's out of proportion. And so we now have a very clear plan to restructure that business whilst transitioning it to modern day Global Fabric, global voice products and services. But as we said on the call, we already have a plan to get back to EBITDA growth next year and the drag on cash flow will follow soon afterward. That will be diminished and gone soon afterwards. So GBP 2 billion in revenue, GBP 150 million to GBP 200 million in EBITDA is the minimum EBITDA that, that business should be throwing off once it is a more simplified asset. And as I also said on the call, once we've got it carved out now and we have a clear line of sight of how we modernize it, simplify it and make it less dilutive on cash flow, we still see lots of optionality for future partnerships or even consolidation. Operator: Our final question on today's call is from Nick Lyall from Berenberg. Nicholas Lyall: Just a very quick one on Openreach and the ARPUs, is all of Clive's discounts and promotions filtered through? Is this a sort of steady state now? Or is there a risk that as you try and sort of fight back in the second half of the year versus particularly in the wholesale market? Will we see Openreach ARPU sliding, do you think? I think you're done plus 4%. So what's the risk to Openreach ARPU for the rest of the year, please? Allison Kirkby: Don't really see any risk to Openreach ARPUs as I look forward. The demand for fiber continues. The demand for higher speed fiber continues. CPI is looking to be higher in October this year than it was last year and all our pricing goes through as of April. And those discounts and promotions, they only -- they were only launched in October. They're only just now being taken up, and it's very limited in nature, and it's about migrating existing customers on a copper or VDSL network on to fiber and is encouraging a better quality product that brings with the OpEx benefits as well. So we don't see any risk to ARPUs, Nick. Simon Lowth: Yes, that's it, that we do not. Allison Kirkby: Yes, great. Operator: Thank you. That concludes the Q&A portion of today's call. I'll now hand back over to Allison for some closing comments. Allison Kirkby: Thank you, everybody. As you saw another solid delivery on our strategy. We're making great progress. Really proud of the team that's delivering it and there's much more to come, and I look forward to seeing as many of you as possible in the coming days and weeks. Thank you.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprout Social Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Alex Kurtz, Vice President of Investor Relations and Corporate Development. Alex, please go ahead. Alex Kurtz: Thank you, and welcome to Sprout Social's Third Quarter 2025 Earnings Call. We will be discussing the results announced in our press release issued after the market close today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Ryan Barretto; and CFO, Joe Del Preto. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking. These include, among others, statements concerning our expected future financial performance, including our Q4 and 2025 outlook, and business plans and objectives and can be identified by words such as expect, anticipate, intend, plan, believe, seek, opportunity or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of the risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the year ended December 31, 2024, as well as our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2025, to be filed with the SEC. During the call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with the reconciliations to the most directly comparable GAAP financial measures are included in our third quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. With that, let me turn the call over to Ryan. Ryan? Ryan Barretto: Thank you, Alex, and welcome to our third quarter earnings call for fiscal 2025. Sprout delivered another strong quarter with revenue of $115.6 million, representing 13% year-over-year growth, and non-GAAP operating margin expansion of almost 460 basis points; a record high for Sprout at nearly 12%. Our current remaining performance obligations grew 17% year-over-year to $258.5 million, reflecting consistent demand, strong enterprise execution and the addition of NewsWhip. And we continue to see improvements in gross retention across all customer segments with multiyear contracts now representing nearly half of our contract mix. This is a strong signal of customer commitment to the Sprout platform. Our go-to-market team continued to perform well, delivering 21% growth in our $50,000-plus ARR customer count. This progress was fueled by strong net additions and the inclusion of NewsWhip customers, which has added several of the largest global brands to our customer base. We're incredibly excited about the go-to-market progress we've made with NewsWhip, which has brought our strongest new product pipeline to date. During the quarter, we managed strategic wins with amazing global brands like Xerox, Bentley Motors, Valvoline, NYU, Becton Dickinson, Hallmark and the Royal family. These customers demonstrate our continued success serving the most socially sophisticated enterprise customers. We're pleased with our performance, particularly as demand trends have remained consistent with the first half of the year. Even more encouraging, despite the macro environment remaining unchanged, Q3 was Sprout's strongest non-Q4 quarter for large deals, driven by customer commitments above $200,000 in ARR and excluding any NewsWhip contribution. We also saw sustained pipeline strength with year-over-year growth that underscores continued enterprise demand. Our $50,000-plus ARR cohort continues to be our fastest-growing customer segment and is now approaching 2,000 customers, an increase of nearly 700 over the past 2 years. This cohort now accounts for nearly half of our revenue and revenue grew in the high 20s on a year-over-year trailing 12-month basis. We'll continue with focused investments that enhance our capabilities to serve larger customers and refine our approach to our smaller accounts. Within our enterprise success, two trends stood out. Number one, our platform's breadth, simplicity, scale and ease of use continue to resonate with large enterprise accounts. Our offering is truly differentiated and our strategy is well aligned with sophisticated customer needs. Number two, NewsWhip has energized our sales organization, broadened our conversations with customers and highlighted the differentiated value of social intelligence, a key area of competitive advantage for Sprout. We also saw steady customer expansion driven by seat growth and continued adoption of Influencer Marketing, Premium Analytics, Care, Guardian and now NewsWhip. We're carrying this momentum into what we believe will be a pivotal fourth quarter for Sprout as we begin rolling out the foundation of our long-term AI strategy. We anticipate Q4 will be our most significant quarter yet for AI product expansion and will set the tone for how our products are crafted, designed and positioned moving forward, and how we can unlock an entirely new layer of value for our customers. Before digging into these upcoming releases, I want to provide some context on how Sprout's products and platform were built and what that foundation means in a rapidly evolving landscape. Specifically, I want to share why we believe our advancements in AI strengthen Sprout's moat rather than diminish it and why we believe we're uniquely positioned to thrive in the next era of business software. At Sprout, our founding ethos centers on the extraordinary value of the authentic digital conversations and interactions that shape brands, communities and societies. As AI reshapes software, we're thinking deeply about how our platform and products will evolve and deliver increasing value to customers. When you look ahead, we've returned to our founding belief in social as a cornerstone of business-to-customer relationships. That streamline has guided our strategy to this day, and we believe it will propel our value well into the next era of software. Sprout's advantage in the AI era starts with the data we serve and the trust we've earned. Social data is among the most human, protected and context-rich sources of digital information created by people, governed by a few major networks and largely walled off from broad LLM access. With deep license partnerships and a neutral position across AI ecosystems, we believe Sprout is uniquely positioned to access, interpret and operationalize this data responsibly and at scale. Our platform transforms that data into scalable conversations, actions and intelligence. Customers rely on Sprout as their operating system for social, connecting people, processes and workflows across the enterprise. As AI accelerates, they're looking to us not just for efficiency, but for orchestration, using intelligence to automate decisions, engagement, insight, content and collaboration. If social data is the world's sensory input, Sprout is the nervous system. And we believe our trusted access, domain expertise and enterprise-ready infrastructure make our moat durable and allow us to move faster with greater precision and impact than ever before. We believe that our leadership position, model flexibility, purpose-built infrastructure in UI and network access mean that AI stands to be a tremendous tailwind for Sprout and our customers rather than a headwind. As our AI learns each brand's unique voice and workflows, it becomes more attuned and impactful over time, deepening adoption, strengthening retention and serving as a long-term driver of growth for Sprout. In the coming weeks, we'll begin to unveil capabilities that set the foundation for Sprout's strategic bets in AI transformation. We believe these releases over time will have -- drive improved expansion and retention motions across our entire customer base. First, our flagship release is a proprietary AI agent for conversational data exploration, automated insights and recommended actions. It's designed to identify emerging trends, detect risks and suggest next steps, empowering brands to manage reputation, unlock strategic capacity and deliver content with optimal timing and precision. It does all this out of the box, which drives incredibly fast time to value. Early feedback from beta customers using our agent has been overwhelmingly positive. One shared, I'm a huge fan of this already. I just used the agent to break down positive and negative sentiment for a listening query and report it to a stakeholder. This feedback came just hours after gaining access, underscoring how intuitive and immediately valuable this experience is. Our agentic approach also extends into the NewsWhip, where our agents are continuously monitoring global news and an online conversation to identify brand-relevant signals early, providing automated vigilance and clear insights with fewer false positives. Second, we're bringing social insights into more tools where teams already work by adopting the model context protocol, MCP, which provides a universal open standard for connecting data to AI systems. We've built our remote MCP server to connect to widely adopted ChatGPT first, which positions Sprout's intelligence as a foundational input layer for AI-driven decision-making across the enterprise. In addition, we've embedded specialized models throughout our platform from advanced spam detection to AI-powered influencer matching, illustrating our broader approach, intelligence seamlessly integrated into every workflow. For a better understanding of all of this, we encourage investors to join us at Breaking Ground on November 18, where we'll unveil these capabilities in full. If you'd like to join, please reach out to Alex for an invite. This is a defining moment for Sprout. While AI will reshape software, the need for trusted systems that connect brands and customers will only grow. We believe Sprout is building the next-generation orchestration layer from a position of unique strength rooted in our data partnerships and platform architecture. Turning to NewsWhip. We're very encouraged by the early results. Since closing the acquisition in late July, we've seen exceptional go-to-market momentum from NewsWhip, generating more pipeline than any new product in our history with initial ACVs at or above traditional enterprise levels, nearly 2x our company-wide average. The integration has gone smoothly, and we're thrilled to have the NewsWhip team fully on board. Key wins in the quarter included a tourism board, a major crypto exchange, a digital security alliance and several strategic renewals. Two trends are emerging. Number one, NewsWhip is creating net new pipeline within larger Sprout accounts; and number two, NewsWhip is increasing deal size when bundled into existing Sprout opportunities. For example, a global online delivery platform that is nearly $400,000 in ARR expanded their annual spend by over 10% after adding NewsWhip to their suite. And earlier this month, we completed a competitive displacement, combining our core platform and NewsWhip that increased the customer's ARR by almost 50%. We're thrilled with the early momentum as we integrate NewsWhip's real-time intelligence with our industry-leading listing capabilities. We're seeing clear validation of our social intelligence strategy and a strong foundation for continued differentiation. Similar to the last few quarters, I want to provide a quick update on our four key growth drivers for Sprout that include winning the enterprise, driving customer health and adoption, expanding our partnership and ecosystem, and driving improved account penetration. To win the enterprise, we intend to expand the pipeline, close more 50,000-plus deals and accelerate adoption with a product road map built for enterprise needs. Let's start with key product releases in the third quarter. We launched AI-powered translation for nearly 180 languages. Now our customers can communicate with a global audience effortlessly. Our AI assist translates and generates content for social posts, incoming messages and replies, empowering our customers to connect with a wider and more diverse audience. We rolled out Listening for TikTok, a highly requested new feature. Our customers can now tap into this massive platform to gain valuable insights, monitor brand health and make more informed marketing decisions. We also launched our new integration with Canva, making it faster and easier for brands to create and share content. As the only social media management platform to offer this comprehensive integration, we're giving brands a decisive advantage in a highly competitive digital landscape. This partnership streamlines the entire workflow from design to publishing, allowing users to push finalized visuals, including images and videos directly from Canva into Sprout as ready to schedule posts. Brands like FedEx noted that the Canva integration has been a huge win for efficiency. Finally, we launched a similar one-click workflow this quarter with a new Adobe Express add-on. Content created in Adobe Express can now be sent directly to Sprout as well. We're also pleased to share several strategic enterprise wins this quarter. We closed an almost $2 million expansion deal in the quarter with a new division of an existing Fortune 500 pharmaceutical customer. This major expansion proves the effectiveness of our land-and-expand model as we successfully transitioned from a pilot to a full-scale enterprise solution. With Sprout, this customer can now unify their global marketing workflows for over 350 users, creating a single source of truth for their social strategy. Our enterprise-grade platform enables them to confidently scale globally, consolidate their tech stack and empower their large distributed teams with a single user-friendly solution. Another exciting deal from this quarter was a $1.2 million new business win with a national convenience store chain. They chose Sprout to consolidate their marketing and customer care, leveraging our Listening, Premium Analytics, Premier Success and Influencer Marketing products. This partnership is a prime example of how Sprout delivers a comprehensive solution. By unifying their social media and influencer marketing efforts on a single platform, we've helped them eliminate fragmented workflows and significantly reduce their high cost of ownership from managing multiple vendors. They can now make data-driven decisions using our advanced analytics and our AI-powered social listening, creating a single reliable source for reporting and strategic insights. We established a trusted long-term partnership with a dedicated success team directly addressing the previous struggles with high vendor turnover and inconsistent support. The last win I'd like to highlight is an expansion deal for over $800,000 with a leading food and beverage company. This company is leveraging our platform to manage the marketing and customer care with a comprehensive suite of products, including Listening, Premium Analytics, Premier Success, Influencer Marketing, Guardian and our Service Cloud integration. This partnership showcases how Sprout helps companies consolidate their technology and streamline workflows. By integrating Sprout with Salesforce, we've created a more efficient system where teams can share data across departments, leading to significant efficiency gains. The client now has real-time visibility into their data, empowering both users and management to make quick decisions. Our second growth driver is driving customer health. We launched our new AI support agent, an AI-powered help center in late August and are already seeing improved efficiency. We've achieved a 19% automated resolution rate and a 65% reduction in time spent in the help center, demonstrating that we are delivering faster and smarter customer support experiences. Our third driver is our investment in partnerships. Sprout continues to expand our ecosystem. In August, we launched a new suite of integrations across TikTok, Bluesky, Instagram, Snapchat, Canva, Adobe Express and LinkedIn, helping brands turn every interaction into actionable intelligence. As customers increasingly rely on platforms like TikTok and Bluesky for discovery and real-time conversation, the ability to capture sentiment early and act fast is now essential. And we're seeing that in the data. Social is now the first stop for many consumers, especially Gen Z. And our job is to help brands show up across social search, SEO and AEO with content that performs, built around shared keywords, captions, hashtags and alt text and proven in analytics. This quarter, we announced new and upcoming capabilities, including Instagram partnership ads and influencer marketing workspaces, expanding our Snapchat integration for influencer marketing, Adobe Express and Canva publishing integrations and LinkedIn personal profile metrics and document publishing. These capabilities are all built to turn every social interaction into insight, action and measurable business impact. On October 23, Sprout was named a Preferred Partner in Reddit's Official Data Partner Program, a recognition of cutting-edge platforms that use Reddit's enterprise API to tap into real conversations and connect brands with key consumers. This partnership highlights Sprout standing among the most trusted forward-thinking platforms in social technology. As a preferred partner, we gain unique access to Reddit and the opportunity to collaborate on product road maps, innovation and strategic growth. Our fourth growth driver focuses on deepening customer engagement. As I mentioned earlier, this quarter marked a new record for Sprout with our largest ever non-Q4 performance for large deals. Our flexible platform continues to win in the marketplace and our integration of NewsWhip alongside new network partnerships demonstrates our commitment to innovation and our ability to deliver for customers today while investing in their future success. To provide greater visibility into these dynamics, we've added new slides to our investor presentation that highlight these growth drivers in more detail. The future of our category will be defined by real-time intelligence, extensible platforms and trusted AI. That's the foundation we're building at Sprout. With differentiated data, a proven platform and deep enterprise relationships, we believe we're positioned to lead in this next era of social intelligence. And with that, I'll turn it over to Joe to walk through the financials. Joe? Joseph Del Preto: Thanks, Ryan. I'll now run through our financial results and guidance. Our third quarter results were highlighted by quarterly non-GAAP operating margin of 11.9%, up nearly 460 basis points from the year ago period. This quarter marks Sprout's most profitable non-GAAP quarter in our history, a result of our consistent focus on strategic targeted investments and our revenue outperformance. I want to thank our employees for their focus and commitment to how we collectively invest in the business in a responsible manner. We generated $10.3 million in non-GAAP free cash flow during the quarter. And on a trailing 12-month basis, free cash flow is up over 80%. As we have commented before, expect our free cash flow margin for the fiscal year to closely track our non-GAAP operating margin. We remain committed to growing operating leverage on a fiscal year basis. On to a summary of the quarter. Total revenue was $115.6 million, representing 13% year-over-year growth. Subscription revenue was $114.7 million, up 13% year-over-year. The number of customers contributing more than $10,000 in ARR grew 7% from a year ago. The number of customers contributing more than $50,000 in ARR grew 21% from a year ago. Q3 ACV was up 15% year-over-year. As Ryan discussed earlier, our strategy to drive ACV growth remains focused on shifting to a higher enterprise mix and strengthening premium module attach rates such as Influencer Marketing, Customer Care, Premium Analytics and now NewsWhip. RPO totaled $357.1 million, up from $347.0 million as in Q2, representing growth of 15% year-over-year. We expect to recognize 72% or $258.5 million of total RPO as revenue over the next 12 months, representing cRPO growth of 17% year-over-year. Non-GAAP operating income totaled $13.7 million, which was ahead of the high end of our outlook. This was up from $7.5 million a year ago and equates to a non-GAAP operating margin of 11.9%, a quarterly record. Looking ahead, we're increasing our full year guidance to reflect our 3Q results. I want to provide some additional context about the fourth quarter outlook. As mentioned earlier, Sprout delivered strong non-GAAP profitability in the quarter. This was driven in part by our continued focus on targeted investments in the business, but also in part by hiring cadence in the quarter. With that, now on to guidance. For the fourth quarter of fiscal 2025, we expect revenue in the range of $118.2 million to $119.0 million. We expect non-GAAP operating income in the range of $9.5 million to $10.5 million. We expect a non-GAAP net income per share of between $0.15 and $0.17. This assumes approximately 59.3 million weighted average basic shares of common stock outstanding. For the full year 2025, we are raising our guidance and now expect revenue in the range of $454.9 million to $455.7 million. We are also raising our non-GAAP operating income guidance and expect it to be in the range of $46.1 million to $47.1 million. We expect non-GAAP net income per share between $0.77 and $0.79, assuming approximately 58.6 million weighted average basic shares of common stock outstanding. We look forward to continuing to innovate and create more opportunities for our customers to grow with us. We appreciate your interest in Sprout Social. And with that, Ryan, Alex and I are happy to take any of your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Raimo Lenschow with Barclays. Raimo Lenschow: Congrats on another kind of solid quarter. If I look at -- Ryan, if I listen to your large product wins, it really shows the momentum upmarket. I'm just trying to kind of marry that now, like you've been stable on the revenue growth side, which is kind of really good to see. Like how do you think about inflections or the next step from here? Because on the one hand, it does look like in the overall market, you're doing a lot better and you're moving nicely upmarket, but we haven't really fully seen it in the numbers yet. Like how do I marry these two? Ryan Barretto: Raimo, thanks for the question. I appreciate it. And yes, to your point, we're really excited about the progress that we've been making upmarket. And you could see that in the $50,000 growth, and just the execution, whether it's the big deals and logos we had a chance to talk about or just the acceleration within the number of customers within that segment. We certainly got a lot of conviction in the size of the market and the value that we're adding to customers as we continue to see social becoming the primary place for things like product discovery and brand awareness and customer care and commerce. And at the same time, we do have two distinct businesses with different dynamics. As we talked about this enterprise large business where we've seen a lot of success and higher ACV and great net dollar retention continues to grow. And then we have another side of the business where on the smaller side, continued pressure that we've seen with SMB and agency, again, mostly on the new business side. But as we know that, that part of the business tends to have less GRR than the other pieces. And that's been a drag on our overall growth rate. Having said that, as we look at that opportunity, we know that the market size is large, and we do see opportunities with pricing and packaging and now with AI to be able to evolve the way that we're serving that part of the market. So feeling good about the upmarket and the growth. And to your point, see opportunities here to continue pressing on that other side of the business to push on the growth rate. Raimo Lenschow: Okay. Perfect. And then Joe, for you, like profitability was the main highlight this quarter. Can you talk a little bit about the path here in terms of like was that timing? Was that like good underlying levels? Can you speak to that? Thank you and congrats from me. Joseph Del Preto: Yes. Thank you, Raimo. Yes, we're pretty happy about the performance there, 460 basis points year-over-year. I think there's a couple of things that drove that. One, the overperformance on revenue definitely helped and contributed that to the bottom line. We're definitely getting more efficient in parts of the business. We're using AI internally as well, and that's helping drive margin in the business. And also, we just had a little bit of push on the margin -- on the hiring side into Q4. And so we got a little bit of benefit in Q3, which is probably going to pick itself up in Q4. But overall, I feel really good about the momentum that we're seeing in the business on the margin side. Operator: That concludes our question-and-answer session. I will now turn the call back over to Ryan Barretto for closing remarks. Ryan Barretto: Thank you, Tiffany. I appreciate it. I know tonight is a very busy night in software. So thanks for those joining us, and I know we're catching up with a bunch of others later tonight. I want to also just ask folks to join us on November 18 for Breaking Ground where we will be doing our customer webinar, and we'll have a chance to show off our new agent. So really excited to see a bunch of you there. And then I want to end by thanking our team for their continued dedication and effort. I am incredibly grateful for all the work that you're doing for our customers and our business, and we look forward to spending time with all of you later. Have a great night. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Altimmune Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I'll now introduce your host for today's conference call, Lee Roth, President of Burns McClellan Investor Relations Adviser to Altimmune. Thank you, and over to you. Unknown Executive: Thank you, operator, and good morning, everyone. Thank you for joining us for Altimmune's Third Quarter 2025 Financial Results and Business Update Conference Call. On today's call, you'll hear from Dr. Vipin Garg, our Chief Executive Officer; Dr. Christophe Arbet-Engels, our Chief Medical Officer; Linda Richardson, our Chief Commercial Officer; and Greg Weaver, our Chief Financial Officer. Following management's prepared remarks, we'll open the line for the Q&A session. Our third quarter 2025 financial results and corporate update press release was issued this morning and can be found on the Investor Relations section of the Altimmune website. Before we begin, I would like to remind everyone that remarks made about future expectations, plans and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Altimmune cautions that these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those indicated. For a review of the risk factors that could affect the company's future results and operations, we refer you to the company's filings with the SEC. I also direct you to read the forward-looking statements disclaimer in our press release issued this morning, which is now available on our website. Any statements made on this call speak only as of today's date, November 6, 2025, and the company does not undertake any obligation to update any of these forward-looking statements to reflect events or circumstances that occur on or after today's date. As a reminder, this call is being recorded and will be available for audio replay on the Altimmune website. With that, it's now my pleasure to turn the call over to Dr. Vipin Garg, President and Chief Executive Officer of Altimmune. Vipin? Vipin Garg: Good morning, everyone, and thank you for joining us today for our third quarter financial results and corporate update. This is a very exciting time for Altimmune. We are on the brink of a major inflection point with our clinical programs. Pemvidutide, the foundation of our pipeline is ripe with opportunity to redefine treatment for those with serious liver diseases like MASH, alcohol use disorder, or AUD, and alcohol-associated liver disease or ALD. On today's call, we will emphasize a few key points: the upcoming Q4 milestone of the 48-week IMPACT data readout, the in-person end of Phase II meeting with the FDA in Q4 that was recently granted, the continued strengthening of company's balance sheet and the recent talent additions to the executive team. The 24-week data from our IMPACT trial shared earlier this year established rapid efficacy of pemvidutide for those with MASH, providing potential best-in-class MASH resolution shortly after initiating treatment and compelling antifibrotic activity and weight loss. The convincing nature of these data has allowed us to move into preparations for Phase III and to receive confirmation of an in-person end of Phase II meeting scheduled with the FDA before year-end to gain agreement on the design for our Phase III program. We also look forward to the 48-week data from the IMPACT trial, which we expect to share before the end of the year. Beyond MASH, we announced that we have successfully completed enrollment in the RECLAIM Phase II trial of pemvidutide in AUD. The rapid enrollment of RECLAIM which was completed ahead of schedule, is a testament to our team's continued ability to execute and the significant interest from patients and physicians in pemvidutide as a potential new therapy. In addition, we began enrolling the ALD Phase II trial in the third quarter. As our clinical programs progress, we are ensuring we have the necessary financial resources and executive talent in place to support the next phase of our growth. This includes the recent expansion of our leadership team with the appointment of Dr. Christophe Arbet-Engels, as Chief Medical Officer; Linda Richardson as Chief Commercial Officer; and Robin Abrahams as Chief Legal Officer. With that, I'll turn the call over to Christophe to speak further to our promising pemvidutide programs. Christophe? Unknown Executive: Thank you, Vipin. I am very pleased to be here today and to be joining the Altimmune team at such an exciting juncture. From my perspective, I recognize the significant potential of pemvidutide for the treatment of patients with MASH, AUD and ALD. Given its 1:1 glucagon GLP-1 ratio, pemvidutide is uniquely designed to maximize the contribution of each mechanism. In effect, pemvidutide is a combination therapy in a single molecule. Early data from the IMPACT trial demonstrated the potential of this dual mechanism of action with rapid and robust MASH resolution achieving statistical significance at just 24 weeks. I want to reinforce how meaningful the observed efficacy is at this early time point as most other MASH program achieved this level of response only after treating for 48 weeks or more. The 24-week results demonstrated significant and very encouraging anti-inflammatory activity based on biopsies and a range of noninvasive tests, which are becoming increasingly important in clinical practice and in the ongoing regulatory conversation. The statistical significance achieved across a panel of NIT we are assessing in the IMPACT trial provides strong support for pemvidutide antifibrotic effects, which we will look to continue to assess in the upcoming 48-week readout. Speaking of the 48-week readout, we look forward to assessing the data and the potential of a longer treatment duration on NIT measurement, as well as further weight loss. Recall, we had early and significant MASH resolution in our 24-week biopsy data and strong evidence of antifibrotic activity supported by the NIT analysis, along with the continuing weight loss and excellent tolerability. The emerging recognition that improvements in certain NITs are likely to translate to clinical improvement has led regulatory agencies to consider allowing the use of NIT data as a measure of efficacy in MASH clinical trial. In clinical practice, MASH patients are often diagnosed and courses of treatment determined based on these noninvasive tests and the possibility of the regulatory agencies more closely aligning with clinical practice bodes particularly well for pemvidutide given the strength of our NIT data. Dr. Mazen Noureddin, lead investigator on the IMPACT trial will deliver a late-breaking oral presentation on the 24-week IMPACT results at the upcoming annual AASLD Liver Meeting. The acceptance of this abstract reinforces the significance of the data from the IMPACT trial and pemvidutide's opportunity in the broader MASH landscape. Our confidence in pemvidutide is underscored by the collective data surrounding the molecule from the 7 trials completed to date. We are now preparing for a scheduled face-to-face end of Phase II meeting with the FDA before year-end to review our proposed Phase III MASH program. The Phase III trial will include the flexibility of using NITs and AI reads as an approvable endpoint in our registrational program if regulatory process moves in that direction. Beyond MASH, we believe that the balanced glucagon and GLP-1 agonism that is the hallmark of pemvidutide makes it a promising therapeutic candidate in both alcohol use disorder and alcohol-associated liver disease. In AUD, we have completed recruitment and randomization in the RECLAIM trial that we were able to fully enroll this trial ahead of schedule is a strong indicator of the significant interest and major unmet need in this indication. We look forward to reporting results next year. Our ALD trial, RESTORE, was initiated in the third quarter and enrollment is ongoing. Importantly, patients with ALD currently lack any approved therapies, and we believe pemvidutide's dual mechanism of action may make a difference for these patients. We look forward to these results of these trials and further understanding the potential of pemvidutide in the additional large patient population of unmet need. I am excited to be at Altimmune and to lead these programs forward. And with that, I will turn the call to our Chief Commercial Officer, Linda Richardson, to discuss how we are preparing for Phase III success in MASH. Linda? Linda Richardson: Thanks, Christophe, and good morning, everyone. It's great to be here at Altimmune at this exciting time, and I echo Christophe's enthusiasm for joining this team and helping to shape the future of this significant therapeutic candidate. A quick background on me. I've been involved in all facets of commercialization for over 30 years at organizations of all sizes. I have experience in MASH, rare hepatic diseases, cardiometabolic diseases, including diabetes and dyslipidemia and addiction medicine. We have a great opportunity in front of us with pemvidutide in MASH as well as AUD and ALD, and I look forward to helping prepare for potential commercialization in each of these areas of high unmet need. My decision to join Altimmune was driven by the opportunity to bring real therapeutic advances to patients and the providers that care for them. Pemvidutide has this potential. Why do I believe this? With pemvidutide, we have one therapy that provides 2 important mechanisms of action, delivering improvements on 3 critical elements of MASH management. The single therapy is clear. The 2 mechanisms of action, glucagon and GLP-1 agonism in a balanced 1:1 ratio provide both direct liver effects and metabolic improvements, resulting in 3 important benefits for patients: one, rapid MASH resolution in as soon as 24 weeks; two, anti-inflammatory and antifibrotic effects in the liver as demonstrated in multiple NIT assessments; and three, quality weight loss, including lean muscle sparing effects. Additionally, pemvidutide has demonstrated a potential best-in-class tolerability profile with low discontinuation rates in the IMPACT trial. This could be another differentiating feature compared with other MASH therapies. My enthusiasm aside, I would like to highlight some feedback from recent market research we did in Europe. Health care professionals in a small group of payers were provided with a projected blinded product profile of pemvi along with other blinded profiles of current and future potential MASH therapies. First, 70% to 80% of the physicians surveyed indicated a high or very high likelihood to prescribe pemvidutide based on the blinded product profile in both F2 and F3 patients. Here are some representative qualitative comments from hepatologists on pemvi's differentiating features. It's quite impressive, the fibrosis and the weight loss seems to be a class leader and the side effect profile is good. And another quote, "For overweight and obese patients, it would be my go-to substance, my first-line approach, more powerful than other dual agonists with strong fibrosis data. Lean mass preservation would be a meaningful differentiator, very important in MASH and chronic liver disease. This is very encouraging early feedback. In particular, the significance of demonstrating lean muscle mass preservation is potentially very differentiating. There is growing interest in the prevalence and effects of sarcopenia in patients with MASLD. A 2024 meta-analysis found that sarcopenia was associated not only with progression, but also correlated with MASLD-associated mortality. Other publications project that the prevalence of sarcopenia may be as high as 1 in 4 patients. Initial payer feedback was also encouraging. Payers provided us with a positive reimbursement outlook across the EU with broad coverage expected given payers' positive perception of the pemvi value proposition. We will continue to identify aspects of pemvidutide therapy that may be important to payers, particularly as more therapies enter the MASH field. Patients and prescriber receptivity is critical, but reimbursement and access are equally important elements of a successful product launch. I've had the opportunity to work closely with our clinical team to incorporate specific endpoints that we believe will be important drivers of market uptake and support a successful launch following potential regulatory approval. It's an optimal time to ensure that commercial considerations are designed into the Phase III MASH program to accentuate the differentiators of pemvidutide from current approved therapies and those to come. Alongside MASH, the AUD and ALD programs are very exciting and could expand substantially the addressable market for pemvidutide. The rapid recruitment of our AUD trial that we discussed earlier is evidence of interest in this space and the patient need for new therapeutic options as well. In closing, I'm very excited to be here at Altimmune at such a crucial time. I look forward to continuing to update all of you on our commercial vision, plans and expectations for pemvidutide. I'll now turn it over to Greg to review our financial results for the third quarter. Gregory Weaver: Thank you, Linda, and hello. Beginning with our balance sheet at September 30, total cash was $211 million, representing an increase of 60% over our cash position at the start of the year. We've made measurable strides as we source capital through a combination of available options, having raised $127 million through the first 9 months of the year, building the cash position required to support our key development milestones. Another step we've taken to add to our financial flexibility was to amend our Hercules debt agreement, where we increased the overall facility size to $125 million and funded $20 million on executing that amendment today. The amendment improved several of the key terms extending the interest-only period, for example. You'll see that we're filing a $400 million shelf registration today, along with a new $200 million ATM facility. Consider these filings as part of our ongoing effort to assure the financial tools are in place to meet our needs going forward. Our cash position continued to strengthen through Q3 and into Q4. I'm happy with the trajectory and confident in the ability to build the balance sheet required to meet our development needs and position pemvi for success. Now to comment on the Q3 and year-to-date financial results. R&D expenses were $15 million for the 3 months ended September 30, '25, compared to $19.8 million in the same period of 2024. The 3-month variance in R&D spend was related to the timing of CRO development cost year-over-year. The Q3 2025 spend included $9.2 million of direct costs related to pemvidutide development, including roughly $3.7 million for the IMPACT Phase IIb trial, $3.4 million for AUD and ALD start-up costs and $1.3 million for CMC. G&A expenses were $5.9 million and $5 million for the quarter ended September 30, 2025 and 2024, respectively. This increase was driven by professional fees and noncash stock-based compensation. To note, the total noncash stock-based comp was $3.6 million in Q3 and $11.1 million year-to-date. No surprises there. Net loss for the third quarter of 2025 was $19 million or $0.21 of share compared to $22.8 million or $0.32 per share in the third quarter of last year. So, in summary, we are well positioned in terms of our financial footing. And with that, I'll turn the call back to Vipin for some closing remarks. Vipin Garg: Thank you, Greg. As highlighted today, we look forward to sharing the 48-week IMPACT data in Q4 and to discussing our progression into Phase III clinical development at our end of Phase II meeting with the FDA. As always, we thank you for your continued support and look forward to sharing further details of our progress. This concludes our formal remarks, and we would now like to take questions. Operator? Operator: [Operator Instructions] We have the first question from the line of Roger Song from Jefferies. Jiale Song: Congrats for all the progress. Maybe a couple of question. First is on the upcoming 48-week data from the Phase II IMPACT MASH. So how much of the data will inform your conversation with the FDA and then also the Phase III design? And then what's the current thinking about the Phase III in terms of the 24 versus the 48-week time point and then the NIT and AI biopsy-driven AI-based biopsy endpoints? Vipin Garg: Yes. Roger, thank you for the question. So as far as the end of Phase II meeting with the FDA is concerned, as you know, the end of Phase II meeting was requested on the basis of the 24-week data. So really, there would not be any 48-week data that would be part of that discussion at this point. Obviously, we will submit 48-week data when that's available. But we believe and apparently, the FDA agrees with us that we have sufficient data at 24-week to request and now FDA has granted a meeting to us on the basis of that data. So, I think we're in a good shape. Christophe, did you want to add anything to that? Unknown Executive: No, I think that's correct. The 24-week data were strong enough to grant the submissions and grant the meeting, and we are in good shape with those discussions by the end of the year. Vipin Garg: And about the 48-week data, I think, Roger, did you want to repeat your question, please? Jiale Song: Yes, sure. So just the 48-week data, how -- what's the current thinking about the Phase III design based on the 48-week data? Unknown Executive: So the 48-week data, we expect to continue confirming what we've seen in the 24-week data and the strength of this with the added weight loss and hopefully as well on the needs. We are in discussions. We will be discussing with the FDA this current regulatory environment with the potential change from those biopsy readings to the needs, and we will have more clarity when we meet at the end of Phase II meeting. Vipin Garg: Yes. And our goal, Roger, is to design a very flexible trial, Phase III program, so we can take advantage of any of the changes that take place whenever they take place. So, we'll go in with a very comprehensive, flexible design in terms of the Phase III program and should changes take place over the course of next months and year, we can certainly incorporate them and pivot to those and appropriately change our endpoints when that happens. Operator: We have the next question from the line of Yasmeen Rahimi from Piper Sandler. Yasmeen Rahimi: And congrats on the RECLAIM enrollment completion. I guess the first question is based on sort of discussion with the key opinion leaders in the space, do you have any idea in like, I guess, the probability of the different scenarios of potentially using NITs or AI-based histological reading. If you could just maybe help us understand based on the 3 scenarios, which one they think has a high probability of being able to get a sign-off. That's question one. And then question two is, help us understand, I guess, the advantages of using AI-based biopsy reading versus traditional histology reading and especially when it comes to Phase III studies and if any other sponsors have implemented that? And then the third question is on RECLAIM, maybe help us conceptualize what would be considered a clinically meaningful endpoint in the primary endpoint there. And I'll jump back in the queue. Unknown Executive: All right. So, I will start with the NITs. The NITs, there are a lot of different discussions ongoing at this point in time. We're going to -- we are aware that some of these discussions will occur with the AASLD meeting coming up at the end of this week, and we will learn more around that. We know the FDA is looking through the -- at this very closely. And there is -- from our understanding, there is an increasing interest to look at those NITs. So as Vipin shared, we are designing our Phase III in order to really have the flexibility to adapt to any changes on the regulatory landscape. On the AI, there are differences. The histopathologist in general, look at a narrow part of the slides and estimate the level of fibrosis based on a number of criteria, but that introduces quite a large amount of variability and the AI on the other aspect look at the total area of fibrosis and doesn't quantify the stages only, but allows just a gradual and more comprehensive evaluations of the slides. So, this is something that allows for rapid evaluations with less variability. And we know that this has been already approved by the EMA as an approach to look at the biopsies. And the last -- the third point was, I'm not sure I fully heard the questions on the primary endpoint if you, that was… Vipin Garg: The RECLAIM trial. Yasmeen Rahimi: That's right. Unknown Executive: Yes. The RECLAIM trial. So, the primary endpoint of the RECLAIM trial is the number of heavy drinking days that we are going to be looking at and those change from baseline. Vipin Garg: Yes. It's the number of heavy drinking days per week that's... Unknown Executive: Per week, correct Vipin Garg: That's the endpoint that we'll be looking at. And Yasmeen, we're really excited about the fact that this trial enrolled almost 5 months earlier than we were expecting. So, it really shows the critical unmet need out there and the fact that physicians and patients really like the drug. And so, we're really excited about that. Operator: Do you have any follow-up questions? Yasmeen Rahimi: Thank you. I'm good. Operator: We have the next question from the line of Patrick Trucchio from H.C. Wainwright & Company. Patrick Trucchio: At 24 weeks, you reported statistically significant antifibrotic activity across multiple NITs. And I'm wondering what magnitude of change of 48 weeks would reinforce this confidence in fibrosis improvement as a key Phase III endpoint? And then separately, I think you've referenced expectation of continued weight loss through 48 weeks. What level of incremental loss or lean mass preservation would confirm pemvidutide's quality weight loss advantage and support differentiation? Unknown Executive: So at -- yes, at 24 weeks, we saw very strong data on our fibrosis and we continued to see the weight loss that was not plateauing. As you know, some of the NITs can evolve at different time of the improvement for each of those patient. So, we continue to believe based on this, that we will see added improvements at the patients on the study at 48 weeks after our 24 weeks. And we will see which one. We expect, for example, maybe lever stiffness to be something that should be improved, and we will have those data very soon. So, we're really excited about this. And again, with what we've seen on the 24-week, that bodes well for what hopefully we should see on the 48-week. Vipin Garg: Yes. And the weight loss, we -- as you said, Patrick, we expect to continue to have additional weight loss, just like we saw with our MOMENTUM trial. And just to remind everybody, this wasn't even our best dose in terms of weight loss. It was 1.2 and 1.8. So, the 2.4 milligram, we get even higher weight loss. So clearly, there's plenty of runway there in terms of achieving additional weight loss as well. And just to clarify, as far as the NITs are concerned, they don't all move in tandem. Some of them move early, some move later. So, what we need to show at 48 week is continued maintenance of many of these NITs because we've already achieved such high levels and then additional improvement in some of them. M. Roberts: Just to bring the weight -- this is Scott Roberts. Just to bring the weight loss back home, recall that of the direct-acting MASH agents that work directly in the liver, for example, the FGF21s, the thyroid beta agonist, there is no weight loss associated with that. So, we're already ahead of the game with respect to direct-acting agents. And so any additional weight loss and the shape of the curve with a not plateauing certainly bodes well for realizing more weight loss is really just icing on the cake. Linda Richardson: Yes, I think I'll touch on -- this is Linda. Thanks for the question. I touched on a little bit this concept of lean muscle mass sparing. When you look at various agents and you look at the studies, most of this has been seen in weight loss studies. So, we look at pemvidutide and the MOMENTUM trial, and we had the -- really a study duration of 48 weeks where our lean loss ratio was about 22% compared to other agents that were in the 39%, 26%, 37% range across the board. This matches more closely what natural weight loss would look like if you were doing traditional diet and exercise. You're always going to see some impact on lean muscle, but this matches what you would see kind of in the routine weight loss field. When we look at that and we see our weight loss, building this promise into studying in Phase III further, what happens in a longer trial when we have our 52-week study data from a Phase III, if we see continuing loss of weight but muscle mass preservation, this would be extremely interesting to the field. And when we're looking at a forward testing product profile, this is one of the advantages that we very well may have. So, when I talked about working closely with the team, putting in these markers and preparing to evaluate them fully in a Phase III trial is exactly the kind of thing that I need to have that can resonate with payers and physicians and patients down the line. So that's kind of bringing all of what we know about our product together and ensuring we have the best shot on goal in Phase III. Operator: We have the next question from the line of Jon Wolleben from Citizens. Jonathan Wolleben: I was hoping you could talk a little bit about alcoholic use disorder and alcoholic liver disease as distinct opportunities. It just seems like there's going to be significant overlap in the advantages or disadvantages of running one program versus both. Vipin Garg: Yes, that's a great question, Jonathan. So, I mean, that's the reason we decided to expand the program into AUD and ALD because we believe there is significant opportunity in both of those, and we could be sort of the frontrunner in terms of driving value proposition, additional value proposition for pemvidutide. So, it's not just MASH, AUD and ALD. These are very similar product profile that we are looking for in terms of having this dual mechanism of action working directly in the liver, as well as in case of AUD having reduction of cravings. So, bringing these multiple features together is really important. AUD typically leads to ALD. So, AUD and ALD go hand-in-hand. So, the idea here is that if we can get -- if we can show success in AUD chances that will also be successful in ALD. We've actually already shown the endpoint that we used in MASH one of the NITs is what would be the endpoint for ALD. So, we already have some idea that the drug is working on these endpoints. So, we're very excited about these additional that can be developed independent of MASH beyond MASH. Operator: We have the next question from the line of Annabel Samimy from Stifel. Annabel Samimy: Just going back to the product profile and pricing and payer discussions, maybe for Linda. I mean, how -- I understand the potential differentiation, how exciting that could be for MASH. I guess the landscape is shifting a little bit now with obviously, with semaglutide possibly having MASH some combinations that are in development or seeking development with FGF21. So, I guess maybe you can talk about how you think about MASH pricing when we have some of these other alternatives that could potentially help on the liver side, but indirectly and longer term. I just want to think about that because some physicians are really starting to think about payer pushback and cost. So how should we think about that? Linda Richardson: Absolutely. Perfect question related to the payer landscape. Reimbursement is largely -- you're looking at what is the value proposition of the drug for, I would say, physicians, patients and the payers. You want to have something that's actually doing what it says it's going to do. And the value proposition is based on the data. So, when you test a product that has the activity that we do, we have in 1 drug, 2 mechanisms of action that provide a host of benefits and excellent tolerability to date. Then you look at some of the carving off, what kind of quality weight loss, what are the lipid impacts? What are other things downstream that you're seeing? The total package of the value proposition leads into assessing what it's worth. Instead of someone having to take 2 drugs, and have 2 sets of side effects, 2 co-pays or wait for a development program to bring that together or face tolerability issues that don't allow them to stay on. We see that with some of the GLP-1s currently. We see other products downstream coming together with their combinations, but let's see what their tolerability profiles look like. Let's see not having this 1:1 ratio, what they look like. So, the package of what you can get in a product and the early onset of action, I believe as this is going to become a very crowded marketplace, payers are not going to want to necessarily pay for something that takes 72 weeks to see if it's working, how long do they have to be on this? Is the tolerability there? When you show the MASH resolution that we saw at 24 weeks, which was outstanding. And then you look at the evidence that we provided in antifibrotic activity with via NITs at 24 weeks, we are pretty much pushing up on what everyone else can do in one molecule with all these benefits. So, my plan will be to focus on what we bring to the table, communicating the value of early activity that you can monitor. You don't have to wait 72 weeks to see some sort of improvement. Look at that, look at the total benefits and then see where you fit in the spectrum of what the pricing brackets will be. You're bringing more than a generic, even paying for a generic and another product that you might want to use together is still a different activity than having it all in one. And that's where the value proposition will come as we build additional data as we have other data coming out in the Phase III program that we currently don't even have access to in our 24-week data. So, my plan is to be positioned for the future and drive the very best deliverable assets that we can from this molecule. Annabel Samimy: Great. That's great context. Just a couple more for me. Just going into AASLD, I know that raising awareness of pemvi is very important. So, can you just give us some color around how you're going to be doing that at the upcoming meeting and how you're going to raise awareness among KOLs? And just on one other quick question, RECLAIM, obviously, enrolled very quickly. How is the ALD enrollment going? Unknown Executive: All right. So, on the -- on our presence at AASLD, we have a number of activities that we have planned, a lot of engagements with KOL, one-on-one discussions with all of them, with patients advocacy group as well, and we're going to be continuing. I want to remind you that we have also 2 presentations, one oral and one posters that were accepted as late breaker and that will be there at this time. And we also have a receptions where we have a lot of our clinical investigators, principal investigators from our studies and a lot of interest there where we're going to meet as well. So, we're going to have a large presence at AASLD with some very exciting data that will be presented through those late-breaking presentation. Linda Richardson: And I would just add that having been in the MASH space previously, I do know a lot of the folks who are working with us at Intercept and in hepatology and gastroenterology. And I look forward to rekindling through some of the meetings that we've had set up, relationships with them as well as seeing old friends in the patient advocacy group. So, we are well -- there's -- the company may not have had as many contacts before and Christophe and I being new to the organization, but we will leverage the one from the investigators that we've been working with. And I think really having the podium presentation close at late-breaker is a great way to end that meeting for us. Vipin Garg: Yes, we'll have a very large presence. So, we are really looking forward to it. It will be very exciting to bring pemvi out in the open. Unknown Executive: And regarding the ALD enrollment, we are moving forward as planned. We're happy where we are right now with this enrollment. Obviously, the AUD was even more exciting by getting this study enrolled much earlier, which doesn't happen too often, but it's a testament to what the team can do and the interest in this area from patients and physicians. So, we're excited, and we continue to move forward as we anticipated. Operator: We have the next question from the line of Mayank Mamtani from B. Riley Securities. Unknown Analyst: This is William on for Mayank. Congratulations on a very nice quarter. Looking forward to seeing the upcoming AASLD presentation. Two for us. In terms of your Phase II 24-week biopsy results, I was curious if you could talk to any new or incremental analysis that you may have performed that we may get. And specifically, do you know if there's, by any chance, any F2 or F3 analysis that you did on the study? And in regards to F4 patients, by chance upon sort of reevaluation of the biopsies were any included in the study and how the data from your F3 patients might inform how pemvi may perform in the F4 population? And then I have a follow-up. Unknown Executive: Yes. No, we continue to analyze our data. We're -- there's a large amount of informations we can gather that will help us drive some of the Phase III. With regard to those different stages, I want to remind you the design included only Phase II and -- sorry, only F2 and F3 patients. There was no F4 patients. We did some post-hoc exploratory analysis. The sample size are small because the study was designed with a small number of patients. So I'm cautious there. But we are very encouraged by what we're seeing. So, in particular, with these Phase II -- F2, F3 patients. So, we continue to have supportive data to move into the Phase III in this population and look forward to the design of this and discussing this with the FDA. Unknown Analyst: Got it. And then in terms of RECLAIM, as it's been said, it's obviously enrolled pretty far ahead of plan. I was curious if there's been any type of baseline analysis that's been compiled. And if so, could you touch on how those baseline characteristics may compare to the original plan? And then also how that informs to your interest in your RESTORE ALD trial, where you're also looking at these liver-specific endpoints such as VCT and ELF? And maybe what's the broader data package that you're looking for to collect that would help qualify as Phase III enabling? Unknown Executive: So with regard to the RECLAIM data, we haven't -- we just finished the enrollment. We haven't done a baseline analysis at this point in time of all this information. Obviously, AUD and ALD are kind of a continuum with the patients in AVD being less severe than the patients in ALD. But there's a clear unmet need in this population, and we are looking at the evolution in those both the most severe and the more -- the less severe populations. This is -- we're going to be looking at different parameters. Clearly, we just mentioned the days of heavy drinking, but as well liver parameters. We know that those population have fatty livers and increase liver stiffness, and we're going to be looking at this as our primary endpoint for ALD. And that's where we are at this point in time. But again, there's -- we hear a lot of enthusiasm around this area. Linda Richardson: Well, and I think the timing of this, just with the interest in no alcohol drinks, mocktails, dry January. Every week, there's something coming out on alcohol use. And here, again, we have a product that is designed to help on 2 fronts. You can look at the glucagon direct-acting liver effects. I'm thinking if somebody is drinking that much that they want to cut back, they've probably have done a little damage, just may not know it, but they're thinking about their drinking. And then you look at what you would get with the GLP-1 side, which may be helping with cravings. And again, it is one product bringing together 2 activities that do more benefit for patients with a tolerability profile. So, this is really the way we're looking at how can this drug best infiltrate indications that make the most sense, whether it's MASH, whether it's AUD, ALD, you look for where are your strengths and play to your strengths. Operator: We have the next question from the line of Michael DiFiore from Evercore ISI. Michael DiFiore: I have 3. The first one, since you said that Europe has approved AI biopsy reads and that you intend to propose the PathAI platform to the FDA later this quarter, what are the practical steps -- next steps once the clearance comes? Like for example, are your imaging and workflow systems already validated for PathAI? Or would there be a ramp-up period before you could implement the AI read in Phase III? And then I have 2 follow-ups. Vipin Garg: Yes. The way that the AI works is they digitize the slides. And so as long as they have good slides, and we've learned how to do that, that was part of our Phase IIb study. We have excellent specimens and how to handle those. As long as they have good specimens to work with, they have their own proprietary digitalization technique. So, it will be a seamless introduction of that technology into the readout. Michael DiFiore: Okay. And relatedly, how will NIT tracking actually be implemented operationally in Phase III in terms of frequency, imaging cadence, data interpretation? Any color you could offer on that? Unknown Executive: So we're going to -- I mean, there's different visits over the 52 weeks with clearly imaging happening at on quarters and 6 months, week 24 and week 48, and then they will be continuing examinations towards clinical outcome for this -- for the patients. And the NITs, we can -- it's much more -- it's much easier to do this more frequently. So, we have different visit schedule that can be even on a monthly basis, especially early on, where we can look at some of the blood-based need and get this information very early. So, we'll get some very nice reads on how those NITs are moving rapidly in the treatment algorithm here. Michael DiFiore: Got it. And my final question is regards to Lilly's Retatrutide. I know it's very early and a lot needs to happen between now and then. But any thoughts on pemvi's competitive positioning? Should pemvi and Retatrutide compete against each other in the MASH space? Vipin Garg: Yes. So as you know, Mike, Retatrutide is a triple agonist. And it's really the benefit here is the same as with dual agonist, we believe the 1:1 ratio is more important here because we are balancing both GLP-1 and glucagon activity in the same molecule. So, we are getting full benefit. Glucagon is working directly in the liver, whereas GLP-1 is working indirectly through metabolic effects through weight loss. So really adding GIP on top of that is not relevant for the MASH space. It may be more relevant for the obesity field. So, we think we are very well positioned versus the Retatrutide in the MASH as well as AUD and ALD space. Unknown Executive: We know and we'll have some new data at AASLD around the anti-inflammatory aspects on the liver level, which is also really important, and we're excited to have really that 1:1 ratio is really important for the direct activity on the liver. Operator: We have the next question from the line of Andy Hsieh from William Blair. Unknown Analyst: This is [ Kelsey Lucerne ] on for Andy. We had a question around the preclinical development program for the oral formulation of pemvidutide. Just curious if you could share next steps and time lines for advancing this candidate and any sort of thoughts around positioning relative to the injectable? Will it also be progressing in MASH as an alternative to the injectable form and who you might see as your competitors for this program? M. Roberts: Sure. Happy to take that question. So, recall that our last earnings call, I expressed a lot of excitement and enthusiasm for what was characterized as appropriately as a breakthrough in our oral formulation program. So, we're continuing to push that forward. Obviously, next steps have to do with an IND in the clinical trial, the timing of that will be more clear on as time progresses here. But as far as how does it fit into the landscape, I think there's 2 important features here that should be appreciated. The first is unlike an oral pill, a small molecule, this is still pemvidutide. It's unaltered. Once it enters the bloodstream following the oral administration, it acts just like pemvi. So we get the long half-life. We get the excellent tolerability profile that we've seen so far. So, we have the best of both worlds, will. We have the specificity and potency of the peptide that is pemvidutide as opposed to a small molecule. And yet, we have the oral formulation. So we're really excited about that potential. And we think that as it stacks up against the others, which the vast majority, as you know, are small molecules, we have a real advantage there. So we're excited about the program. We've made, as I mentioned last time, real headway. We're continuing to progress that, and we'll share more data as appropriate. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I will now hand over the conference to Dr. Garg for closing comments. Vipin Garg: Well, thank you, everyone, again for joining us. The coming weeks will be incredibly exciting. We look forward to sharing updates on the 48-week data and the end of Phase II meeting with the FDA and hope to see some of you at AASLD. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Aquestive Therapeutics, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Korb. Please go ahead, sir. Brian Korb: Thank you, operator. Good morning, and welcome to today's call. On today's call, I'm joined by Dan Barber, Chief Executive Officer; and Ernie Toth, Chief Financial Officer, who are going to provide an overview of the company's recent business developments and performance for the third quarter of 2025, followed by a Q&A session. During the Q&A session, the team will be joined by Dr. Gary Slatko, Interim Chief Medical Officer; Sherry Korczynski, Chief Commercial Officer; Lori Braender, Chief Legal Officer; and Peter Boyd, Chief People Officer. As a reminder, the company's remarks today corresponded with the earnings release that was issued after market close yesterday. In addition, a recording of today's call will be made available on Aquestive's website within the Investors section shortly following the conclusion of this call. To remind you, the Aquestive team will be discussing some non-GAAP financial measures this morning as part of its review of third quarter 2021 results. A description of these measures, along with a reconciliation to GAAP, can be found in the earnings release issued yesterday, which is posted on the Investors section of Aquestive website. During the call, the company will be making forward-looking statements. We remind you of the company's safe harbor language as outlined in yesterday's earnings release as well as the risks and uncertainties affecting the company as described in the Risk Factors section and other sections included in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the U.S. Securities and Exchange Commission. As with any pharmaceutical company with product candidates under development and products being commercialized, there are significant risks and uncertainties with respect to the company's business and the development, regulatory approval and commercialization of its products and other matters related to its operations. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date made. Actual results may differ materially from these statements. All forward-looking statements attributable to Aquestive or any person acting on its behalf are expressly qualified in their entirety by this cautionary statement and the cautionary statements contained in the earnings release issued yesterday. The company assumes no obligation to update its forward-looking statements after the date of this conference call, whether as a result of new information, future events or otherwise, except as required under applicable law. Now I would like to turn the call over to Dan. Daniel Barber: Thanks, Brian. Good morning, everyone, and thank you for joining us today. This morning, we are holding our earnings call from the American College of Asthma, Allergy and Immunology Annual Conference here in Orlando, Florida. This is one of the largest allergy-focused conferences in the U.S., and we are proud to be here supporting the college at their annual gathering. We have almost 20 colleagues on site this week and a host of events, including multiple poster presentations, a fully staffed medical affairs booth on the exhibition floor and multiple engagements with investigators. This truly is an exciting week for the Aquestive team. This is also emblematic of the increased awareness of our Anaphylm dibutepinephrine Sublingual Film program within the allergy community. In fact, our latest data suggests most allergists are now aware of our sublingual film program and over 25% have even completed our continuous medical education, or CME presentation offered through Medscape, the leading provider of CME materials for physicians. As we approach our FDA scheduled action date of January 31 for Anaphylm, we are well positioned from an allergist awareness perspective. In case anyone hasn't been paying attention, Anaphylm, if approved by the FDA, will be the first and only oral medication for the treatment of severe allergic reactions including anaphylaxis. Today, health care providers, caregivers and patients must choose between two types of medical devices: auto-injectors and nasal sprays. We believe our portability, low barrier to use and fast absorption profile creates a transformational offering for the allergy community. Following our equity raise and strategic financing agreement that we announced this past August, our prelaunch activities have accelerated and remain on track for a first quarter 2026 launch if Anaphylm receives FDA approval. Our marketing materials are ready to go and are only awaiting a final label. We are in the process of hiring our district managers and will hire sales reps upon FDA approval. Our market access team is in full swing and interacting with payers under acceptable preapproval guidelines. Our supply chain is prepared to rapidly produce material once final labeling has been provided by the FDA. And importantly, our medical affairs team is fully deployed, as you heard from my opening statements, regarding this week conference. Simply put, we are ready to go. Now let's turn to the FDA. Given the government shutdown, we requested the FDA to provide us with a status update on the review timing of our filings. I am pleased to say that as of this last update, the FDA confirmed they are aiming for an on-time review of our application. As we reported to you in September, the FDA has informed us that we will not have an Advisory Committee meeting. However, we remain ready to provide further information if necessary to the FDA reviewers. We will keep everyone appropriately updated as we learn more and as we get closer to our action date. As we begin looking towards 2026, there are 2 very important priorities in our business: one, putting together the best possible launch of Anaphylm; and two, exploiting the science behind our Adrenaverse platform. If you recall, we made the strategic choice to slow down our Adrenaverse pipeline initiatives in the first half of 2025, while we work on fully funding our launch. Now it is time to get going. To better accomplish these goals, I announced several leadership changes earlier this week. First, to better support Anaphylm, I've asked Dr. Gary Slatko to become our interim Chief Medical Officer. Gary has the perfect blend of medical affairs expertise and deep understanding of our Anaphylm development program. Some of you may recall, Gary was previously our Chief Medical Officer from 2018 to 2023. I have also promoted Peter Boyd to Chief People Officer. This is a critical role as we expand our organization to include a full commercial team. On the Adrenaverse side, I am very excited to announce the addition of Dr. Matthew Davis as our Chief Development Officer. Matthew and his team will be very focused in 2026 on kick-starting our R&D efforts and driving clinical proof points that show the value our Adrenaverse platform can create. While Anaphylm is transformational to the allergy community and to Aquestive, it is just the beginning of our story. Through the efforts of Matthew and his team, I am confident there are multiple significant programs yet to come. The first of these programs is our AQST-108 development program for the treatment of alopecia areata. We have completed the pre-IND meeting process with the FDA and we'll be submitting our IND shortly. We expect to be in the clinic with our next study, a safety study in men starting in January, and expect this study to complete rapidly. With the funding just received by the company, we will look to advance our progress on this front. Our international efforts for Anaphylm as well continue to gather steam. We had a positive interaction with Health Canada in the third quarter and are excited to share that no further studies are required for filing our application. We anticipate filing in Canada in the first half of 2026. We have also continued our interactions with the European Medicines Agency, or EMA, and expect to have full feedback regarding the application process by early in the first quarter of 2026. We will continue to advance our regulatory interactions as we work towards the appropriate partnerships in these territories. Our base business continues to be an important provider of cash flow and capabilities and we expect this to continue in 2026. We continue to see stable demand from Indivior, our largest base customer. We have also seen significant growth in our South American partnership focused on the Brazilian market. Our manufacturing team is prepared to take a leading role in supply of Anaphylm to our commercial team and eventually around the world. Finally, from a financing perspective, we are now well positioned to fully fund our business through the commercial launch of Anaphylm, if approved by the FDA. As Ernie will discuss with you in a moment, one of the last pieces to the puzzle in locking in our finances is refinancing our existing debt. We are well on our way with this effort. And as of today, I expect this to close before the end of the year. So to summarize, as we look forward, you should expect the following. We will be ready to launch in the first quarter if Anaphylm is approved on time by the FDA. We will begin to make rapid progress on our broader Adrenaverse platform and advance our pipeline. We will continue to actively progress our regulatory applications for Anaphylm outside the U.S. And our base business along with our financing from August have us financially well positioned for 2026 and beyond. Now I will turn the call over to Ernie. Ernie Toth: Thank you, Dan, and good morning, everyone. By now, you have seen our financial results in our earnings release that was issued last evening. As we typically do, we will address most of the discussion related to the third quarter 2025 results into Q&A. During the third quarter, we continued to execute on our strategy to support the continued development of Anaphylm, our lead epinephrine product candidate that has no needle, is not a device, is orally administered and is easy to carry. This includes the completion of the pediatric trial and supporting pre-approval launch activities for Anaphylm to increase awareness among physicians, payers and the advocacy community as we approach the PDUFA action date scheduled for January 31, 2026. To support the Anaphylm launch, we completed 2 financings during the third quarter. First, we completed an equity raise for $85 million, led by RTW Investments and included participation from Samsara BioCapital, EcoR1 Capital, Perceptive Advisors, Sio Capital Management, Capital Management and Nantahala Capital. Secondly, we completed a commercial launch financing of $75 million with RTW Investments that is subject to FDA approval of Anaphylm and satisfaction of certain refinancing and other customary conditions related to the company's existing debt. Under the terms of the agreement, RTW will receive a tiered single-digit percentage of annual net sales of Anaphylm in the U.S. for the treatment of type 1 allergic reactions including anaphylaxis, subject to a stated cap. These two financings provide critical capital that will support the company through 2027, enabling us to successfully bring Anaphylm to market if approved by the FDA and delivering new treatment option for patients in need. As required by the commercial launch financing, we are pursuing a refinancing of our existing debt. We have found the debt capital markets to be robust for our financing and hope to be in a position to announce a new debt partner in the near future. Aquestive's manufacturing business remains steady with a gradual decline of our licensee products, Suboxone, which accounts for the substantial part of our current operating revenue, being offset by growth across newer collaborations, including for the licensed products Ondif and Sympazan. In addition, the company being a U.S.-based manufacturer with intellectual property domiciled in the U.S. has a supply chain, which currently remains largely unaffected by both implemented and proposed tariffs, providing continued reliability and stability in production and global distribution for the near term. Now let's turn to the third quarter results. Excluding the impact of onetime recognition of deferred revenue in the third quarter of 2024, total revenues increased by $0.5 million or 4% year-over-year to $12.8 million in the third quarter of 2025. As a reminder, the onetime recognition of deferred revenue in the prior year was due to the termination of a licensing and supply agreement. Including the deferred revenue recognized in the prior year, total revenues decreased to $12.8 million in the third quarter 2025 from $13.5 million in the third quarter of 2024. Manufacturer and supply revenue increased to $11.5 million in the third quarter of 2025 from $10.7 million in the third quarter 2024, primarily due to increases in Sympazan and Suboxone revenues. Total revenues decreased to $31.5 million for the 9 months ended September 30, 2025, from $45.7 million for the 9 months ended September 30, 2024, due to onetime recognition of deferred revenue in the prior year. Excluding this onetime recognition of deferred revenue, total revenues decreased by $2.6 million or 8% year-over-year. Manufacturer and supply revenue decreased to $28.2 million for the 9 months ended September 30, 2025, from $29.3 million for the 9 months ended September 30, 2024, primarily due to decreases in Suboxone revenues, partially offset by increases in Ondif revenues. Research and development expenses decreased to $4.5 million in the third quarter of 2025 from $5.3 million in the third quarter of 2024. The decrease in research and development expenses was primarily due to lower clinical trial costs associated with the Anaphylm program, partially offset by increases in share-based compensation. Research and development expenses decreased to $14 million for the 9 months ended September 30, 2025, from $15.4 million for the 9 months ended September 30, 2024. The decrease in research and development expenses was primarily due to a decrease in clinical trial costs associated with the Anaphylm program, partially offset by increases in share-based compensation, increases in product research expenses and increases in personnel costs. Selling, general and administrative expenses increased to $15.3 million in the third quarter of 2025 from $12.1 million in the third quarter of 2024. The increase primarily represents higher pre-commercial spending of approximately $1.8 million, higher legal fees of approximately $1 million, higher regulatory expenses related to Anaphylm of approximately $0.6 million, higher personnel costs of approximately $0.2 million, higher share-based compensation expenses of approximately $0.2 million, partially offset by lower regulatory and licensing fees of $0.5 million and lower consulting fees of approximately $0.2 million. Selling, general and administrative expenses increased to $47 million for the 9 months ended September 30, 2025, from $34.2 million for the 9 months ended September 30, 2024. The increase primarily represents higher commercial spending on prelaunch activities for Anaphylm of approximately $6 million, higher regulatory fees related to the Anaphylm PDUFA fee of approximately $4.3 million, higher personnel costs of approximately $1.1 million, higher regulatory expenses related to Anaphylm of approximately $1 million, higher share-based compensation expenses of approximately $0.7 million, higher legal fees of approximately $0.6 million and higher regulatory and licensing fees of approximately $0.6 million, partially offset by decreases in severance costs of approximately $1.1 million and lower insurance expenses of approximately $0.6 million. Aquestive's net loss for the third quarter of 2025 was $15.4 million or $0.14 for both basic and diluted loss per share compared to the net loss in the third quarter of 2024, of $11.5 million or $0.13 for both basic and diluted loss per share. Excluding the impact of onetime recognition of deferred revenue, the net loss in the third quarter 2024 was $12.7 million. Aquestive net loss for the 9 months ended September 30, 2025, was $51.9 million or $0.51 for both basic and diluted loss per share compared to the net loss for the 9 months ended September 30, 2024 of $27.1 million or $0.32 for both basic and diluted loss per share. Excluding the impact of onetime recognition of deferred revenue, the net loss for the 9 months ended September 30, 2024 was $38.6 million. Non-GAAP adjusted EBITDA loss was $8.6 million in the third quarter of 2025 compared to non-GAAP adjusted EBITDA loss of $6.6 million in the third quarter of 2024. Excluding the impact of onetime recognition of deferred revenue, non-GAAP adjusted EBITDA in the third quarter 2024 was a loss of $7.8 million. Non-GAAP adjusted EBITDA loss was $35.5 million for the 9 months ended September 30, 2025, compared to non-GAAP adjusted EBITDA loss of $11.9 million for the 9 months ended September 30, 2024. Excluding the impact of onetime recognition of deferred revenue, non-GAAP adjusted EBITDA for the 9 months ended September 30, 2024 was a loss of $23.4 million. Cash and cash equivalents were $129.1 million as of September 30, 2025. Aquestive's full year 2025 financial guidance remains unchanged. The company expects total revenue of $44 million to $50 million and non-GAAP adjusted EBITDA loss of $47 million to $51 million. As a reminder, our revenue guidance for 2025 no longer includes revenue for Libervant for ARS patients aged between 2 and 5 years, and our 2024 revenue included onetime nonrecurring recognition of deferred revenue related to termination of certain licensing and supply agreements. Our non-GAAP adjusted EBITDA loss guidance for 2025 include significant preapproval launch spending for Anaphylm, costs associated with the submission of the Anaphylm NDA and related filing fee, completion of the Anaphylm pediatric clinical trial and costs associated with the preparation for the potential Advisory Committee meeting that is no longer required by the FDA for approval of Anaphylm. With that, I will now turn the line back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of David Amsellem with Piper Sandler. David Amsellem: Just a couple for me. First, any new comments on your competitors' citizens petition and how that may or may not impact the timing of the FDA decision? And also, have you responded to the citizens petition? Just kind of latest thoughts there. And then secondly, I wanted to ask you about pricing and access just given whatever learnings you might have had from the experience of your competitor in its launch. How are you thinking about pricing relative to the nasal spray and the generic EpiPen? And also how does that play into your strategy on access? Yes. Daniel Barber: David, so let me start in more general place and then I will come to your specific question. We're sitting here today with the team here in Orlando, Florida, the college, the ACAAI conference. What's exciting is everything is coming together. So if you look at the pieces and the parts of what we're trying to accomplish, what you're seeing today is how they're starting to intertwine. So the FDA review is in good shape. We'll talk about that in a minute with your comment. Our financing is in place. The market grew by almost 9% last quarter. We've expanded our patent coverage. We're bringing in the right team. And our prelaunch activities, as I'm sure you'll hear from Sherry throughout the Q&A, are in great shape. So we're incredibly excited with where we are right now. Now so let's turn then -- let's take that excitement and let's turn it to the CP that our competitor put into the FDA, which you asked about. So think about -- and David, I don't know if you read all 16 pages of that document. But think about what it took to create that document. A very expensive DC-based law firm was hired. That law firm had to write the document, put it together, review it with the organization and then finalize it and send it to the FDA. And I will tell you that was a significant -- my belief is that was a significant amount of resources by our competitor, by the law firm and probably a big bill. So companies only do that if there's a reason to do it. I don't think they did it because they felt a civic duty to do it. I think they did it in my personal opinion because they're worried. Because they're worried about what we're bringing to the market and what it does to them. Now why should they worry? What can I focus on to say they should be worried? If you look in the supplemental materials that we put out, you'll see that our latest survey work, and I'm sure they're doing their own survey work, shows that when you send a mockup, a nonpromotional version of the nasal spray and the film to a person who's familiar with this space and ask them what product they would prefer, in our survey, which was 35 individuals, 33 of them said they would prefer the film. One of them said they would prefer the nasal spray and one said that they were indifferent to whether it was the nasal spray or the film. So when I look at that and I look at why that CP was put in, that makes sense to me. Now in terms of the content of the CP, we have taken the time -- it was definitely a kitchen sink approach so we have taken the time to unwind all of it and look at it. And in terms of our review of what they have put forward, it is factually incorrect in a variety of places and misinformed. We think that hurts the credibility with the FDA. And from our perspective, we've seen zero impact to our review and expect zero impact. So now let me turn to your second question, which was on pricing and access, and I'll hand that over to Sherry. Sherry Korczynski: David, thank you for the question. While we have not disclosed our WAC price, we do believe there is significant value in our innovation. As you know, the branded epinephrine market has been set by the currently available product. So with that being said, we understand the challenges, and we plan to price responsibly with a patient-first approach to our pricing. We have and we're continuing to explore a lot of options to ensure that there is broad access, which includes cash pay, co-pay savings program. And we're actively working with the payers for coverage. So we do plan to have a range of options for patients to be able to access Anaphylm. But as you know, the path to a patient having an Anaphylm or any product in hand takes a lot of work. And so access and patient support is critical. We have been spending our time and our resources with payers engaging in preapproval information exchange with our clinical team and the clinical teams of payers. We have what we believe is a very strong value prop and our strategy is beneficial to patients. So we will continue to -- we'll come back to you at the right time with what will set pricing. But I think that you can certainly look around us to get an idea. Operator: Our next question comes from the line of Kristen Kluska with Cantor Fitzgerald. Rick Miller: This is Rick Miller on for Kristen. We'll have one here and then a follow-up on potential partnerships ex U.S., you're moving forward with these regulatory interactions. So how do you think about the optimal timing from a value perspective as to when to partner out ex U.S.? And maybe give a sense of what those potential partner conversations have been like at this stage? And then we'll have another follow-up. Daniel Barber: Sure. So obviously, we see Anaphylm as being a global product. We think it can be broadly distributed across a variety of markets. And so we've started that work now to go into the major markets outside the U.S. Clearly, EMA, Canada, the U.K., Japan, those are the key places from a value perspective, but obviously, even broader across the world, the need is real. In terms of -- and we have also publicly stated, just to remind everyone, that we're not interested in having an international footprint of our own so we will license outside of the U.S. In terms of when the right time is to partner, those conversations are always ongoing. Clearly, the closer you are to an approval, the more valuable the product and the partnership can be. So from my perspective, we need to get farther along with our regulatory interactions. In Canada, we'll have a filing, we believe, in the first half. In Europe, we'll know shortly if there's any work to do in addition to what we've done to be prepared for our filing and then we'll move on to a filing. So I think as we move towards those steps, that's a good inflection point for the conversations that are already active to get to something that is meaningful and real for the organization. Rick Miller: And maybe then you mentioned being at the conference right now. What are some of the takeaways you're hearing around the conference, especially around your medical affairs booth as it relates to excitement for new potential additional needless epinephrine options? Daniel Barber: Sure, sure. Well, I have to say that the main part of the conference is ahead of us. So the medical booth and the exhibition hall and all of those things starts tomorrow. So we're all here getting ready and excited about it tonight. We'll actually have a bunch of our investigators together to talk about our program and what they're excited about. I will tell you that as I walk the halls with people who are getting ready for the conference here, one, the amount of comments that are around the excitement of our product coming is palpable. And two, the desire to know and learn more is real. So to me, those are two really good signs that we've hit a need that is meaningful, and we'll obviously be continuing those conversations throughout the weekend. Operator: Our next question comes from the line of Raghuram Selvaraju with H.C. Wainwright & Co. Raghuram Selvaraju: Firstly, with respect to the Anaphylm outlook, I was wondering if you could, a, perhaps give us a sense of how you are thinking about the parameters you anticipate sharing with the investment community as and when Anaphylm gets to the market and what specific takeaways you are planning to get from the neffy commercial introduction, in particular with respect to factors that might educate how you position Anaphylm in the market upon launch. And also if you could comment on the MSN pricing situation and how this affects your approach to thinking about pricing in ex U.S. markets. Daniel Barber: Yes, yes. Ram, so I'll take a few of those pieces. And in terms of the positioning in particular, I'll hand it over to Sherry in a minute. So in terms of when we plan to come to market. So our PDUFA date is January 31. Our guidance remains the same that we believe we'll be able to launch in the first quarter, so by launch, we mean have sales reps trained and in place and have our supply chain providing product to distributors for fulfillment of prescriptions. In terms of -- let me actually go to the last piece first, the most favored nation pricing, we are following that closely. Right now, we don't see any impact on our ex U.S. potential partnerships and how that would affect pricing here in the U.S. But obviously, we'll be keeping an eye on that. And as legislation or executive orders evolve, we'll make sure that our -- we're at the right stage where we can make sure we protect the U.S. market from any of those issues that pop up. So in terms of positioning, before I hand it over to Sherry, just a couple of global comments from me. One, we are clearly different from the medical devices that are in the market. And I'm sure Sherry will say way better than I will why we believe that so firmly. Two, when I look at the market and what happened in Q3, and it follows Q2 and Q1, this market is growing. And it's actually growing in the auto-injector space. 95% of the scripts are auto-injectors. So that is the focus. That is the spot where the market is for us to go grab, and that's where our energy will be. But I'll let Sherry talk about how we're positioned. Sherry Korczynski: Yes. Thanks so much, Ram, and thanks for the question. As we think about our launch, we are taking a differentiated, focused, patient-centric approach along with a very disciplined commercial strategy. And then that puts us on track for a highly successful launch. What we know is that patients want choice. They have not had choice for decades. And so when we speak to -- when we're doing our market research, and Dan alluded to it earlier in the call, we find that the allergy community, whether it is patients, caregivers, advocacy organizations and the HCPs, they all continue to be very positive. And why is that? Well, patients went choice, as I said. And mothers, who are the Chief Medical Officers of the home, as you know, are telling us that because Anaphylm is the easiest to carry, it's the easiest to use and it's fast acting, that Anaphylm is a great choice. And so for the millions of people that are at risk for anaphylaxis who may have avoided epinephrine, did the device and bulk and needle anxiety, the fact that Anaphylm is not a device, that form factor is so critically important, and it really removes the final barrier to people caring and having epinephrine on hand at all times. The guidelines recommend always have 2 forms of epinephrine. So always carry 2 auto-injectors or carry 2 nasal devices. And so what Anaphylm does is it removes that barrier because, as you know and you've seen, it fits right in the back of your phone or in a small wallet. I think the other thing really to keep in mind that is critically important, and we continue to hear this in our market research and engagement with physicians is Anaphylm's exceptional stability profile means that Anaphylm can perform across diverse real-world conditions. So I think there's a lot of differentiation between, we believe, and patients, caregivers and HCPs are out telling us between Anaphylm versus the devices. And we continue to -- we'll be driving that message as we launch in Q1. Raghuram Selvaraju: Very helpful. And just very quickly on the Adrenaverse platform. I was wondering if you could comment on what the alternative routes of administration and formulations are starting to look like beyond AQST-108, if there are other topical gels or if you're looking at deploying the Adrenaverse platform via alternative routes of administration beyond the topical arena? And then lastly, just very quickly for Ernie. I was wondering, if you look at the debt refinancing initiatives, what you are prioritizing most, is it the longest possible maturity date? Or is it the lowest possible coupon? Just give us a sense of what you're looking to accomplish there. Daniel Barber: Why don't I have Ernie take the second part and then I'll address AdrenaVerse. Ernie Toth: Ram, so what we're looking for most of all, besides the things that you talked about, we're always looking for a coupon and the lowest interest rate and the flexibility, is really finding a partner that we can grow with as the company grows and someone that we feel we can work with as we move forward to grow the company. And we've been very fortunate as we've gone through this process. The number of lenders, potential lenders that we've spoken to that have wanted to partner with us and to meet those qualifications. So we feel we're in a good place. And as I said in my script, we hope to be able to announce that new debt partner in the very near future. Daniel Barber: And to take the other question, Ram, which thank you. I appreciate you pointing that out. So the sky is the limit right now in terms of the types of delivery systems we use with our Adrenaverse platform. Now that we have -- and we've created the Chief Development Officer role, and we have someone focused on our pipeline who has the depth of experience that Matthew Davis has, we'll, of course, continue the cream gel foam work that we're doing. But there are indications that could be envisioned in a variety of different routes of administration including film, capsules, potentially even if it was something that required it, injectables are available. So we're not limiting ourselves to the route of delivery. We're much more focused on as we have been with Anaphylm, what is right for the patient for the solution we're trying to bring. Operator: Our next question comes from the line of Andreas Argyrides with Oppenheimer & Co. Andreas Argyrides: We'll go with a couple from us, not just the one that you guys suggested. So how are the current launch dynamics with neffy informing your initial commercialization strategy? Particularly, what are some of the tools you can use to create awareness? Are you considering DTC? And then in your dialogue with the FDA, can you remind us what components of the data they are focused on and key considerations for approval? And then lastly, given the product profile, how should we think of scripts per patient per year? Is it multipack? I'll stop there. Daniel Barber: Sure, Andreas. And I'll have to find out the question that we recommended to you. I'm kind of curious to know what that was. But having said that... Andreas Argyrides: It was limiting -- Dan, it was limiting you to one question per analyst. Daniel Barber: Got you. I thought we were giving you questions. How about that. That was news to me. I think that was more trying to manage the time. But Andreas, of course, happy to answer your questions and spend time with you. So let me take a couple of those. In terms of awareness, I will hand that over to Sherry in a minute here. In terms of where the FDA has been focused, it has -- and just to remind everyone, we have 6 FDA approvals in our past. So when you go through the FDA approval process, there's a cadence, there's a pace, there's a feel. And you look for the questions to come from a variety of areas. And that's what we're seeing here that the different functions in the FDA are doing their jobs, completing their checklists and asking us the questions you would expect. So that feels really good. In terms of DTC, when I hear DTC, I will admit I default to big television ads like the World Series or the Super Bowl and splashy campaigns. Sherry and I are very aligned. We're not doing that in 2026. Now in 2027, 2028, who knows? But before I hand it over to Sherry, that stuff, you won't see. And that's where we'll be very efficient. But let me have Sherry tell you more about her thoughts on awareness. Sherry Korczynski: And thanks for the question. One of the benefits of being second is that you get to see what those ahead of you went through. And so our teams continue to systematically assess and gather insights from the most recent launch to inform our commercialization plans. But I'm going to go back to -- and I'm going to keep coming back to our plan is very differentiated in that we are going to be very focused, very disciplined and have a patient-centric launch. And so while our competitors may have gone out with be very broad in all of their sales and marketing tactics, we're applying this very disciplined approach to focus on and drive adoption among the most productive prescribers at launch. And as I said a lot of times, the epinephrine market is an inch deep and about 10,000 miles wide. Prescribers range from primary care physicians who write 1 to 2 prescriptions annually to allergists who prescribe 200-plus prescriptions of epinephrine per year. And so the allergists are the most productive segment, and so we are taking a very disciplined approach with the allergists to launch. And so what you'll find is we will -- as we drive our results, as we -- our market access and payer coverage comes on board, we will have the ability to scale. And so that is a different approach that we're employing. As it relates to DTC, Dan and I always -- we do laugh about this, what is DTC? At the end of the day, we're applying that same disciplined approach to DTC. Our prelaunch plans and activities have been focused on HCP. Dan mentioned the CME activities. We've also been driving non-CME programs, publications, congresses, being with the community KOLs and state level allergy associations and congresses. Our plan post launch is to drive awareness, number one, and most importantly, with those allergists and to get them ready to prescribe as they see the patients that come in who are patients who will benefit from Anaphylm. That's very important. Over time, we will layer in then that strong consumer and caregiver awareness. But there is a disciplined, timed approach to it. So you will see DTC from us, not necessarily TV in year 1, but there will be a number of activities, digital, print, et cetera, that are aimed at the consumer. Daniel Barber: And Andreas, I'll take a question one part D. So in terms of the number of scripts, rather than -- so the way we look at it, there is a desire among this patient population to have multiple scripts because they want to have product put in different places, at grandma's house, in their child bag, at the nurse's office, in their bag or on the back of their phone. And so there's a reality around pricing and market access that all of us, not just Aquestive, but all of us have to work through. But our goal is to enable people to have as many scripts as possible. Operator: Our next question comes from the line of François Brisebois with LifeSci Capital. François Brisebois: So just a couple. Can you -- Sherry, you kind of talked about a more targeted approach. Can you break down a little bit more on the allergist front? And just how many are there? And are they tiered in terms of like certain allergists are definitely the ones to target at first? And then can you touch on how many reps could help you get to that point? Sherry Korczynski: Yes. It's a good question. Thanks so much for answering that. As I mentioned, the allergists are the most productive segment. They prescribe on average 200 prescriptions annually. That's a lot of prescriptions. So our reps will be focused in the allergy space to call on all of the allergists. Now obviously, within that allergist pool, there are some prescribers that are more productive than others. But overall, we know that by -- and based on my experience, as you probably know, I ran the EpiPen brand team for a number of years where we grew the market from about 1.5 million scripts to 3 million scripts. And so what we know is and what I know is that allergists space is key. When you think about the prescriber base, that prescriber base of about 5,000, we would expect to launch with the sales force, as we've said publicly before, between that 50 to 60 reps and managers. François Brisebois: Okay. Great. And then maybe, Dan, you touched on the growth of the market. I think that's coming up a lot. A lot of people are interested in whether or not this market, just you're taking share of it or you're growing the whole thing. Can you help us understand where the 9% you mentioned come from? Daniel Barber: Yes. Yes, Frank. So to give a little bit more precise when we just look at the script data that's in the systems we can access, 8.8% growth in Q3, 7.5% growth year-to-date in the space. When you break that down into where the growth is coming from, by far, the larger number of script growth is in auto-injectors. So I think what you're seeing is as awareness is pulled into the space, that just grows -- it's the rising tide raises all boats is our interpretation of what we're seeing. The second biggest category, of course, is the nasal spray scripts. So we do think that you're seeing the 2 elements play out. One is the switch over from one product to another, and two is just the expansion of the overall market. So we think that's a very healthy place to be. 95% of scripts remain auto-injectors, and that's what we'll target. Operator: Our next question will come from the line of Jason Butler with Citizens. Jason Butler: First one, when you speak to physicians, when you do your market research, aside from the advantages of the administration route and convenience of administration, what are the aspects the physicians -- product profile the physicians are really focusing on? To what extent is it PK profile versus safety tolerability versus anything else? And then just another question on your comments about the Adrenaverse platform. Does part of this effort involves applying the prodrug technology to any other molecules beyond epinephrine? Daniel Barber: Yes. Jason, so I'll give my initial thought, but I'll ask Dr. Gary Slatko, to give his view on what will be most important from physicians from an efficacy or safety profile perspective. So what I've seen is that you have a product with EpiPen that's been in the market for 45 years, right? So the HCPs want to make sure that the product we're bringing to market has the same ability to help patients that the product that's been out there for 45 years has done. And I think we have a really compelling package that does that. And I'll let Gary add his thoughts. Gary Slatko: Yes. I think many of the products in the epinephrine class are intended to stabilize the cardiovascular system in the event of anaphylaxis and reverse the mast cell degranulation that's occurring that's underlying the allergic reaction. And the characteristics we've seen in terms of blood levels and pharmacodynamic effects are very similar across the board to the comparator products. Anaphylm has a couple of interesting characteristics that might translate into clinical benefit, but would need further studies such as its speed of increase in its blood level and early time to maximum concentration and its sustained effect as well are both could bode well for having a treatment benefit in patients who need an early robust intervention. I think the other thing that -- the question that clinicians might have it has to do with can it be administered -- can it be administered and is it safe? And administration, we have a very robust human factors program, which has looked at everything which way about different conditions of administration, self-administration and the like. And all of them have shown that this product can be administered in the field by patients successfully. And the safety profile, as with all epinephrines, is consistent with what we see with all the existing product. So I think we've got a very comparable profile overall and some interesting potential advantages. Daniel Barber: Yes. And let me move on to the second question, Jason, you had, which was around Adrenaverse. So look, just prodrugs is not that unique in our space. So I don't know -- our intellectual property estate really is around epinephrine in a prodrug form because that's the white space we found and created. So I think in the near term, you'll see us focus on solely epinephrine. But with the significant resources and expertise we're bringing into our development area, we, of course, are always looking at what other technologies or expansion in technologies can we meaningfully use to bring better products to the patients. Operator: [Operator Instructions] Our next question comes from the line of Gary Nachman with Raymond James. Denis Reznik: This is Denis Reznik on for Gary Nachman. So you recently announced two new patents for Anaphylm. Can you just talk more about them and how important these two specifically are for the overall patent portfolio? And then on supply chain, assuming an on-time approval, how quickly could you get drug into channel? And then how quickly can you get the first prescription filled? And then if I could just squeeze in one more. Regarding the uncertainty at the FDA that we've been hearing about recently, can you just mention if there's been any high-level individuals that are involved in your review that have been either replaced or have moved on? Daniel Barber: Sure. Thanks, Dennis. So in terms of the patents, yes, we had two new patents issued just over a month ago. And both of those patents are focused on the ability to gain absorption and then rapid release of epinephrine cleavage of -- enzymatic cleavage of epinephrine back into its native form. So we believe those are significant Orange Book listable patents. When we're approved, that will be very expansive and blocking for the product. So definitely fundamental to our position. From a supply chain perspective, look, there's a little bit of work that has to happen, right, when you get approval. So you have to work on the final label, get all the pieces and parts together. We have a great supply chain component of our business. It does go to the core of where we've come from as an organization. I think you know we manufacture in-house. So that will be something we're very ready for and will allow us to have supply in the channel in Q1. And then the third question, the uncertainty at the FDA, I'm actually -- thank you, Dennis, for bringing it up. I'm actually, I guess, pleasantly surprised that we got this far into the Q&A before that question came up. Clearly, the FDA is going through some pains. From our perspective, our review group has remained the same. We did -- as you heard in my prepared comments at the beginning, we've heard from our project manager that our application is not affected. Obviously, we saw the Head of CDER left over the weekend. But from our perspective, the leadership at CDER is more of just a sign-off on our application than an active reviewer. So we continue to believe we're in good shape on that front. Operator: [Operator Instructions] Our next question comes from the line of James Molloy with Alliance Global Partners. James Molloy: Let me follow up a little more on the manufacturing capacity. What do you guys -- at the capacity on approval, can you guys supply the whole market on approval? And where do you guys -- where is Anaphylm manufactured? And then I don't know if you guys have given any -- on the Anaphylm, what's the pushback that you've gotten from docs on Anaphylm? Because seems like the feedback is very positive to date. Daniel Barber: Sure. So I think I heard your first question, right, Jim. Good to hear you voice. Manufactured capacity and where is it manufactured? Capacity-wise, so we, this year, will make 150 million doses of film for all of our other partnerships and arrangements. So when you look at the entire epinephrine market being less than 10 million doses, that means we have plenty of space to make this product. In terms of where it's manufactured, our manufacturing is in Indiana. We do have some component manufacturers that go into our products that are all U.S.-based. So we are a completely U.S.-based manufacturer. And from Anaphylm, I think your question was what are we hearing from physicians that may be a little bit of pushback or need to be convinced. And I would go back to what Gary said before. With any new product, the first thing you need physicians to feel comfortable with is the safety and efficacy of the product. So that's foundational. We understand that. You heard the depth that Gary brought to how he thinks about it. That's what our medical affairs team is doing every day. And we're prepared to make sure we do a really good job with that piece. James Molloy: Great. And then maybe just a quick follow-up on 108. Can you talk a little bit on Phase II time you said first half '26 and then sort of the size and the duration of that trial should it get started? Daniel Barber: Yes, yes. And thank you. I love when I get questions on AQST-108, which is our alopecia areata program. And I look forward in future calls having Matthew Davis here to talk in depth about it. But I felt on day 4, it was probably unfair for me to have him here. So we -- the first study we'll do is a small safety study, which is in just a handful of men who are bald just to make sure we have the safety data we need to fulfill the FDA's requirements. We will then quickly go into our Phase IIa. Right now, our design is to have it be a 24-week study. We will have data along the way. And that study will look at hair follicle growth over different periods of time. In terms of the size, we're still scoping that out. But I would think of it as somewhere between 40 and 60 individuals. Operator: Thank you. And I would now like to hand the conference back over to Dan Barber for closing remarks. Daniel Barber: Thanks, Michelle. And thank you again to everyone for joining us this morning. We really enjoyed the robust interaction from all the Q&A. And as I said earlier in the call, this is a really exciting time where we really feel everything coming together for the company. We have the right financing, the right people and the positive FDA interactions as of today to remain excited about not just our near-term prospects but our long-term prospects. We look forward to interacting with you again in the near future. And with that, we hope you have a wonderful day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell's Third Quarter 202 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed. Ozlem Yardim: Thank you, Constantino. Hello, everyone, and welcome to Turkcell's 2025 Third Quarter Earnings Call. On the call today, we have our CEO, Ali Taha Koc; and CFO, Kamil Kalyon. They will provide an overview of our financial and operational results for the quarter, followed by a Q&A session. Before we begin, I would like to kindly remind you to review our safe harbor statement, which is available at the end of our presentation. With that, I will now turn the call over to Mr. Ali Taha. Ali Koç: Thank you, Ozlem. Good afternoon, everyone, and thank you all for joining us today. This quarter once again demonstrated Turkcell's strong momentum powered by disciplined operations, sharp execution and the strength of our growth engines. We delivered 11% revenue growth, reaching TRY 60 billion, driven primarily by our core telecommunication business. Strong ARPU performance, a growing subscriber base and rising data center revenues all contributed to this outstanding performance. Group EBITDA increased 11% to TRY 26 billion, achieving a solid 43.9% margin, a clear reflection of our continued cost discipline. In addition to our operational success, prudent financial management strengthened our bottom line. Lifting net income from continuing operations up by 31.8% to TRY 5.4 billion. Competition remained intense this quarter. Even so, we added 569,000 net postpaid subscribers. Through targeted pricing and upselling, mobile ARPU rose 12%, once again proving our ability to deliver double-digit growth in a highly competitive environment. Residential fiber ARPU also grew by 17.3% year-on-year in the third quarter. Our strategic growth areas also continued to perform strongly. Data center and cloud revenues grew 51%, and our renewable energy capacity from solar fields across 4 cities in Turkiye has reached 37.5 megawatt. Next page, please. We are proud to reinforce our leadership with the successful outcome of the 5G spectrum tender, a defining milestone for Turkiye's digital future. The results were exactly in line with our expectations and reaffirm our leadership position. We secured 160 megahertz of spectrum, the maximum capacity available to a single operator in this tender. This allocation enabled us to deliver speeds exceeding 1,000 megabit per second while paving the lowest cost per megahertz per subscriber among all operators. 5G will be commercially launched in April 2026, marking the beginning of a new chapter in Turkiye's digital transformation. It will empower industries such as manufacturing, transport, health care and education with high-speed connectivity to regions that currently lack fiber access. Once 5G officially launches, these customers will be among the first to experience 5G speeds. And just as we have done over the past 30 years, we will continue to lead in this new era of connectivity. We are fully ready to shape Turkiye's 5G future and drive the next wave of digital transformation. Next page, please. Let's take a closer look at the key operational highlights from the third quarter. Competition in the mobile market was strong as we expected, maintaining our dynamic and customer-centric approach, we continue to expand our customer base. We recorded 569,000 net postpaid additions, bringing our total net gains to 2 million over the past 12 months. As a result, our mobile subscriber base exceeded 39 million. Leveraging our AI-driven dynamic micro segmentation approach, we executed our upsell strategies with precision. We offered customers precisely targeted offers, moving the vast majority of our base to higher tier plan. In addition, the share of postpaid subscribers, a key driver of revenue growth, rose by 4.6 percentage points year-on-year to 79%. These efforts, together with higher seasonality, delivered double-digit mobile ARPU growth of 12%, reflecting our continued focus on value-driven growth. Our mobile churn rate was 2.6%, primarily reflecting the ongoing competition and high activity in the number portability market. Next page, please. Now let's move on to our fixed broadband operations. With a focus on fiber customers, we had a net add of 33,000 this quarter, bringing our Turkcell fiber base to over 2.5 million. Including sales over other operators' infrastructure, we introduced 55,000 new customers to high-quality fiber services. Our fiber strategy is best described by a simple principle, high quality and high speed. With this approach, since last year, we remain committed to offering 1,000 megabit per second speeds and delivering greater value to our customers. Year-on-year, the number of subscribers on these plans more than tripled. With effective pricing adjustments, a higher proportion of customers on 100 megabit per second plus plans and 88% commitment rate to 12-month contracts, our residential fiber ARPU grew 17.3% year-on-year in the third quarter. As we continue to strengthen our fiber network, we expanded our footprint with 107,000 new home passes, reaching 6.2 million households. Our 42.6% take-up rate is a clear indication that our fiber investments are effectively planned. Next page, please. Let me now turn on to our strategic areas, beginning with Digital Business Services. Digital Business Services delivered robust 97% revenue growth, reaching TRY 4.9 billion, supported by recurring service income and stronger hardware sales. The backlog from system integration projects reached a remarkable TRY 5 billion. Data center and cloud revenues continued their strong momentum, increasing 51% year-on-year in real terms. We had targeted an 8.4 megawatt capacity expansion at the beginning of 2025, guided by our vision of keeping Turkiye's data within Turkiye, and we successfully activated that capacity in this quarter. Thanks to our early-stage investment, we have established a strong market position, becoming the leading player in the enterprise colocation market. We are preparing for our next strategic move in data centers and cloud businesses, which will further strengthen our leadership. Next page, please. Now moving on to another of our strategic pillars, techfin. Our techfin ecosystem, representing 6% of consolidated revenues achieved 20% year-on-year growth in the third quarter, outpacing the group's overall performance. This growth was mainly driven by our digital payment company, Paycell, which achieved a 42% increase in revenues. Within Paycell, POS and Pay Later services were the key contributors supported by favorable regulatory revisions in mobile payment limits and broader adoption of POS solutions. Our Financell brand, providing customers with fast and flexible financing solutions continued to expand its loan portfolio, reaching TRY 7.5 billion despite the high interest rate environment. The net interest margin improved to 5%, driven by more favorable funding costs. Financell continued to support the sales of Samsung A26, locally manufactured 5G smartphone exclusive for Turkcell with a total of 54,000 contracted sales since its launch in April. Next page, please. Despite global geopolitical and macroeconomic headwinds, we delivered performance that exceed our expectations over the first 9 months of the year. In line with these strong results and the revised CPI outlook, we are upgrading our 2025 guidance. Reflecting our solid momentum and confidence in the sustainability of our results, we are revising our revenue growth expectations upwards to around 10% and raising our EBITDA margin target to 42% to 43% range. Even as we continue our intensive investment cycle, we are revising our operational CapEx to sales target to around 23%, mainly driven by the acceleration in revenue recognition. As for our data center and cloud revenues, we are also revising our growth guidance upwards to around 43%. With that, I will now hand over to our CFO, Mr. Kamil Kalyon, to walk us through the financial highlights. Kamil Kalyon: Thank you very much, Ali Taha. We had a solid quarter driven by continued momentum in our core business and techfin expansion. We achieved 11.2% year-on-year revenue growth, fueled by strong execution across our key business lines. Turkcell Turkiye remained the main top line driver, contributing TRY 5.5 billion of additional revenue. This was supported by double-digit real ARPU growth, a larger postpaid base and solid performance from digital business services. Techfin added TRY 569 million in revenue, driven by solid growth at Paycell, particularly across POS and mobile payment verticals. On profitability, margins reflected our ongoing investments to enable 5G rollout and to capture the strong growth momentum in Paycell transaction volumes. At the same time, personnel and energy costs contributed positively to our overall performance. Overall, we maintained a solid profitability level, demonstrating the strength of our operating leverage and disciplined cost management. Next slide, please. Profit from continuing operations increased 31.8% year-on-year to TRY 5.4 billion, reflecting focused execution and effective cash management. EBITDA contribution totaled TRY 2.5 billion for the quarter, remaining the key driver of profit growth. Despite persistent competition, Turkcell sustained its leadership through a clear strategic focus and efficient execution. We prudently managed our net finance income and expenses this quarter, resulting in a year-on-year contribution of TRY 1.5 billion. With FX depreciation decreased to nearly half of last year's level, we recorded a positive FX impact of TRY 912 million. Despite a higher nominal debt level versus Q3 2024, our strong financial discipline and proactive funding strategy led to a decline in interest expenses to TRY 677 million. Meanwhile, although interest income remained limited, returns were supported by a well-diversified and efficiently managed investment portfolio. Our strong cash position, together with the slower inflation growth year-on-year resulted in a monetary loss this quarter. Next slide, please. Turning to our investment strategy with a clear focus on 5G readiness. CapEx intensity was 17.4% this quarter, reflecting our continued commitment to strengthening network infrastructure and preparing for next-generation technologies. With the largest spectrum allocation secured from the 5G tender, we are maintaining our investment momentum at full speed. This quarter, approximately 80% of CapEx was directed towards our core businesses, mobile and fixed broadband. Our base station fiberization rate surpassed 45% this quarter, laying the groundwork for a seamless and efficient 5G transition. In our data centers, we activated an additional 8.4 megawatts of IT capacity, bringing the total to 50 megawatts. On the renewables side, solar capacity reached 37.5 megawatts with further expansion expected in Q4. We have started to see savings from renewable energy investments this year with a more visible impact expected in 2026. Given the expected ramp-up in 5G investments and seasonal factors in Q4, we continue to manage our CapEx with a disciplined and value-focused approach. Our revised guidance reflects both the progress of our investment programs and our commitment to efficient capital allocation. Next slide, please. Moving now to our balance sheet. Our cash position reached TRY 122 billion in Q3. The second dividend installment will be paid in Q4, while under the 5G tender, the first 2 installments are scheduled for 2026. We consider our current liquidity as strong, sufficient to cover upcoming 5G payments and debt service over the next 2.5 years. We are well prepared, having issued a Eurobond earlier this year and secured Murabaha fundings on favorable terms in the first half. Our net leverage ratio increased slightly to 0.2x, but remains comfortably within healthy levels, reflecting our continued financial discipline. Given the 5G payment schedule, we expect leverage to remain below 1x in the upcoming periods. Debt repayments of around USD 1 billion are expected to be completed by year-end, of which USD 800 million is denominated in foreign currency. Next slide, please. Finally, a brief update on our FX risk management, 81%. As of Q3, we held USD 3.9 billion FX debt and USD 3 billion FX-denominated financial assets and USD 800 million derivatives portfolio. We maintain a dynamic FX risk management strategy. We actively manage a short-term derivatives portfolio to mitigate potential FX volatility while accounting for higher hedging costs. We closed the quarter in a neutral FX position. Following the acquisition of the 5G license, our net foreign exchange position is expected to increase. We will closely monitor market conditions and proactively manage this position over the next 1.5 years until the full 5G license payments are completed. Therefore, during this period, we will not apply our neutral position definition. That concludes our presentation. We look forward to addressing your questions. Thank you very much. Operator: [Operator Instructions] The first question comes from the line of Singh Maddy with HSBC. Madhvendra Singh: My first question is on your CapEx and dividend outlook, especially given the recent 5G auction win. I wonder -- for this year, you have given the guidance for CapEx, so that's fine. But I was wondering whether next year, we should expect a significant jump in the CapEx to sales intensity and whether this spectrum payment is going to affect the dividend payments at all? So that's the first question. And then the second question is on your pricing action during the quarter? Did you increase any prices? And how was the competitive response to that? Are you comfortable around the pricing environment? So that's the second one. And then the final one, actually on your final comment about the net short FX position, you said the definition will not be applicable going forward. So can you please explain what do you mean by that? And how should we think about the FX losses going forward, yes? Kamil Kalyon: Thank you very much, Maddy, for the questions. First question and third question will be responded by me. First of all, -- for the next year, CapEx intensity, we are not expecting higher jumps. As you know, starting of this year, we declared 24% CapEx sales ratio for this year. Now we revised it to 23%. For the next year period, we do not -- we will not be in a position exceeding the 24% around the CapEx intensity levels will be around this 24%. We will see the budget figures that will come from the business lines. The other one, as you know, our dividend policy is distributing our 50% net income of the year. We are proposing to the general assembly and general assembly decided. As you know, we have -- as [indiscernible] said, we are a very dividend-friendly company. And if you chase our company, we will be -- we have been distributing dividends for many years period. Therefore, for the 2026, our AGM has not been decided about this issue, but our dividend policy is still distributing the 50% of the net income. For the third question, as you know, we are declaring our FX position as minus -- plus USD 200 million. And when we look at the 5G tender, the results and officially, the tender results will be ratified by the governmental bodies approximately in January 2026. Therefore, the FX position -- net FX position or this liability will be in our balance sheet starting from 2026. Therefore, we will look at the position at that time. But as Ali mentioned, the 5G tender price will be paid within 3 installments. In the first installment will be in January 2026. Therefore, it means that 1/3 of the tender price plus 20% VAT amount, which corresponds 44% or 45% of the total amount will be paid in January 2026. Therefore, we will look at the -- our FX position in January 2026, and we will decide how we will manage this FX position starting from 2026. As you know, the decision will be taken under the scope of the macroeconomical conditions, hedging costs and Turkish internal macroeconomic conditions. Therefore, we will see it in January 2026. I will hand over the mic for the second question to Mr. Ali. Ali Koç: Regarding the price adjust, I will divide this question into two different parts, mobile side and the fixed side. For the -- as the leading mobile operator and the leader and the biggest operator, mobile operator in Turkiye, we have adjusted our prices in almost every quarter between 2021 and 2024 to reflect the inflationary environment. Considering the slowing pace of inflation and competition conditions in the market, we updated our prices in January and July into 2024. Following 14% price increases implemented in January 2025, we carried out further price adjustments on our micro segmented packages such as youth and regional offers in June and August. On top of price adjustments, thanks to our successful upsell performance, we registered above inflation mobile ARPU growth of 12%. With respect to fixed broadband market, following the competition, we increased prices in December 2023, August 2024, March and October 2025. We are driving ARPU growth by increasing the share of customers within a 12-month commitment, boosting transition to high-speed packages and also widening the price gap between our TV+ bundled offers and data-only packages. This successful efforts and initiatives enables us to outperform inflation and achieve at the fixed market -- fixed broadband market, 17% real growth performance in our residential fiber ARPU. As Turkcell, we continue to focus on value as the main differentiation point from the competition. Hence, rather than competing on price, we focus on creating additional value for our customers. And we will continue to closely monitor market conditions and the competition in the upcoming quarters as well. Madhvendra Singh: If I may ask a follow-up on the spectrum part. So the payment is in hard currency. I was wondering whether the asset itself will be recognized in hard currency as well. Kamil Kalyon: Normally, as you mentioned, the payments will be done in U.S. dollar terms. Therefore, we will -- our liquidity position is fair enough to make all the payments in both in TL side and the U.S. dollar side. Therefore, starting from the January 2026, we will look at the macroeconomical conditions, FX rates, TL rates and the most important one, the hedging rates, for example, hedging costs are very important in order to decide. But as I said, we have enough TL and the U.S. dollar money in our hands. Therefore, we will decide it in January 2026 by taking into consideration the macroeconomical conditions on that date. It's a little bit early to give a guarantee or to give a color how we will make the payments. We can prefer to make dollar payments or maybe we can prefer to make TL payments. But at TL, we will be keeping our U.S. dollar money in our hands, and it will not create additional problem from our perspective. Madhvendra Singh: My question was more on the balance sheet entry on the asset side. So you will recognize the spectrum as an asset, right? But the value, I'm not sure whether that will be put in a lira number or a dollar number. Kamil Kalyon: Normally, it will be included into our balance sheet in 2026, and we will make this capitalization in the TL terms. And as you mentioned -- as you imagine, that starting from 2026, this asset will generate an inflation profit starting from the depreciation in the income side starting from 2026. Operator: The next question comes from the line of [indiscernible] with Barclays. Unknown Analyst: Congrats on the results. I have just a couple of questions. So my first one is on your 2026 outlook. Do you think that the revenue growth that you've delivered in 2025 or planning to deliver is sustainable going forward given the 5G regime coming? And also -- and also on your profitability, do you think like current margin -- EBITDA margin levels are sustainable for next years? And second question is also on your -- do you have any long-term target for your net leverage? Or maybe where do you see the net leverage ratio next year and going forward after the 5G payments are done? Ali Koç: I can start with the first one. Let me talk a little bit about the current year, the great year and a great quarter. So we had another solid operational and financial results this quarter and which was actually beyond our initial plans. We continue to expand our subscriber base in both mobile and fixed segments, while delivering a real ARPU growth in each quarter of 2025 through our dynamic tariff and pricing management, higher postpaid share, also successful upselling actions and rising demand for high-speed connection also supported our ARPU performance. So consequently, in the first 9 months, our consolidated revenue grew by 12% year-over-year. And also techfin, if you talk about the techfin in the first 9 months, delivered a 25% year-over-year growth, making a very meaningful contribution to our top line. Also, our strategic investments, data center and cloud services also achieved robust revenue growth of 51% compared to the same period last year and significantly exceeding our previous full year 2025 guidance. EBITDA grew by 15%, leading to a 43.7% EBITDA margins. Building on our strong 9-month performance, we have revised our full year both revenue growth and as well as the EBITDA margin expectation and guidance. So to remain prudent while revising our guidance, we also considered the reduced magnitude of price adjustments compared to last year. And we are expecting a very competitive environment in the following years on 2026 expectation as we are in the planning process. It is too early to comment. However, our goal is to maintain our micro segment management strategy, along with our AI-driven technologies, along with our revenue growth initiatives and continue growing above the inflation rate. Kamil Kalyon: For the second question, as I mentioned in my presentation, at the end of this year, we will be paying the second installment of our dividend payment, and we have some additional repayment of debt for 2025. And in January, as I mentioned, we will be paying the 44% of the total tender price for the 5G side. Therefore, our expectation is this leverage ratio would be around 0.7 or 8x. And as I mentioned in my presentation, again, our aim is to keep this level lower than the 1x. Operator: [Operator Instructions] The next question comes from the line of [indiscernible] with [indiscernible]. Unknown Analyst: Good results. Actually, all of my questions have been answered. Operator: The next question comes from the line of Demirtas Cemal with Ata Invest. Cemal Demirtas: Congratulations for the good results. My question is rather some technical issues in the income statement. We see monetary loss in third quarter versus like the monetary gain in the previous quarters. Could you just tell us more about the changes that lead to monetary losses in this quarter because it offsets a portion of the higher-than-expected operating profit when we go to the bottom line? And the other question is again about the TOGG participation side, we see lower losses unlike the previous 2 quarters. Do you think it's going to be the permanent? Should we expect lower the losses contribution from the TOGG, your subsidiary side? That's my second question. And again, could you just give any direction about 2026 from your side? And again, I would like to ask what kind of value-added -- the things that could come into surface in 2026 as now the 5G is done, please, in terms of licensing. What are the opportunities rather than the organic growth of the company? What could be changing in 2026 from your perspective? Kamil Kalyon: Cemal, thank you very much for your technical questions. First question regarding the first question, yes, you're right. Our monetary gain declined by TRY 2.4 billion compared to Q3 of 2024. There are certain reasons. One of them is the slowdown in inflation rates. As you know, last year, inflation was in the same period around 8.9%. Now currently, it's declined to 7.5%. Therefore, this is the first reason for the lower monetary gain. The second one and the most important one, as you know, we sold our Ukraine business in 2024. It means that you are taking a significant portion from your balance sheet, especially generating inflationary income in your balance sheet. Therefore, due to this effect, Ukraine subsidiary sale led to a negative composition against nonmonetary assets. And furthermore, the capital reduction executed in our Netherlands company subsidiary in Q4 in 2024 indirectly led to a monetary loss due to indexation in Q3 2025. Therefore, this is the reasons of this one starting... Cemal Demirtas: Sorry for interrupting, but before passing to the next question, when I look at the -- my question is rather compared to second quarter, what -- I know that there might be changes from quarter-to-quarter, but even what changed from second quarter to third quarter? The inflation is higher, the quarter-over-quarter change. I don't know if you have any justification for the Q-over-Q comparison, the year-over comparison fair. Just if you have any comments before answering the next question. Kamil Kalyon: Normally, from Q3 -- Q2 to Q3, you're asking in 2025. Am I right? Cemal Demirtas: Yes, yes, yes. Kamil Kalyon: As far as I remember, we do not have a significant change regarding the year-over-year side. Yes, the Ukraine business is very important for this one. But Q2, Q3, we do not have a significant change in the inflationary side. But as you know, this -- some of the -- how can I say, in the CapEx side, there are some CapEx amounts are eliminated, as you know, for the 5G side and the 4G side. Therefore, this might affect the inflationary accounting side. But in Q2 and Q3, I do not remember the significant result. But starting from Q2 or Q3, we have started to generate inflationary loss for this year. But for -- starting from 2026, our 5G license amounts and the additional CapEx amounts will be included in our balance sheet, and we will be starting to see significant amount of monetary gain in our balance sheet starting from 2026. But for this year, as I mentioned, the main loss item is coming from the Ukraine sale asset and the inflation rates. The second question is regarding the TOGG. As we mentioned in our previous calls, there are some problems, especially in the market -- electric vehicle market in 2025. And starting from the Q2, TOGG started to take the necessary actions for the cost optimization. And as you might remember, there are certain changes in the special consumption tax base in third quarter. And this change led to an increase in vehicle prices, which was also supported by the launch of the new model. Therefore, TOGG recorded a moderate improvement in its performance during this quarter. Most probably this improvement will continue in Q4. Therefore, starting from -- we hope that Q3 2025 would be a significant milestone for the TOGG side. In the coming periods, we are expecting more performance from the TOGG side. But as you know, this is a production investment and there are heavy EBITDA -- amortization expenses of the company. But we are -- we can observe the positive impacts of the precautions that are taken by the TOGG company for this quarter. We hope that this performance will continue in Q4 because you know the new model is also in the markets right now. And there are some extra models are presented to the market, especially 4x for electric vehicles. There are important demand for these cars. Therefore, we will see the positive impact of these actions in the Q4 also. Ali Koç: Regarding the 5G, Cemal, thank you very much for the great question. Yes, 5G era is starting. So starting from April 1, 2026, we are going to launch 5G all over the Turkiye, and it's going to create new value-added services and opportunities. Especially with 5G, a new era of flexible and personalized tariff is the beginning. The age of one-size-fits-all plans is coming to an end. And today, for example, Turkcell serves more than 39 million mobile subscribers, which means 39 million unique tariff possibilities. In this environment, our goal is to maintain the highest level of customer satisfaction by offering plans tailored to each individual's need. We also aim to accelerate 5G adoption because 5G is going to bring high speeds, lower latency, but we need to -- our customers to have 5G phones. So we also aim to accelerate 5G adoption by supporting device financing and establishing new partnerships with smartphone manufacturers. Following our recent collaboration with Samsung, for example, we have already bought 100,000 5G-enabled devices. We plan to -- which are built in Turkiye, domestically produced A26 phones, Samsung phones. We plan to form similar partnership to further increase the number of 5G-ready phones in the market. Through these initiatives, we will make the next-generation devices more accessible as well as drive broader 5G usage across our customer base. So in order to give you a brief information about what is the difference between 4G and 5G, 4G technology was designed primarily for people, but 5G opens the door to a world where machines communicate with each other, enabling smart cities, connected factories, smart factories, industrial automation. And as a new value-added services over the next 5 years, we anticipated that the autonomous driving and connected car sectors will gain momentum in Turkiye. During this period, data consumptions and speed requirements are expected to rise significantly. And additionally, similar increases in data demand, speed requirements will emerge across government services as well as logistics, supply chain, smart manufacturing, the energy sector and smart city ecosystem, driven by the adoption of hybrid and private 5G networks. So stay true that 5G will unlock new revenue opportunities across not only the automotive industry, but also the government services and logistics and energy and smart cities. So as new technologies mature, Turkcell is positioned to be a leading operator, enabling Turkiye digital transformation through 5G and delivering the best and the greatest 5G technology to our customers. So how we are going to do it is the tender is a solid proof for it. So by securing large-scale 5G frequency resources, we gain a significant competitive advantage in both capacity and the quality because we got the highest frequency spectrum. The wider the spectrum will allow us to deliver superior customer experience in densely populated areas, ensuring high speed, low latency connectivity even under heavy network loads. It also enables us to serve a much larger number of people. So we are going to bring this fixed wireless access customers. We call it Superbox 5G, fiber-like performance. Even if you don't have a fiber, we are going to provide you 1,000 megabit per second speeds with our Superbox 5G-enabled boxes. So even if you don't have your fiber in your house in anywhere you go, we are going to provide the best speeds within a wireless domain, and it's going to give you a huge flexibility and then it's going to come up with a huge efficiency. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you. Ali Koç: Thank you very much for joining us, and I hope to see you in the next quarterly meetings. Thank you very much for attending. Ozlem Yardim: Thank you for joining us. Hope to see you for the year-end results. Thank you. Kamil Kalyon: Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.